Managing Redundancy and Employee Separation

Integrity, Reliance & Relationship
Rajeswari Karupiah & Co.
Termination Due To
Redundancy

RETRENCHMENT v OTHER TYPES OF
TERMINATION
In Malaysian Industrial Relations Laws discharge of
employees on the grounds of redundancy is distinguished
from the other forms of termination of employment.
Whereby the employer does not rely on the ground of fault
(as in misconduct) or deficiency (as in poor performance)
of the employee BUT relies on the fact that he no longer
needs the services of the employee.
The situation of surplus of labour (or REDUNDANCY)
results in RETRENCHMENT.

RETRENCHMENT v OTHER TYPES OF
TERMINATION
• Retrenchment legally defined by Court of Appeal
in William Jacks & Co (M) Bhd v S Balasingam
[1997] 3 CLJ 235);
“Retrenchment means the discharge of surplus
labour or staff by an employer for any reason
whatsoever otherwise than as a punishment inflicted
by way of disciplinary action.”

MANAGEMENT PREROGATIVES AND
SECURITY OF TENURE
• Employer has the prerogative to organize and to
reorganize his business to optimize his factors of
production in the interests of profitability of his
business.
• Industrial Court will be slow to interfere in the
Employer’s prerogative;

NATURE AND LIMITS OF THE MANAGEMENT
PREROGATIVE TO REORGANIZE
This right of the employer to reorganize his business is
limited by the rule that he must act bona fide and not
capriciously or with motives of victimization or unfair
labour practice.
This right does not entitle an employer under the cover of
reorganization, to rid himself of employees who have
offended him in some way or to promote the interests of
some favoured employees to the detriment of others.

RETRENCHMENT DECISIONS:
REVIEWABILITY AND JUSTICIABILITY
 Two fundamental questions arise for consideration in
retrenchments consequential to reorganization decisions
 Firstly, whether there is a genuine redundancy situation?
 Secondly, whether the employer has conformed with
accepted standards of good industrial relations practice
 The Burden to Prove the above rests on the Employer

What is Redundancy?
the kind of work performed by the employee
must have ceased or diminished due to:-
Closure of business/division/branch
Restructuring exercise
Reduction in requirement of employee (fewer employees required)
Scaling down
Reorganization

What are the Standards of Good
Practice in Redundancy?

COMPLIANCE TO CODE OF CONDUCT
FOR INDUSTRIAL HARMONY
1975 Code of Conduct for Industrial Harmony
signed between the Government, Malayan
Council for Employers Federation and the
Malayan Trade Union Congress.
The substantive areas of agreement are in
Agreed Practices.

CONSULTATION FOR AVERTING/MINIMISE
REDUCTION OF WORKFORCE
The Agreed Practices stipulates that employers should consult
with their workmen or their trade unions and take positive steps
to avert or minimise reductions of workforce by the adoption of
appropriate measures such as:
Positive steps to avert or minimize reductions
(a) limitation on recruitment;
(b) restriction of overtime work;
(c) restriction of work on weekly day of rest;
(d) reduction in number of shifts or days worked
(e) reduction in the number of hours of work;
(f) re-training and/or transfer

STEPS & MEASURES WHERE RETRENCHMENT IS
NECESSARY UNDER THE 1975 CODE
Employer to take the following measures:
1. giving as early a warning, as practicable, to the workers
concerned;
2. Introducing schemes for voluntary retrenchment and
retirement and for payment of redundancy and retirement
benefits;
3. retiring workers who are beyond their normal retiring age;
4. assisting in co-operating with the Ministry of Labour and
Manpower, the workers to find work outside the
undertaking;
5. spreading termination of employment over a longer period;
6. ensuring that no such announcement is made before the
workers and their representatives or trade union have been
informed.

THE AGREED PRACTICES IN SUMMARY
The LIFO (and FWFO) rule, has subject to limited
exceptions, become a virtual rule of industrial
jurisprudence.
Consultation with employees or their union.
Warning employees.
Employer to take reasonable steps to find alternative
employment.
Legitimate expectations of retrenched workers to
retrenchment benefits.

Selection for Retrenchment: The Foreign
Worker First Out (FWFO) Rule
• Employer shall not terminate the services of a local
employee unless services of all foreign employees
employed by him in a capacity similar first
terminated (Section 60N of the Employment Act).
• Article 22 (b) of the Agreed Practices where an
employer is to give due consideration for the status
of an employee i.e., non-citizens, casual, temporary,
permanent.

Selection for Retrenchment: The LIFO Rule
• Principle 1 → The most junior
employee in the category to be
retrenched first
• Principle 2 → In a Group of
Companies with common
management, LIFO is to be applied
across the board

Selection for Retrenchment: The LIFO Rule
Grounds for departure from LIFO
- When there is only one employee in the category (or
whose job has ceased to exist)
- Selection is based on set of objective criteria e.g. past
performance, efficiency, regularity in attendance,
medical condition, disciplinary records
- Junior employee possesses a special skill that is
required

MEASURES BEFORE RETRENCHMENT
EXERCISE
I. Ceasing recruitment
II. Restricting Overtime
III. Reduction of allowances/expenses (Cost Cutting)
IV. Identification of alternative work
V. Transfer of employees
VI. Termination of casual and foreign employees
VII. Introducing VSS

BURDEN OF EMPLOYER
To establish that the grounds raised for the retrenchment –
i.e. redundancy did exist.
Provide cogent proof that the retrenchment was made
pursuant to a genuine business decision to reorganize.
That the Standards of Good Practice were adhered.

UPHELD
 Cut-back in production;
 Reduced turnover;
 Aborted projects/joint-
ventures;
 Reorganisation for reasons of
efficiency and costs reduction;
 Contracting out (out-source)
for business efficacy;
 Adverse business conditions
and decline in profitability.
NOT UPHELD
• Absence of a genuine basis for the
reasons relied upon by the
Company;
• Management decision was without
reason but rather was arbitrary or
was capricious;
• Ground of redundancy advanced is
but a sham excuse and therefore not
a genuine ground for retrenchment;
• No real closure but a mere pretence
of a closure (continued existence of
post said to be redundant);
• Purported reorganization was a
sham.

RETRENCHMENT BENEFITS
• Statutory pay out (per year of service) imposed by the
Employment Act (Regulation 6) of Employment
Termination & Lay-Off Benefits Regulations 1980
20 days for more than 5 years of service
15 days for each years of service 2 – 5 years
of service
10 days less than 2 years of service
• Terms of employment contract.
• Terms of Collective Agreement.
• Industrial Court jurisprudence derived from Code of
Conduct.

NOTICE / INDEMNITY IN LIEU
Employer has the obligation to give termination notice
OR make payment in lieu according to one of the
following:-
• Provisions of the Employment Act 1955; or
• Terms of the contract of employment; or
• Collective Agreement.

STATUTORY OBLIGATION
Employer has the obligation to inform the Jabatan Tenaga
Kerja in the prescribed Form at least One Month before
effective date:
• Retrenchment Exercise – Borang PK 1/98
• Lay-Off - Borang PK 3/98
• Salary Reduction - Borang PK 4/98

Voluntary Separation Scheme
Preferred Method – Why?
• It is the employee that makes the application to leave
the services of the employer upon payment of an
agreed sum of money
• The exercise is a voluntary one and the onerous rules
of retrenchment including the 1975 Code do not apply
to VSS.
• Only statutory obligation is to inform the nearest JTK
in Borang PK2/98 at least 1 month before the effective
date of the VSS.

Voluntary Separation Scheme
The downside;
The VSS benefits is usually higher than the
minimum benefits provided in -
the Employment Act 1955 (Notice Pay); and
the Employment (Termination and Lay-Off
Benefits) Regulations, 1980

CASE AUTHORITIES
MAMUT COPPER MINING SDN BHD V CHAU
FOOK KONG [1997] 2 ILR 625
Facts: 18 office staff of the Company were given identical
retrenchment letters on 27 June 1994 that their services
will not be needed from 1 July 1994. The letter stated :
“ in its continuing efforts to trim operational costs, the
company has considered it necessary to reorganize its
operations. Consequently, your position has been
found surplus to our requirement”

CASE AUTHORITIES
Reason advanced: Company’s main business is mining and
production of copper concentrates in Ranau, Sabah.
• Company started cost cutting measures from 1992
as it anticipated closure of the mine in 1997;
• there was a decline in global copper price;
• Co. had scaled down operational activities
including terminating its mine workers;
• insufficient or lack of work for everyone and low
morale

CASE AUTHORITIES
Employees case:
The Company had applied to extend the mine’s life span
(which was successful subsequently)
The Company had shown profits for FY 1994
Company was cash rich

CASE AUTHORITIES
MAMUT COPPER MINING…cont.
Q: Must the Company record loss in profit in order to
retrench staff?
A: There is no pre-condition that staff re-organization
must be preceded by financial losses
“Indeed a careful employer would be wise to act before
falling profits manifests itself in the profit and loss
accounts”

CASE AUTHORITIES
Industrial Court Held:
1. The Company has proven on a balance of probabilities
that it had made a reasonable and proper decision
concerning the existence of redundancy situation and
the need to retrench its surplus staff in the course of
its reorganization and cost-cutting measures.
2. Thus the second question is if the retrenchment
exercise was in compliance with the accepted Norms
and Practices?

CASE AUTHORITIES
Was the retrenchment in compliance with the
accepted Norms and Practices?
Findings:-
No prior consultation or early warning
3 Days notice of retrenchment given to the employees
LIFO principle was not applied (and no cogent evidence
why it was departed from)
Redundancy benefits 0.4 x years of service -up to 10
years despite Company’s sound financials was
inadequate

CASE AUTHORITIES
Court Held:-
The conditions under which the
Claimants’ retrenchment were carried
out are contrary to fair labour practice
and their dismissals are accordingly
unjust.

CASE AUTHORITIES
MOHANJIT LUBANA V GENERAL ELECTRIC
INTERNATIONAL INC [AWARD 517 OF 2016]
Facts: The claimant had been employed by the company as its
ASEAN Regional Industrial Leader with GE Industrial
Solutions in Malaysia. Approximately two years and eight
months into his employment with the respondent company,
he was issued a Notice of Redundancy and paid a severance
package. The claimant claimed that the
purported redundancy had been a mere ploy by the
company to force him out

CASE AUTHORITIES
MOHANJIT LUBANA V GENERAL ELECTRIC .
Facts: The Co. issued a "Notice of Redundancy" dated 21 February
2013 whereby the claimant's employment contract was terminated
with effect from 20 March 2013 as follows:
“Due to recent global simplification effort, we decided to combine
Australia and South East Asia business to form ROA (Rest of Asia)
business unit organisation. This change will have an impact on our
South East Asia organisation.
In view of the above, it is with regret that we now give you notice with
effect from 21 February 2013 as the role of South East Asia Regional
Manager which you currently hold will be redundant. Accordingly,
your employment contract will terminate with effect from 20 March
2013.”

CASE AUTHORITIES
Held: The company had failed to prove actual redundancy in
this case. As such, the claimant's dismissal had not been
justified.
 The evidence adduced by the company had shown that
the claimant's duties and responsibilities had not ceased or
diminished but had merely been taken over by someone else.
 Further, the Industrial Solution Department in Malaysia
had not closed down

CASE AUTHORITIES
Facts: There had been a lack of evidence to show that there
had been a reduction of work or a reduction in business in
the ASEAN region where the claimant had been the Head
of the Industrial Solution Department in Malaysia. COW1
had also testified that the claimant's duties and
responsibilities had been absorbed by another person.
Company had exercised its managerial power to retrench
the claimant in bad faith as it had not established the
reasons for his dismissal, based on redundancy

CASE AUTHORITIES
Industrial Court Held:
Dismissal without just cause or excuse -
Claimant awarded backwages and
compensation in lieu of reinstatement in the
sum of RM1,031,999.97

CASE AUTHORITIES
SAW KONG BENG v. MAHKAMAH PERUSAHAAN
MALAYSIA & ANOR;
HIGH COURT MALAYA, PULAU PINANG [JUDICIAL
REVIEW NO: 25-58-08-2015] 22 JULY 2016
“…It was not in dispute that after the applicant was terminated, all the
applicant's job functions were still in existence and in fact given to
EC Ong, the newly employed Vice President, and to the
applicant's subordinates, in which 60% to 70% of the job
functions were carried out by EC Ong, and the remainder of the
job functions were absorbed by his direct superior and the
applicant's subordinates.
The second respondent had further engineered a "surplus"
position for the applicant by removing, three months before the
termination, three reporting teams under the applicant and
redirected it to EC Ong”

CASE AUTHORITIES
SAW KONG BENG v. MAHKAMAH PERUSAHAAN
MALAYSIA & ANOR;
HIGH COURT MALAYA, PULAU PINANG [JUDICIAL
REVIEW NO: 25-58-08-2015] 22 JULY 2016
“…The applicant was a long serving employee of some 30 years as
compared to EC Ong who had, by comparison, only joined the
company for three months. There was no evidence to show that
the said EC Ong could have performed better than the applicant.”
Held: I allow the applicant's application with costs. I remit the case
back to the Industrial Court for assessment of compensation and
backwages and other benefits and emoluments, if any.

Thank You All
rajeswari@rajeslawyer.com
Phone: 012-292 2494

Managing Redundancy and Employee Separation

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