In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.
There was a very sharp rise in retrenchment numbers in Malaysia in 2020, particularly in the aftermath of the first Movement Control Order (MCO), which started in March 2020. We are now seeing Industrial Court decisions as a result of unfair dismissal complaints lodged by employees who had their employment terminated in the first half of 2020, and I expect we will continue to see a steady succession of these decisions in the coming months.
As I have often explained, while employers are legally entitled to dismiss employees where the retrenchment is for genuine reasons, employers must be able to show that the termination was not improperly motivated. I recently highlighted one case where the Industrial Court decided that the retrenchment of an employee, which the employer said was due to the challenges caused by the COVID-19 pandemic, was an unfair dismissal: “Case Update: Industrial Court finds retrenchment due to effects of COVID-19/MCO was unfair”.
In this article, I summarise four recent awards involving retrenchments carried out at the same time by the same employer, which the employer said was due to the effects of the MCO and pandemic:
- Mohamad Sahrul Bin Kahulan v. Lourdes Medical Services Sdn Bhd (Award No. 1295 of 2021).
- Gawri A/P Muthadakan v. Lourdes Medical Services Sdn Bhd (Award No. 1296 of 2021).
- Lalitha A/P Subramaniam v. Lourdes Medical Services Sdn Bhd (Award No. 1297 of 2021).
- Rasalechumi A/P Kanagaratnam v. Lourdes Medical Services Sdn Bhd (Award No. 1298 of 2021).
The parties in the four cases agreed for all the cases to be heard together by the Industrial Court. The Company operates a chain of medical clinics, located throughout Malaysia.
The Malaysian government introduced the first Movement Control Order (MCO) in response to the COVID-19 pandemic on 18 March 2020. The MCO was initially scheduled to end on 31 March 2020, but was subsequently extended.
On 1 April 2020, the Company sent a letter to all the Claimants, informing them that the Company was undertaking a rationalisation exercise, and that the management had decided that it would not be feasible for the Company to continue with its business, and that therefore the Company was ceasing operations. As a result of this business closure, the Company would be retrenching all the Claimants with effect from 1 April 2020.
The Claimants claimed that the Company did not cease operations, and continued to operate as usual. The Claimants therefore claimed that the reasons for the retrenchment given by the Company were inaccurate, and that they were dismissed without just cause or excuse. The Company contended that there was genuine redundancy and financial difficulties.
The Company gave evidence that the business went through a serious economic downturn as a result of the pandemic and MCO, and said that the reduction in operations meant that its revenue and profitability was impacted by almost 70%. The Company said that there were also other reshuffling and transfers, and these business decisions were necessary to ensure that the Company could remain in business.
In its awards, the Court explained that it would determine whether or not the Claimants were dismissed with just cause or excuse by asking the following questions:
- Whether there was a genuine need for the reorganisation exercise.
- Whether a genuine redundancy situation had arisen which led to the retrenchment.
- Whether the Company had complied with the accepted standards and procedure when selecting and retrenching the Claimants.
The Court found that, although the termination letter stated that the reason for the retrenchment was that “the Management has decided that it would not be feasible for the Company to continue the business and has decided to cease operations”, the Company’s witness confirmed that the Company had actually not ceased operations. The Company’s witness could not explain this discrepancy, and instead said that she didn’t prepare the letter, and that the letter was prepared by the HR Department. The Court noted that the Company did not call any witness from the HR Department to provide an explanation to the Court, nor did the Company call the signatory of the letter, which was the Country Head.
The Court said that the Company “failed to explain what was the rationalisation exercise” which warranted the retrenchment of the Claimants, and “was unable to prove that an actual redundancy had arisen”. The Court also noted that the termination letter did not mention redundancy or surplus of labour, and further noted that “the Claimants are long serving employees of the Company, and the Company had failed to show how the Claimants here were selected for the purposes of the retrenchment exercise, and what were the selection criteria that were used by the Company”.
After considering the evidence, the Court also concluded that there was no known documents or information prior to 1 April 2020 which indicated that the Company was undertaking a rationalisation exercise, and that there was a “complete lack of information whether such rationalisation exercise was indeed undertaken”. The Court said that “the Company had chosen to misinform the Claimants that the Company decided to cease operations”.
The Court acknowledged that the pandemic and MCO would have been a very difficult period for the business, and that the Court “is mindful not to be indifferent to the plight of companies” but also pointed out that “the same MCO is certainly a period of great anguish and pain for ordinary wage earners fearful of losing their jobs and livelihood”. The Court further pointed out that the Company should have been more careful to ensure that a retrenchment was only carried out “in the most genuine circumstances”.
While the Court acknowledged that the Company’s evidence showed that the MCO did cause financial hardship and business slowdown in the months that followed, the decision to retrench the Claimants was taken within two weeks of the announcement of the first MCO. The Court found that the decision to retrench was “hasty and abrupt” and “ill conceived” and the evidence of financial difficulties months later cannot be used to justify the earlier retrenchment. The retrenchment of the Claimants had taken place “even before the Company could feel and experience the impact of the MCO” and the other staff transfers only took place in July and November 2020.
The Court rejected the testimony of one of the Company’s witnesses that the reduced revenue justified the retrenchments, as the Company only provided information of its January-May 2020 revenue. The Court said that the Company said that it is normal for business to fluctuate for short periods, and “it does not mean that the moment there is some reduction in the revenue, the company must quickly and immediately retrench its employees”. The Court also pointed out that an analysis of the Company’s financials showed that, although there was “a slight dip” in April, the subsequent months showed “a healthy increase” and that “the Company was financially healthy”.
The Court concluded that the Company could not show that the Claimants were redundant. The Court also said that the retrenchment “must be supported by convincing evidence” and that in this case the Court found that “the alleged bona fide restructuring and reorganisation of the Company’s business that led to the retrenchment of the Claimants is not convincing”.
The Court therefore found that the Claimants were dismissed without just cause or excuse, and handed out awards of between RM30,720.00 to RM165,750.00, applying the usual formula, to each of the Claimants.
As can be seen from this case, and from the previous related cases I’ve featured, employers cannot assume that the courts will automatically accept the reason of “difficulties due to the pandemic” as justification for retrenching employees. Any such decision must be supported by convincing evidence.
Even where the business has been going through financial difficulties, an employer must be able to provide evidence of the financial difficulties, as well as evidence of the financial savings that have resulted from the retrenchment (see “Case Update: Relevant issues when an employer uses financial difficulties as a reason for retrenchment”).
You can read my previous retrenchment-related articles by clicking on the tag here. These earlier articles have also been popular and should prove useful:
- Case Update: Court of Appeal sets out key legal principles for retrenchments (10 February 2021).
- Retrenchments in Malaysia — some recent cases (29 May 2020).
- Case Update: Insufficient justification and improper handling of Voluntary Separation Scheme may give rise to unfair dismissal (20 March 2019).
- What you need to know about the law on retrenchment of employees (22 January 2016).