Case Update: Insufficient justification and improper handling of Voluntary Separation Scheme may give rise to unfair dismissal

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.

Retrenchments are an ever-present issue in the Malaysian industrial relations landscape. The Malaysian Employers Federation has forecast that 30,000 employees will be laid-off this year. The proper handling of retrenchments is a constant challenge for employers, and disputes often arise. The Ministry of Human Resources recently announced that terminations due to retrenchment were the most common reason for unfair dismissal cases received by the Industrial Relations Department over the past 10 years, accounting for 30% of all cases.

Many employers make the mistake of assuming that implementing a retrenchment exercise is a straightforward way of getting rid of unwanted employees, or downsizing the workforce to cut costs. I’ve written about some of the legal issues related to retrenchment in two earlier articles:

  1. In “What you need to know about the law on retrenchment of employees”, I summarised the key Malaysian legal principles in relation to retrenchments. Essentially, it is the prerogative of the management to decide on the reorganisation of its business, and the courts will not intervene unless it is shown that the employer’s decision was not in good faith.
  2. In an earlier article in this Case Update series — “Case Update: Relevant issues when an employer uses financial difficulties as a reason for retrenchment” — I wrote about a case where the Industrial Court held that an employer relying on financial difficulties to justify retrenchment had to prove it was experiencing financial difficulties, and to show the financial savings it made through the retrenchment.

In the recent case of Suseela Devi Balakrishnan v. Inti International College Kuala Lumpur Sdn Bhd (Award No. 343 of 2019), the Industrial Court considered a scenario where the employment relationship ended based on a voluntary separation scheme (“VSS”) arising from a redundancy scenario, and the employee subsequently claimed that she was dismissed without just cause and excuse.

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Case Update: Relevant issues when an employer uses financial difficulties as a reason for retrenchment

Case Updates (FB)

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.

As explained in an earlier article (What you need to know about the law on retrenchment of employees), the basic legal position in Malaysia in relation to retrenchments is clear and settled: It is the prerogative of the management to decide on the reorganisation of it business, and the courts will not intervene unless it is shown that the employer’s decision was not in good faith.

One of the accepted reasons for a retrenchment is where the business is experiencing financial difficulties, or where a reorganisation of the workforce is deemed necessary to increase efficiency or cut costs.

What are the factors to be considered when assessing whether cost-effectiveness or financial reasons are sufficient to constitute a genuine reason for retrenching employees?

The Industrial Court considered this in Mohd Azhan Ariffin v. Ranhill Berhad (Award No. 920 of 2017). The claimant (Employee) was retrenched, and paid retrenchment benefits, on the basis that the respondent (Employer) could no longer sustain him in the business due to financial constraints.

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What you need to know about the law on retrenchment of employees

the law on retrenchments
Will the last one to leave please turn off the lights?

There has been a wave of retrenchments in Malaysia, which started last year and looks to continue through 2016. Malaysia’s Human Resources Minister says that his ministry expects retrenchments to continue into 2017.

According to the Malaysian Employers’ Federation (MEF), more than 20,000 employees were retrenched in 2015 (as at September 2015). Comparatively, the figure for the entire 2014 was 10,000 employees. The MEF predicts that it will only get worse in 2016.

Although the steepest increase in retrenchment numbers are in the oil and gas industry, the banking industry has also seen several retrenchment exercises or voluntary separation schemes being implemented. The legal industry has also been affected, with many medium and big law firms either downsizing or freezing hiring.

Let’s take a quick look at the law related to retrenchments. As an employer, when can I retrench employees? Am I free to choose which employees to let go? How much do I have to pay them as severance? As an employee, what are my rights? Can I challenge a retrenchment?

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