Case Update: Court of Appeal sets out key legal principles for retrenchments

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.

Retrenchment exercises have been a regular occurrence in the Malaysian industrial relations landscape for many years now. This looks set to continue deep into 2021, as employers respond to the challenges created by the on-going pandemic. Despite this prevalence, many employers often mishandle retrenchment exercises, with significant consequences.

The recent Court of Appeal (“the COA”) case of Ng Chang Seng v. Technip Geoproduction (M) Sdn Bhd & Anor [2021] 1 CLJ 365 usefully sets out some key legal and practical principles that all employers should consider when embarking on a retrenchment exercise. Among others, the judgment in the Ng Chang Seng case covered the following issues:

  1. What issues does the court consider when deciding whether the employer has proved a genuine redundancy?
  2. How can an employer justify not using Last-In First-Out (“LIFO”) for employee selection?
  3. Does an employer always have to retrench all foreign employees before retrenching Malaysian employees?
  4. Does the rehiring of some retrenched employees on a contract basis mean that there was no genuine redundancy?
  5. How much weight does the court give to non-compliance with the Code of Conduct for Industrial Harmony (“the Code of Conduct”)?

You can find all our previous posts on retrenchments by clicking on the tag here. Some of my earlier articles have been very popular and should prove useful:

  1. Retrenchments in Malaysia — some recent cases (29 May 2020).
  2. Case Update: Insufficient justification and improper handling of Voluntary Separation Scheme may give rise to unfair dismissal (20 March 2019).
  3. What you need to know about the law on retrenchment of employees (22 January 2016).

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Top 5 Articles on The Malaysian Lawyer in 2020

We end the year by looking back at the most-read articles on The Malaysian Lawyer in the year 2020. Thank you to the readers for all the support and for dropping by this site of ours.

Do consider dropping your email address in the box on the right to subscribe for email updates on our posts. We now have close to 1,500 email subscribers.

Featured below are our five most-read articles in 2020. Perhaps consistent with the challenging times of 2020, four out of the five articles deal with some form of closing down or retrenchment   Continue reading

Retrenchments in Malaysia — some recent cases

COVID-19 has had a devastating impact on jobs around the world. Almost every country has experienced an economic downturn, and as businesses struggle to steady the ship and stay afloat, many employers have been doing their best to retain their employees where possible. It has been a very busy 2020 for employment lawyers and HR professionals.

Unfortunately, for employers in many industries, COVID-19 has negatively affected their revenues too significantly, and cutting jobs has become the only solution to keep the businesses going. This has also been the case in Malaysia, where the Movement Control Order crippled many businesses, and the government has been unable to provide meaningful assistance to employers. For example, the aid provided under the Prihatin wage subsidy program is very low and short-term compared to other countries, and comes with conditions attached that make it impractical for many employers.

As a result, there have already been many retrenchments carried out in Malaysia, with even more to come. Indicative of the times, in the past couple of months, we have suddenly seen a significant amount of traffic on an old article I published here in January 2016 — “What you need to know about the law on retrenchment of employees”.

But retrenchments can be tricky. Over the years I’ve seen many employers make mistakes that result in unfair dismissal claims, a messy and costly court process, and sometimes very big court awards to be paid to former employees. Often, these mistakes are made even by employers who have done their research on the law, and sometimes even by those who have obtained legal advice (which ultimately turned out to be incomplete or flawed).

Knowing how to properly carry out a retrenchment exercise — and knowing what practical mistakes and missteps to avoid — comes with experience. It also helps greatly to analyse how other businesses have implemented retrenchments (both properly and improperly), and so in this article I set out very brief summaries of a selection of retrenchment-related decisions by the Industrial Court in the past year.

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Company in Distress: Insolvency Issues relating to Employees

Under Malaysia’s movement control restrictions and with COVID-19, companies are facing cash-flow issues and financial difficulties. With the employers facing such difficulties, the employees may also face salary cuts (for example, see this news report) or retrenchment. Companies may then slip closer towards financial distress and may have to pursue restructuring and insolvency options. This article sets out the insolvency issues relating to employees.

I set out the different scenarios where a company in distress may pursue a scheme of arrangement, apply for judicial management, end up placed in receivership or is compulsorily wound up. I touch on how these scenarios will affect the rights of employees. Continue reading

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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