Case Update: Another company’s retrenchment of employees due to COVID-19/MCO deemed unfair by Industrial Court

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:

  1. Mohamad Sahrul Bin Kahulan v. Lourdes Medical Services Sdn Bhd (Award No. 1295 of 2021).
  2. Gawri A/P Muthadakan v. Lourdes Medical Services Sdn Bhd (Award No. 1296 of 2021).
  3. Lalitha A/P Subramaniam v. Lourdes Medical Services Sdn Bhd (Award No. 1297 of 2021).
  4. Rasalechumi A/P Kanagaratnam v. Lourdes Medical Services Sdn Bhd (Award No. 1298 of 2021).
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Employee poor performance: Some recent cases

The proper management of under-performing employees is always a tricky proposition. While the law recognises poor performance as one of the reasons that would constitute “just cause” for dismissing an employee, many employers make mistakes which result in dismissed employees winning unfair dismissal claims. There have also been instances where employees have been able to walk out and claim that they have been constructively dismissed due to the employer putting them on a performance improvement plan (“PIP”).

There are many variables that will determine whether a poor performance termination was carried out fairly. It’s always useful for employers and decision-makers to review how other employers have managed under-performing employees. In this article, I briefly summarise the following recent cases related to PIPs and poor performance dismissals:

  1. Azura Norden v. Small Medium Enterprise Development Bank Malaysia Berhad (Award No. 94 of 2021).
  2. Charles Selvam Andrew Francis v. Kebabangan Petroleum Operating Company Sdn Bhd (Award No. 256 of 2021).
  3. Thomas Kuruvilla v. Malaysia Digital Economy Corporation Sdn Bhd (Award No. 151 of 2021).

These summaries will provide valuable insights on the issues the Industrial Court considers when assessing performance-related terminations.

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Case Update: Industrial Court finds retrenchment due to effects of COVID-19/MCO was unfair

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.

The Industrial Court recently 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. This decision shows that, while the courts will uphold genuine retrenchments as an option available to employers to ensure the financial viability and survival of their businesses, employers cannot simply cite the pandemic as an excuse to retrench employees without proper justification.

The award in Joseph Lim Chien Shiuh v. DTTLT Sdn Bhd (Award No. 1052 of 2021) dated 19 May 2021 should serve as a cautionary tale for employers. I expect we will see many more employees successfully challenging terminations carried out in 2020 and 2021 by businesses claiming to have been affected by the various lockdowns or Movement Control Orders (MCOs) and related restrictions.

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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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Case Update: Unfair dismissal due to poor handling of mutual separation agreement

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.

The COVID-19 pandemic has resulted in constant pressure on employers across almost all industries. There have been widespread measures to manage the financial fallout from the global effects of the pandemic, including salary reductions, employee redesignations, retrenchments, and separation schemes.

It has become a common practice for employers to use Mutual Separation Agreements (MSAs) — which also go by various other names such as “settlement agreements”, “separation agreements”, and “termination agreements” — to bypass or shortcut the usual termination processes. Many employers, as well as employees, view MSAs as a “cleaner” way of ending the employment relationship — instead of feeling like s/he has been “sacked”, the employee can be made to feel that the exit is on his/her terms, and employers prefer the certainty of clearly documented and mutually-agreed terms.

However, it is not uncommon for MSA exits to be improperly handled, resulting in a successful unfair/constructive dismissal claim by an employee, and a high financial cost to the employer. Some of my earlier articles would also be relevant for readers interested in this topic:

  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. Case Update: Can an employee bring an unfair dismissal claim after accepting a severance payment? (16 November 2017).
  4. What you need to know about the law on retrenchment of employees (22 January 2016).
  5. Handling employee dismissals properly under Malaysian law (13 January 2016).

In this article, we will review the Industrial Court case of Thanasegaran C Munusamy v. Vale Malaysia Minerals Sdn Bhd (Award No. 1647 of 2020), where the employee, Thanasegaran (the Employee) had signed an MSA, but then lodged an unfair dismissal claim against the employer, Vale Malaysia (the Company).

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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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