An Introduction to Retrenchment in Malaysia

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Retrenchment may happen not only during recession but it is also relevant when the economic situation is good. Apparently, termination of service is permitted by law for operational reasons, which is commonly known as redundancy. The word redundant however, is not as simple as it sound as it is, in fact, it is very subjective. Redundancy occurs when the employee is no longer required to work. There are situations where a contract of employment is subject to some inevitable change. Redundancy may happen due to several reasons such as a downturn in production, sales or economy, the introduction of technology, business relocation, a business merger or a business is sold or restructuring of a company. Furthermore, with the introduction of automation, industries usually employ very few workers. At the same time, as a result of reorganization, scaling down operation or closure of business, an employee’s services may become redundant and thus, his service may be terminated. In short, retrenchment occurs as a consequence of redundancy. The words of downsizing and retrenchment are used interchangeably. However, the main legislation governing this issue, that is, the Industrial Relations Act 1967, does not define the meaning of redundancy. Thus, for this purpose, reference should be made to common law principles. In exercising retrenchment, not only must the employer have good grounds to do so, but, the law clearly provides that the employer is required to exercise it fairly. It is the practice that the recognized trade union must be consulted when an employer proposes to make the employee redundant. Section 13(3) of Industrial Relations Act 1967 recognizes management’s prerogatives to employ workers or to terminate them with a proper cause or excuse. While the court generally will not interfere with the bona fide exercise of power given to the management, it is equally important to note that the employer must provide a proper cause or reason before terminating the employees. Due to this reason, it is the employer who decides on the number of employees to be employed or to be retained by considering their viability and profitability of the business. Thus, when the employer is of the view that the number of the employees is too excessive, he is entitled to discharge the excess employees. Similarly, redundancy occurs where the business needs lesser number of employees or where the employer had suffered a business downturn due to its lost of major clients as could be seen in Stephen Bong vs. FBC (M) Sdn Bhd & Anor (1993) where the court had confirmed retrenchment exercise made by the employer. As there was a clear shrinkage of work, thus, the employees were made redundant. On the same note, in the Kumpulan Perubatan (Johor) Sdn Bhd vs. Mohd Razi Haron (2000), the Industrial Court held that the massive retrenchment made by the employer was a genuine measure and not done for any ulterior motive to victimize the employees. Further, the court found no evidence that the employer had acted with mala fide in the retrenchment process.

In redundancy, the retrenched employee has the right to bring the matter to the Industrial Court should he feel his termination of service is unfair and without just cause or excuse (Aminuddin, 2003). However, if the retrenchment exercise is done in accordance with the relevant procedures, then there is a very little chance for the employee to win his case in court. This can be evidenced by looking at the Industrial Court’s decision in Plusnet Communication Sdn Bhd & Ors vs. Leong Lai Peng (2005) where it was held that a redundancy situation did exist in this case as a result of reorganization and downsizing exercise made by the company to minimize losses. In the event the issue of retrenchment is referred to the Industrial Court, it will generally look at the following issues: a) whether the retrenchment was justified, that is by looking at the...
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