Navigating Retrenchment in Malaysia: Key Considerations for Employers

By:

Bryan Lui (Co-Managing Partner) [bryan_lui@luibhullar.com]

Harneshpal Karamjit Singh (Co-Managing Partner) [harnesh_bhullar@luibhullar.com]

Navigating Retrenchment in Malaysia: Key Considerations for Employers

The economic fallout from events like the COVID-19 pandemic has forced many Malaysian businesses to consider retrenchment as a cost-cutting measure. While employers possess the prerogative to retrench redundant employees, they must adhere to legal guidelines to avoid unfair dismissal claims. This article outlines six critical considerations for employers contemplating retrenchment.

Employer's Prerogative and Legal Boundaries

Case law, such as William Jack & Co. (M) Sdn. Bhd. v. S Balasingam, affirms employers' right to reorganize for efficiency, including retrenchment. However, this prerogative is not absolute. Retrenchment must be based on genuine redundancy and not be capricious, mala fide, or discriminatory. There's no legal obligation to offer alternative employment (Nordson (Malaysia) Sdn Bhd v. Lee Chin Tao & Anor).

Key Considerations for Employers

1. PK Form Filing:

   • Employers must notify the labor office at least one month before retrenchment by submitting Form PK1/98 (Employment Retrenchment Notification 2004).

   • Failure to comply is an offense under Section 99A of the Employment Act 1955.

2. Prioritizing Foreign Workers:

   • Local employees should not be retrenched before foreign employees in similar roles (Section 60N, Employment Act 1955).

   • Non-compliance is an offense under Section 99A.

3. Termination Notice:

   • Employees under the Employment Act 1955 (salaries ≤ RM2,000 or specific manual labor roles) require written notice (Section 12).

   • Notice periods vary based on service length: 4 weeks (less than 2 years), 6 weeks (2-5 years), 8 weeks (5+ years).

   • Employees outside the Act are subject to contractual notice periods.

   • Failure to provide proper notice is a breach of contract, or an offence under section 99A of the employment act 1955, depending on the employees status.

4. "Last-In, First-Out" (LIFO) Principle:

   • Employers should adhere to the LIFO principle unless valid reasons exist (Saw Kong Beng v. Mahkamah Perusahaan Malaysia & Anor).

   • Deviating from LIFO may lead to unfair dismissal claims.

5. Code of Conduct for Industrial Harmony:

   • While not legally binding, the Code's guidelines should be followed: early warning, voluntary retrenchment, retirement of older workers, job placement assistance, phased terminations, and prior communication with employees/unions.

   • Compliance strengthens the defense against unfair dismissal claims.

6. Termination Benefits:

   • Employees under the Employment Act 1955 receive termination benefits based on the Employment (Termination and Lay-Off Benefits) Regulations 1980.

   • Employees outside the Act are subject to contractual provisions.

   • Failure to pay proper benefits is a breach of contract.

Legal Counsel and Alternatives

Retrenchment decisions should be made with careful consideration and professional legal advice. A well-executed retrenchment minimizes the risk of Industrial Court claims. Employers should also explore alternative cost-cutting measures, such as salary reductions or workforce restructuring, before resorting to retrenchment.

Protecting Your Business and Employees

Consult an employment lawyer Malaysia or an employment law firm Kuala Lumpur for comprehensive guidance. If you face a wrongful termination lawyer Malaysia claim, seek expert representation. Review your employment contract lawyer Malaysia to ensure compliance. Understand your employee rights lawyer Malaysia and labour law Malaysia. If you face discrimination, contact a workplace discrimination lawyer Malaysia. For employment law advice Malaysia or industrial relations lawyer Malaysia, seek professional guidance. Search “employment lawyers near me” for local expertise.

Conclusion

Retrenchment, while a legitimate business tool, must be handled with care and legal compliance. Seeking legal counsel ensures a fair and lawful process, protecting both the employer and the employee.

Lui & Bhullar: Your Employment Law Experts

Lui & Bhullar is a premier employment law firm Kuala Lumpur, specializing in:

• Labour law Malaysia compliance for employers.

• Employment contract lawyer Malaysia services for drafting and reviewing contracts.

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• Wrongful termination lawyer Malaysia services for unfair dismissal claims.

• Workplace discrimination lawyer Malaysia cases, ensuring fair treatment in the workplace.

• Employment lawyers near me search solutions for quick access to expert legal support.

For expert employment law advice Malaysia, contact Lui & Bhullar today to safeguard your workplace rights.