With the US economy in dire straits, many Malaysian factories have been closed down almost overnight. Subsequently, our Industrial Court has seen an increase of employment-related cases—from wrongful dismissal to retrenchment related issues.
Redundancy and restructuring in Malaysia: Legal issues to consider in Malaysia’s current employment market
Where a company is contemplating any cost-cutting measures within the organization, there are a few issues that should be considered before drastic measures are taken.
Terminating an employment contract is one of the many options an organization can resort to as part of its cost-cutting exercise. Depending on the varying grounds in an employee’s termination, each has its repercussion and issues that should be addressed to prevent an employer being sought for legal redress. Certainly, in the current climate, every cent counts and employers do not wish to be sued and incur unnecessary expenses.
The term “retrenchment” is not defined in any Malaysian legislation. However, it has been established by case laws that retrenchment is “the discharge of surplus labour or staff by an employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action”.
Retrenchment is in fact one of the most contentious grounds of a contract of employment being terminated, compared to the usual grounds –for example; attainment of retirement age, voluntary resignation, breach of contract by employee, dismissal for poor performance or misconduct, frustration of contract, closure of business and the likes.
Before carrying out any retrenchment exercise in Malaysia, the employer must ensure the following:
(a) there must be a legal basis and justification to carry out the reorganisation and restructuring;
(b) the position of the employee affected must be redundant as a result of the reorganisation;
(c) the retrenchment exercise must generally be in accordance with the principle of Last-In-First-Out or other accepted standards of industrial relations practice, including the Code of Conduct for Industrial Harmony.
Employees and wrongful dismissal
An employee who is wrongfully dismissed or where the contract of employment has been unjustly terminated may resort to the Industrial Court or the civil court to seek remedies. Generally, the Industrial Court offers a better recourse for employees who have been wrongfully dismissed as it is governed by principles of equity and good conscience.
The employer bears a high burden of proof to show that the dismissal of an employee is with just cause or excuse. In the event that the employer fails to do so, it may end up paying the employee an award of backwages for the period from the date of dismissal until the date of the Industrial Court award
The burden of proof lies with the employer to prove actual redundancy on which the dismissal is grounded. There are several accepted justification for restructuring and retrenchment, such as:
(a) Business loss – The Industrial Court would require cogent proof to justify retrenchment on this ground. The Balance Sheet and Profit and Loss Accounts of the company may be used as proof to establish financial losses. However, paper loss are inconclusive and the employer must establish to that actual loss has been suffered as opposed to mere paper loss;
(b) Closure of a department or section;
(c) Significant reduction in turnover – The employer would need to establish that there is a declining trend of business over a period.
(d) Significant reduction in productivity;
(e) Adverse conditions and escalating expenditures.
By: Leonard Yeoh, Partner, Tay & Partners
6th Floor, Plaza See Hoy Chan
Jalan Raja Chulan
50200 Kuala Lumpur, Malaysia
www.taypartners.com.my
DID: 603 2050 1973
Tel: 603 2050 1888
Fax: 603 2026 0995
leonard.yeoh@taypartners.com.my