Malaysia: Redundancy Or Retrenchment: Is It The End?

Last Updated: 23 February 2016
Article by Wong Weng Foong

In the modern business world, it is common for companies to take over or merge with other companies or undergo internal restructuring exercises. These exercises may very well impact the employees of the business. When these exercises take place, more often than not it creates a situation of redundancy which in turn will give rise to the retrenchment of employees. The question now is what can an employee do when they are faced with such situation? Well, this article will shed some light as to what an employee can do.

Before we dwell into what an employee can do, firstly we need to understand the rights of the employers and the employees as well. This is so because what the employee can do is very dependent on whether these rights have been breached. The Courts in TWI Training and Certification (SE Asia) Sdn Bhd v Jose A Sebastian [1998] 2 ILR 879 had recognized the company's or organization's rights to undergo re-structuring or mergers and acquisitions as it is within its managerial prerogative to decide what would be in the best interest of its business arrangements; to identify its own areas of weaknesses and then decide whether to proceed with discharging its own surplus.

On the other hand, the Courts have also recognized the rights of employees to a security of tenure in their employment. In fact, the Court in the case of Hong Leong Equipment Sdn Bhd v Liew Fook Chuan & Anor [1996] 1 MLJ 481 observed that the employees' security of tenure in employment is akin to a property right under the Federal Constitution which may be forfeited, save and except for just cause and excuse. However, the Court when faced with such cases would, more often than not, need to balance out the rights of both the employer and the employee.

Now that we have understood some of the competing rights of both the employees and the employers, let us proceed to discuss what employees can do or have the right to when they are being retrenched. If the employee falls within the definition of a worker under the Employment Act 1955, i.e. persons who had entered into a contract of service with an employer for a monthly salary of not more than RM2,000.00, they will have a right to retrenchment benefits under the Employment (Termination and Lay-Off Benefits) Regulations 1980.

Retrenchment benefits are generally benefits fashioned in a monetary form, given to the employees who are retrenched. The purpose of retrenchment benefits as observed by the Chairman of the Industrial Court in Pengkalen Holdings Bhd v James Lim Hee Meng [2000] 2 ILR 252 is to serve as a 'cushion against the hardships faced by an employee who has to content with the loss of his employment and the consequential loss of his immediate means to earn an income'. It is also to help the employee who is retrenched to over-come the hardships for the period between which the employee is retrenched until the retrenched employee finds a new employment.

However, for the employee to be entitled for retrenchment benefits under the Regulation, the employee will need to fulfill a number of criteria. Under Regulation 3, the employee must have been employed under a contract of service for a period no less than 12 months and the employer had not provided work for the employee for a certain number of days and period where the employee was not entitled to any remuneration for these works that were not provided. Once these criteria are fulfilled, thus the employee would be entitled for retrenchment benefits. However,

the Regulations also provide a certain number of categories where employee are not entitled to retrenchment benefits. Amongst those categories are where the contract of service is terminated upon the employ-ee attaining the age of retirement and where the employee is terminated on the grounds of misconduct. Also, where the employee had been re-engaged by the company or organization, or where the contract of service has been renewed, the employee will similarly not be entitled to claim for retrenchment benefits.

Apart from the above, there are situations and circum-stances whereby the employee had accepted the retrenchment benefits but thereafter allege the occurrence of dismissal without just cause and excuse. The question now is can the employee do that? From the face of it, this might not look fair to the companies, especially so when they have offered retrenchment benefits to the retrenched employees but subsequently sued for the said, supposedly compensated, retrenchment. However, the answer to the above question is yes. The employee can claim dismissal without just cause or excuse against the company even after they have received the retrenchment benefits.

In the case of Nadarajah & Anor v Golf Resorts (M) Sdn Bhd [1991] 1 ILR 704, it was held that the acceptance of retrenchment benefit under protest will not estop a worker from questioning the validity of the dismissal. The rationale behind this was addressed by the Court in Nasaruddin bin Haji Abu Bakar v Perwira Ericson Sdn Bhd & Anor [1994] 1 LNS 96 where the Court observed the following:-

"it cannot be denied that when it comes to a retrench-ment exercise, an employee is not in equal position as the employer. If the employer wants to retrench the employee and offers the employee a lump sum payment, the employee has no choice but to take the payment. If he does not take the payment, he would nevertheless have to go but without taking the money. Under such circumstances, an employee has only once choice, and that is to take the money and complain later, as had happened in this case."

The Court was of the view that pursuant to S 30(5) of the Industrial Relations Act 1967, the Court must act according to equity, good conscience and the substantial merits of the case without regard to technicalities. As such, the legal form and technical issues such as estoppel will not be considered by the Indus-trial Courts.

There may also be situations where employees are retrenched as a result of redundancy but they would be able to claim dismissal without just cause or excuse if they are able to prove that the dismissal was in the disguise of retrenchment. It was also held in the case of East Asiatic Company (M) Bhd v Valen Noel Yap [1987] ILR 363 that the right of the employer to reorganize is only to the extent that the employer's act must be bona fide or in good faith. In relation to this, the Court in Radio General Trading Sdn Bhd v Pui Cheng Teck & Ors (Award no. 243 of 1990) had considered 2 questions, i.e. (a) was there a situation of redundancy which gave rise to retrenchment of employees; and (b) if there was a situation of redundancy, whether the retrenchment of employees were carried out pursuant to the accepted standards of practice. If the answers are in the negative to the questions above, the Court will find the dismissal of the employee to be without just cause and reason.

On the other hand, employees who do not fall within the purview of the Employment Act 1955 will also have their respective contract of employment to fall back on. For example, if such an employee has been retrenched, companies or organisations would usually offer an option to voluntarily leave their employment with a compensatory amount. Such schemes are known as the voluntary separation scheme, which is somewhat similar to the termination and lay-off benefits as described above for employees governed under the Employment Act 1955. Nevertheless, if the company does not offer anything to the employee pri-or to the retrenchment, the company would then need to prove that they have acted bona fide in carrying out the retrenchment exercise. Otherwise, the employee would have the legal recourse of bringing an action against the employer for unfair dismissal.

In conclusion, retrenchment is not the end for the employees, whether they fall within the definition of an employee under the Employment Act 1955 or not, if the proper procedures are followed. This is so be-cause at the end of the day, the employees who are retrenched will not be leaving empty handed. It is just a matter of whether the employees will be able to obtain a voluntary compensation by the employer or to claim their dues from the employer through the Courts. It is undeniable that considering the current state of economy in Malaysia, there is a heightened chance for situations of redundancy to arise, leading to the retrenchment of employees in any given industry.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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