Redundancy, Layoff, Retrenchment and Termination

Redundancy
Redundancy refers to a surplus of labor and is normally the result of a
reorganization and restructuring of the business of an employer. It is
usually direct to the implementation of retrenchment.
In Radio & General Trading Sdn. Bhd. Vs Pui Cheng Teck & Others
(Award 243 of 1990) the court stated that the company must considers
whether he made a reasonable decision concerning the necessity of
redundancy at that particular time or in view of the particular commercial
conditions. The company has to proof that the workmen are surplus and
therefore need to retrench. The court also said that if there was a
redundancy situation, was the consequent retrenchment made in
compliance with accepted standards of procedure; for example last in first
out.
In National Union of Cinema & Places of Amusement Workers Vs Shaw
Computer & Management Services Sdn. Bhd. (Award 22 of 1975), when
the workmen were discharged due to redundancy, the employer has to proof
the redundancy and show how, by whom and on what basis that selection of
retrenchment was made.

Industrial Harmony Code For Conduct 1975

Article 21
The ultimate responsibility for deciding on the size of the workforce must rest
with the employer but, before any decision on reduction is taken, there should be
consultation with the workers or their trade union representatives on the
reduction.
Article 20
In circumstances where redundancy is likely, an employer should, in
consultation with his employees representatives or their trade union, as
appropriate, and in consultation with the Ministry of Human resources, take
positive steps to avert or minimize reductions of the workforce by the adoption of
appropriate measures such as:
1.
Limitation of recruitment.
2. Restriction of overtime work.
3.
Restriction of work on the weekly
4. Reduction in number of shifts
days of rest.
or days worked a week.
5.
Reduction in the number of hours of 6. Retraining and/or transfer to
work.
other department/work.

Layoff
Layoff become one the alternative to overcome redundancy.
In Goodyear Berhad Vs National Union of Employees in Companies
manufacturing Rubber Products (Award 176 of 1982) the court stated that the
company has the right to shut down its plant at any time. It also has the right to
lay off its employees for proper cause. In Dunlop Malaysian Industries Berhad Vs
Dunlop Industries Employees Union (Award 76 of 1982) the court has mentioned
the reason why layoff has been implemented. The court said that the employer
merely wants work to stop for a short period and at the same time to keep his
workmen.
In Regulation 5(1) The Employment (Termination and Layoff Benefits)
Regulation 1980, it was stated that if a workman who is hired under a contract of
service has been laid off if his employer did not give any work more than twelve
normal working days within any period of four consecutive weeks.
If the days of layoff less than 12 days it is called as temporary layoff.
Regulation 5(1)(b) The Employment (Termination and Layoff Benefits)
Regulation 1980 noted that a workman has not entitled to receive any wages
under his contract for the period or periods where he did not assigned any work.

Layoff benefits
Dunlop Malaysian Industries Bhd Vs Dunlop Industries Employees Union
(Award 76 of 1982) stated that if the employer wants his workmen to be
available on call, it is only fair that the workmen be compensated whilst they are
waiting. There must be some inducement for them to stay and not looking for
other jobs. At the same time it will not fair to the employer for the workmen to
demand full wages when they are not doing any work.
Therefore, Regulation 6 The Employment (Termination and Layoff Benefits)
Regulations 1980 indicates the amount of benefits for termination and layoff.
The regulation noted that benefit for a layoff cannot less than (a) ten days
wages for workmen who are worked less than 2 years (b) fifteen days wages for
workmen who are worked for two years but not more than five years or (c)
twenty days wages for workmen who are worked more than five years. Wages
are calculated in pro-rate daily basis according to the nearest month.
The layoff benefits must be paid not later than seven days after such date
(Regulation 11). Where the parties themselves are unable to agree on the
compensation to be paid to employees during temporary layoffs, the Industrial
Court will resolve the issue for them.

Retrenchment
In Cycle & Carriage Bintang Bhd Vs Cheah Hian Lim (Award 342
of 1992) the court has noted an important general principles on retrenchment.
1. It is for management to decide on the strength of the staff which it considers
necessary for efficiency in its undertaking. When the management decides that
workmen are surplus and that there is therefore a need for retrenchment, an
arbitration tribunal will not intervene unless it is shown that the decision was
malafide or unfair labor practice.
2. It is the right of every employer to reorganized his business in any manner for the
purpose of economic or convenience provided he acts bonafide.
3. An employer has the right to determine the volume of his staff consistent with his
business and if, by the implementation of a reorganization scheme adopted for
reasons of economy and better management, the services of some employees become
excess of requirement, the employer is entitled to discharge such excess.
4. In the absence of any express agreement on the point, an employer is not obligated to
find suitable employment for redundant workers.
5. In effecting retrenchment, the employer should comply with the industrial law
principle of LIFO unless there are sound and vital reasons for departure. Thus, an
employer is not entirely denied the freedom to depart from this principle.
6. The retrenchment of an employee can be justified if carried out for profitability. The
services of an employee may well become surplus if there is reduction or cessation of
work the employee was performing.

Industrial Harmony Code for Conduct 1975

Article 22 (a)
If retrenchment becomes necessary, the employer should take the following measures:
1. Giving as early a warning as practicable to the workers concerned.
2. Introducing schemes for voluntary retrenchment and retirement and for payment of
redundancy and retirement benefits.
3. Retiring workers who are beyond their normal retiring age.
4. Assisting in cooperation with the Ministry of Human Resources the workers to find
work outside the undertaking.
5. Spread termination of employer over a longer period.
6. Ensuring that no such announcement is made before the workers and their
representatives or trade union have been informed.
Article 22 (b)
The employer should select employees to be retrenched in accordance with the following
criteria. The following workers should consider later to be retrenched.
1. Need for efficient operation.
2. Have unique skills, abilities and knowledge for the operation.
3. Senior workers, permanent workers and citizen workers.
4. Age.
5. Family situation.
6. Other criteria formulated as national policies

Employment Act 1955

Section 60 M
No employer shall terminate the contract of service of a local employee for the
purpose of employing a foreign employee
Section 60 N
Where an employer is required to reduce his workforce by reason of
redundancy necessitating a retrenchment of any number of employees, the
employer shall not terminate the services of a local employee unless he has first
terminated the services of all foreign employees employed by him in a capacity
similar to that of the local employee.

Section 60 O
For the purpose of this part, the term foreign workers shall not include a
foreign employee who is a permanent resident of Malaysia.

Retrenchment Principle (LIFO Last in first out)

The Industrial Court has suggested to implement LIFO for retrenchment
purposes. This principle only implemented firstly, within the establishment (if
the company has branches, the principle of LIFO only implemented where
retrenchment is required) which is the retrenchment is to be made. Secondly,
the principle only applies to the category of workers to which retrenchment is
performed (Associated Pan Malaysia Cement Sdn. Bhd Vs Kesatuan Sekerja
Pekerja-Pekerja Perusahaan Simen; Award 375 of 1986).

For the second situation it may be direct to bumping in retrenchment. This

doctrine is defined as if there is a reduction in the requirement for employees
in one section of an employers business, and an employee who becomes surplus
or redundant is transferred to another section of the business, an employee who
is displaced by the transfer of the first employee and is discharged by reason of
that displacement is discharged by reason of redundancy (W Gimble & Sons
Ltd Vs Sprunet [1961] ITR 308 (DC)).
The bumping in retrenchment must be in the same category or work group, job
classification or department or division, else, employees may claim for
malafide retrenchment or victimization.

The Implementation of LIFO Principle

In Aluminium Company of Malaysia Bhd Vs Jaspal Singh (Award 363 of

1987) the court said that in performing LIFO, the employer should as far as
possible select employees to be retrenched within the same category. The
question of the comparative seniority or juniority of a workman for applying
the principle of LIFO has to be determined with reference to the workmen
working in the same category of employment not the length of service. For
example in retrenching the employee as fitter, at the time of retrenchment,
seniority is determined on the strength and length of each workman acting in
the category of fitters and not on the length and service of the workman in a
different category (length of service in the company).
In Supreme Corporation Bhd Vs Doreen Daniel & Ong Kheng Liat (Award 349
of 1987) the court pointed out the employer should follow clause 22(b) of the
Code of Conduct for Industrial Harmony in performing LIFO in retrenchment.

Retrenchment Benefits
Many awards from Industrial Court have gave responsibility to employer and
employees/trade union to negotiate regarding benefits for retrenchment. If the
collective is silent regarding retrenchment benefits, the employer shall follow
Regulation 6 Employment Act (Termination and layoff) Regulations 1980
(Atlas Electronic Sdn. Bhd Vs Electrical Industry Workers Union [Award 168
of 1986), Public Corp Bhd Vs Penang & Prai Textile Vs Garment Industry
Employees Union [Award 101 of 1985] and Central Elastic Corp Sdn. Bhd Vs
National Union of Employees in Companies Manufacturing Products [Award
205 of 1984]).
In Malayan Commercial Banks Association Vs Association of Bank Officers
(Award 88 of 1988) the court remarked that an officer should be paid
retrenchment benefits base on one months basic salary for each completed year
of service.

In Electrical Power Engineering Sdn. Bhd Vs Electrical Industry Workers Union

(Award 193 of 1986) the court said that a study should be made to see which
formula provides the higher benefits. A much higher benefit should be given to
the employee so that the ill-effects of unemployment might be better cushioned.

Termination
Definition the termination of the employment relationship or the
termination of the employment contract.
The contract may be terminated by employer (for example retrenchment) or
by the employee (for example resignation) or by an event (for example
retirement or death).

Where the termination is due to misconduct, it is called dismissal.

Termination by Notice

A contract of service may be terminated by one party (either

management or employee) giving notice to the other party of his
intention to terminate the contract. The length of notice must be the
same for both the employer and the employee.
According to Section 12(2) Employment Act 1955, in the absence of
such provision in writing, the length of notice shall not less than
(a) four weeks notice if the employee has been employed for less than
two years on the date on which the notice is given
(b) six weeks notice if he has been employed for two years or more but
less than five years on such date
(c) eight weeks notice if he has been employed for five years or more on
such date.

Section 12(3) Employment Act 1955

The employer shall also give a notice stated in section 12(2) if:
a. The employer has ceased or intends to cease to carry on the business for
the purpose of which the employee was employed;
b. The employer has ceased or intends to cease to carry on the business in
the place at which the employee was contracted to work;
c. The requirements of that business for the employee to carry out work of a
particular kind have ceased or diminished or are expected to cease or
diminish;
d. The requirement of that business for the employee to carry out work of a
particular kind in the place at which he was contracted to work have
ceased or diminished or are expected to cease or diminish;
e. The employee has refused to accept his transfer to any other place of
employment unless his contract of service requires him to accept such
transfer;
f. A change has occurred in the ownership of the business for the purpose of
which an employee is employed, or of a part of such business regardless of
whether the change occurs by virtue of a sale or other disposition or by
operation of law.

Termination Without Notice

A contract of service may be terminated by either party without notice.
Section 13
1) Either party to a contract of service may terminate such contract of
service without notice or if notice has already been given in accordance
to Section 12 without waiting for the expiry of that notice by paying to
the other party an indemnity of a sum equal to the amount of wages
which would have accrued to the employee during the term of such notice
or during the unexpired term of such notice.
2) Either party to a contract of service may terminate such contract of
service without notice in the event of any willful breach by the other
party of a condition of the contract of service.

Termination for Special Reasons

An employer may inter alia dismiss without notice an employee for
misconduct (that is to say summarily terminate the contract of service
between them) but he may do so only after due inquiry (for example a
proper domestic inquiry) Section 14(1) Employment Act 1955.

Thank you
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