This is a comparative study on the topic of Compensation for Retrenchment. I choose to compare the concept between Malaysia, United Kingdom, Australia, and Singapore.

1. COMPENSATION FOR RETRENCHMENT: A
COMPARATIVE STUDY IN AWARDING
REASONABLE AMOUNT TO EMPLOYEE
WAN NURUL HAYYU BINTI W. MAHMOOD
G1817684
COMPARATIVE LABOUR LAW AND INDUSTRIAL RELATION (LAW
7565)

5. “I would settle for 10% less than what I was earning previously because I cannot wait
five or six months for a job” – 42yo Ally Chong, a writer
“It’s difficult to find work because your past experience and expertise may not be as
valuable to your new employer”- 36yo Dax Lim, electronic engineer
“They do not want people my age doing that so it makes it even harder for me to get
employed despite two decades of experience. Factories prefer fresh graduates
because their salaries are lower,” - 40yo Alios Null, programmer

6. Justification for need of retrenchment benefit/ compensation
 Pengkalen Holdings Bhd v James Lim Hee Meng [2000] 2 ILR 252 : retrenchment
compensation serves as a cushion against the hardships faced by an employee
who has to contend with the loss of his employment and the consequential loss of
his immediate means to earn an income
 to encourage workers to accept payment without damaging industrial relations
 it serves to minimise resistance and opposition to genuine reorganisation
measures undertaken by management
 acknowledges a workman’s security of tenure and recognises the fact that though
no fault of his, such security of tenure has to be given away to his employer’s
overriding interest of economy and efficiency
 International Labour Organization that stated a worker shall not be terminated
unless there is a valid reason for such termination connected with the capacity or
conduct of the worker or based on the operational requirements of the
undertaking, establishment or service (Article 4 of C158 - Termination of
Employment Convention, 1982)

7. RETRENCHMENT
COMPENSATION
IN MALAYSIA

8. Qualification to compensation
 Wages < RM 2,500 per month
 Manual labour
Disqualification
Section 4 of Termination and Lay Off
Regulations 1980 ;
 Attain age of retirement
 Misconduct
 Voluntary by employee

9. Subsection (2)
(a)his contract of service is renewed, or he
is re-engaged by the same employer
under a new contract of service on
terms and conditions which are not less
favourable;
(b) the renewal or re-engagement takes
effect immediately on the ending of his
employment under the previous
contract;
Subsection (4)
If the employee leaves the service of his
employer before the expiration of any
notice given to him by his employer

10. Regulation 6 of Termination and Lay
Off Regulations 1980
YEAR OF SERVICE PAYMENT
1-2 years
10 days wages for
each year of service
More than 2 years
but below 5 years
15 days wages for
each year of service
More than 5 years
20 days wages for
each year of service

11. Example of calculation :
4 years of service with salary RM 5,000
RM 5,000 ÷ 30 days = RM 166 per day
RM 166 x 15 days = RM 2,490
Regulation 11 : payment must be made
not later than 7 days after contract is
terminated

12. Employee who is not covered by the Employment Act
• Not entitled to the compensation benefits, depends on
contract of employment
• Clause 20-24 of Code of Conduct for Industrial Harmony
provides principles and guidelines to employers and workers
in relation to redundancy : eg introducing schemes for
voluntary retrenchment and retirement and for payment of
redundancy and retirement benefits
• no legal obligation on the employer to adhere to the
contents of the Code.

13. However,
• the Code has been given its ‘legal teeth’ by virtue of
Section 30 (5A) of the Industrial Relations Act 1967
“in making its award, the Court may take into consideration
any agreement or code relating to employment practices…”.
Failure to follow the Code can result in a retrenchment being
declared as an unfair dismissal

14. EMPLOYEE INSURANCE SYSTEM ACT 2017
 came into force on 1 January 2018
 administered by Social Security Organisation (Socso)
 is a timely Act that aims to encourage the employees to seek
re-employment apart from strengthening their employability
in the labour market through placement programmes
 applies to all industries having one or more employees who
are Malaysian citizens or permanent residents in Malaysia
 applicable to all employees including part-time workers
irrespective of the amount of wages
 However, public servants, domestic workers, self-employed
and few others as described in the First Schedule are
excluded.

15. Contributions to the Employment Insurance System (EIS) are set at 0.4% of
the employee’s assumed monthly salary. 0.2% will be paid by the employer
while 0.2% will be deducted from the employee’s monthly salary

16. BENEFITS FOR EMPLOYEES: job search allowance, early re-employment
allowance, reduced income allowance, training allowance and training fee.
1) Job Search Allowance
Job search allowance means a monthly payment for a period of three to six
consecutive months to assist an insured person who has lost employment
during the period of seeking employment.
SOCSO should pay to the insured person at the rate on a monthly basis as
specified in the Third Schedule:
(a) 80% of the assumed monthly wages for the first month;
(b) 50% of the assumed monthly wages for the second month;
(c) 40% of the assumed monthly wages for the third and fourth month
(d) 30% of the assumed monthly wages for the fifth and sixth month.
The payment for job search allowance shall be made to the insured person
immediately after 7 days from the date of the approval of a claim for such
benefit (“waiting period”).

17. 2) Re-Employment Allowance
 means an incentive paid in lump sum to an insured person for
accepting an offer of employment from any employers and
commencing the employment within the waiting period or the
period of receiving job search allowance at the rate as specified
in the Third Schedule
 the insured person will be entitled to 25% of the total job
search allowance or the total balance of the remaining unpaid
job search allowance as described in the Third Schedule.
 If the insured person accepts the offer within the waiting
period, he may choose whether to accept the early re-
employment allowance. If he chooses not to accept the
allowance, then the contributions qualifying condition will not
be affected and he shall be deemed to have never made the
claim for such benefits.

18. 3) Reduced Income Allowance
 means a lump sum payment to assist the insured person who has two or
more employments and has lost one or more of the employments.
 If the insured person has two or more employments at the same time and
has lost one or more, but not all of the employments, he should be entitled
to a reduced income allowance for each loss of employment at the rate as
specified in the Third Schedule. The reduced income allowance shall be
paid in lump sum to the insured person.
 the insured person shall not be entitled to a job search allowance, a
training allowance or an early re-employment allowance
 However, if the insured person who has two or more employments loses all
of the employments on the same date, he will then be entitled to one job
search allowance for one loss of employment and a reduced income
allowance for the other loss of employment, and he may select the loss of
employment for which the job search allowance shall be paid

19. 4) Training allowance and training fee
 Insured person who has lost an employment may apply to SOCSO to attend
any training provided by a training provider approved by SOCSO during the
period the insured person receives the job search allowance.
 This application must be done within the period of not more than 12
months after the insured person has received the job allowance, or within
the period of 6 months after accepting an offer of employment and
reporting to work.
 the insured person will be entitled to a training allowance for not more than
6 months at the rate of 25% of the assumed monthly wages calculated on
daily basis. The training allowance is capped at a minimum of RM10 and a
maximum of RM20 per day which is paid monthly according to the number
of training days attended by the insured person. On another note, SOCSO
shall bear and pay a maximum of RM4,000 training fees to the training
provider who provides the training to the insured persons.

20. 5) Re-Employment Placement Programme
 means a programme managed by SOCSO for insured person for
the purposes of re-employment. The Act requires insured person
to commence participation in the re-employment programme
within the waiting period
 The insured person is required to comply with directions given by
SOCSO in respect of the programme, and shall be available to
work, actively seek for work, and undergo any training as
necessary. If there is any offer of employment suitable to the
insured person, SOCSO shall inform the insured person
accordingly
 In the event that the insured person refuses the offer without
reasonable ground, the insured person will not be entitled to
receive any benefits under the Act. However, the Act does not
discuss what can be construed as reasonable grounds. Hence, the
test of reasonableness under Regulation 1980 can be used to
determine what constitutes reasonable grounds

21. Priorities in paying when going through liquidation
Section 527 of Companies Act 2016 : in a winding up there shall
be paid in priority to all other unsecured debts
(b) all wages or salary, whether or not earned wholly or in part by
way of commission, including any amount payable by way of
allowance or reimbursement under any contract of employment
or award or agreement regulating conditions of employment, of
any employee not exceeding fifteen thousand ringgit or such
other amount as may be prescribed whether for time or
piecework in respect of services rendered by him to the company
within a period of four months before the commencement of the
winding up
(c) all amounts due in respect of worker’s compensation under
any written law relating to worker’s compensation accrued before
the commencement of the winding up.

22. RETRENCHMENT
COMPENSATION IN
UNITED KINGDOM

23. Three payments to affected employees : statutory redundancy payments,
contractual redundancy payments and payments in lieu of notice
1) Statutory redundancy payments
 if he an employee has completed at least two years’ continuous service with
his employer, he will be entitled to a statutory redundancy payment which is
calculated according to a statutory formula.
 payment will be based on an employee’s age and length of employment
from the date of dismissal.
Age Payment
18-22 years old Half a week’s pay
22-40 years old 1 week’s pay
41 and older 1.5 week’s pay
.

24. Limitation to how much money the employee may get
1) the maximum weekly amount the employee can get
is £525 (even if they earn more per week)
1) Employee can only get redundancy pay for a
maximum of 20 years’ work (for example, if they
have worked at their job for 23 years, they will only
get redundancy pay for 20 years). Lastly, the
maximum amount of statutory redundancy pay is
£15,240.

25. Common issues with statutory redundancy pay
(i) Sick leave: redundancy pay will be based on employee’s usual pay
from before employees were off sick.
(ii) Maternity leave: redundancy pay will be based on employee’s
normal pay. It doesn’t matter if they are earning less than usual at
the time they are made redundant
(iii) No fixed time of working hours: weekly pay will be worked out as an
average. The average will be based on what the employee earned in
the 12 weeks before they were told they had be made redundant.
This includes any commission they made in that time
(iv) Overtime: overtime will not usually be included in employee’s
weekly pay, unless it was regular and they had to do it as part of
their job

26. Losing the right to be entitled to the statutory redundancy
payment :
 former registered dock workers (covered by other
arrangements) and share fishermen, crown servants,
members of the armed forces or police services, apprentices
who are not employees at the end of their training and a
domestic servant who is a member of the employer’s
immediate family
 unreasonably turn down suitable alternative employment
 Misconduct

27. 2)Contractual redundancy payments. The employee
may be entitled to an additional redundancy
payment if this is due under the terms of his contract
of employment.
3) Payment in lieu of notice. When an employee is
made redundant he is still entitled to notice of
dismissal as set out in his contract of employment. If
notice is not given, then he will be entitled to a
payment in lieu of notice equivalent to the salary (and
value of benefits subject to what is set out in the
contract) which he would have received during the
contractual notice period

28. RETRENCHMENT
COMPENSATION IN
AUSTRALIA

29. Employees receive redundancy pay based on their continuous
period of service with their employer. This amount is paid at
the employee’s base pay rate for ordinary hours worked.
Period of continuous service Redundancy pay
At least 1 year but less than 2 years 4 weeks
At least 2 years but less than 3 years 6 weeks
At least 3 years but less than 4 years 7 weeks
At least 4 years but less than 5 years 8 weeks
At least 5 years but less than 6 years 10 weeks
At least 6 years but less than 7 years 11 weeks
At least 7 years but less than 8 years 13 weeks
At least 8 years but less than 9 years 14 weeks
At least 9 years but less than 10
years
16 weeks
At least 10 years 12 weeks

30. DISQUALIFICATION TO REDUNDANCY PAYMENT
 Period of employment < 12 months
 employees are employed for a stated period of time/ an
identified task or project/a particular season
 employees were fired because of serious misconduct
 trainees engaged only for the length of the training
agreement
 apprentices and employees of a small business

31. If employer goes bankrupt or into liquidation?
Employees can get help through the Fair Entitlements Guarantee
(FEG). It is available to eligible employees to help them get their
unpaid entitlements.
This can include:
 wages - up to 13 weeks unpaid wages (capped at the FEG
maximum weekly wage)
 annual leave
 long service leave
 payment in lieu of notice of termination - maximum of 5 weeks
 redundancy pay - up to 4 weeks per full year of service

32. RETRENCHMENT
COMPENSATION IN
SINGAPORE

33. Eligibility for retrenchment compensation is
mentioned in Part IV of Employment Act :
workers must be employed for more than 2 years
salary must not exceed $2,500 per month
or workmen doing manual labour not earning a
salary exceeding $4,500 per month
Employees who worked as a seafarer, domestic
worker and statutory board employee or civil
servant are not covered under the Act thus terms
and conditions of employment will be according to
the employment contract

34.  The Act does not specify the amount to be paid thus the
benefit shall be determined by the contract or the collective
agreement or through subsequent negotiations
 the Act does not compel the employer to disclose the
selection criteria for the retrenchment or give the employee
time off to look for another job or a minimum period of
notice of the impending retrenchment
Employer in Singapore has absolute right to retrench employee
without having the need to disclose the reason for selection as
long as there is a notice to notify the employee of the
retrenchment

35. Employees not covered under the Act
Loh Siok Wah v American International Assurance Co Ltd :
“unless contractually or statutorily provided for, there is no legal
obligation for any employer in Singapore to provide retrenchment
benefits. Retrenchment benefits are usually given on ex-gratia
basis. Payment of ex-gratia retrenchment benefits is absolutely at
the discretion of the employer and it depends entirely on the
goodwill and perhaps also on the financial position of the
employer concerned”
However, if retrenchment benefit is provided in the contract of
employment and the employer had failed to pay, the onus of proof
is on the employer to prove that it is not for reasons of
redundancy, retrenchment or for other reasons

36. Suggestion and recommendation
Keep the eligibility of payment according to period
of service
Increase the amount as in Australia