Speech by Dato' Jalaldin b Hussain (Chairman Industrial Court, Malaysia (Rtd)) & Tuan Mohd Khalid Atan (President, MTUC), given in Labour Law Seminar held by Legal Plus Sdn. Bhd (www.legalplus.com.my) on Apr 10, 2015

2. • Dictionary meaning ;
- “Superfluity, profusion or abundance”.
• Dunstan Ayadurai ;
- “A surplus of labour as a result of reorganisation
and its usual consequence is retrenchment”.
Case law ;
1) Steven Bong v FCB [M] Sdn Bhd & Anor [1999]
3 MLJ 411.
“it arises when the business requires fever employees
of whatever kind”.

3. • Dictionary meaning;
- “reduction or curtailment of cost”.
• Official website Ministry of Human Resources;
“termination of contract of employment in a redundancy
situation.” .see also Guidelines on Retrenchment Management
Booklet by Jabatan Tenaga Kerja , Kemnterian Sumber
Manusia.
,
 Case Law;
-see Hotel Jayapuri ‘s case [1979]1 LNS 32 where
the Federal Court followed the Indian Supreme
Court’s case of Pipraich Sugar Mills AIR 1957
SC 95:
“Retrenchment connotes in its ordinary acceptation that the
business itself is continued but that a portion of the staff or
labour force is discharge as surplusage”.

4. • Dictionary meaning ;
- To discontinue or terminate the relationship.
Case law;
BASF [M] Sdn Bhd v Lee Suan Sim [2001] 3 ILR
159.
“A scheme that is offered to selected employees of
the company to opt for early retirement on their own with
the company paying separation benefits as an
alternative to retrenchment.”

5. Issues by employees
1. Cause of redundancy,
retrenchment and separation not
their fault
2. Not told – reason
3. No choice – forced
4. 4. wide discretion – who is
redundant Offer VSS or MSS or
to be retrenched
5. Benefits – unfair
6. No alternative employment
7. Whole process done in bad faith
8. Change of ownership transfer /
benefits
9. Outsourcing – job still there
Issues by employer
- External causes
- Beyond their control
- Notice given MSS or VSS
- Followed procedure
- Done bona fide
- Fair distribution
- Company’s offer not accepted
- comply with code
- Carried out in good faith
- Termination of contract of
service
- Prerogative to transfer
- Company’s right to transfer

6. • First and foremost -.Creating Trust and confidence.
-Relationship between Employer and Employee
is based on trust and confidence.
See Pearce v Foster [ 1886 ] 12 QBD 536.
• Lack of trust by employees is based on instances where it
is a dismissal disguised as retrenchment ie. that the
Grounds of redundancy unjustified / done mala fide as
follows ;
a) Kopalan Chinniah v Allied Pickfords [M] Sdn Bhd [2011]
1 LNS 0020. There was lack of evidence to show that
the re organization had rendered the claimant’s position
redundant.
. Nowhere in any of the company’s meeting to indicate
that there was a business downturn and a need for cost
cutting measures that warrant retrenchment.

7. • B. Food Specialist [M] Sdn Bhd v Esa bin Hj Mohammad.
• [1989] 1 ILR 502.
• Colourable exercise to get rid of employees.
• The right of the employer to re organize must be limited to the
rule that he must act bona fide and not capriciously or with
motives of victimization or unfair labour practise.
• C. Persatuan Pekerja – Pekerja Kilang Papan dan Kayu kayan
v Kim Chin Hoe Sawmills Sendirian Berhad.
• [ Award no 115 of 1976 ]
• ….it seemed obvious that the re organisation was a sham
thereby creating a camouflage or veil behind which the original
company sought to hide and to run away from it’s obligation to
recognise the union and thereafter negotiate a collective
agreement.

8. • Employers too have their concern as they have valid and justifiable grounds due to the following;
• 1. Global economic slowdown.
• see Perak Freight Service Sdn Bhd v Azlan Muzaffar Othman
• {2001] 3 ILR 44.
• 2. Recession or Economic downturn.
• See Rajendran Samannan & Ors v Harvick Rubber Industries Sdn Bhd
• [2010] 2 LNS 1313.
• 3. Losses and Declining Profits.
• See FACB v Selina Selvi V Sabapathy
• [1999] 3 ILR 282
• 4. Re organisation and Restructuring.
• See Hagemayer Marketing Services Bhd v Tan Pang Leong
• [1996] 1 ILR 83
• 5. Take-Overs and Mergers.
• See Phuah Liew Geok v Equant Intergration Services Sdn Bhd.
• [2010] 2 LNS 0859
• 6. Automation / change in nature of work.
• See Louden v Crimpy Crips
• [ 1996 ] 1 LTR 307.
• United Asian Bank v Vasalakshi a/p Palaniappa.
• [1990 ] 1 ILR 278.

9. Need to Balance Employer’s prerogative to re organise
And Employee’s security of tenure .
1.Decision Makers vs implementation.
Normally Decision to retrench made by BOD based on paper prepared / presented
containing detailed information.
I Reason to retrench and information must be made known to HRM
Reason which is legitimate and substantiated by evidence(statistics or facts )
indicate bona fide..
Company must ensure a redundant situation had arisen.
Otherwise take other measures ie. Limitation on recruitment , restriction on
overtime, reduction in Shifts / hours of work ,relocation to other department , re
training , multitasking , review bonuses / promotion exercise / rationalising cost and
expenditure , early retirement / VSS..
See Mamut Copper Mining Sdn Bhd v Chau Fook Kong @ Leonard & Ors
[ 1997 ] 2 ILR 625
- Clause 20 Code of Conduct For Industrial Harmony – steps to avert retrenchment.
2

10. RETRENCHMENT SHOULD BE THE LAST RESORT BUT IF IT IS
INEVITABLE PROPER PROCEDURE SHOULD BE COMPLIED WITH
AND ADEQUATE COMPENSATION ASSURED.
PROCEDURE ;
Code of conduct fo industrial harmony 1975 .
- Code has no legal force or sanction. see ;
Prai Textile Garment Employees Union v Aragon & Phoenix
Penang & Anor [1989 ] ! MLJ 481.
- Section 30 (5A) IRA 1967 –in making its award , the court may take
into consideration any agreement or tri-partite code relating to
employment practices.
- Judicial recognition of the applicability of the Code and Agreed
- Practices is found in Said Dharmalingam bin Abdullah v Malayan
Breweries (Malaysia ) Sdn Bhd [1997 ] 1 MLJ 352 FC.

11. • 1.Pre Retrenchment - see Code of conduct for Industrial
Harmony.
• Clause 20 of Code – take positive steps to avert retrenchment.
• 2. Consultation ;
• Clause 21 of Code.
• Company must consider whether ;
• a. consultation will have a bearing towards averting
retrenchment.
• See Kelab Gymkhana Miri v Lim Ngiang Wei & Ors
• [2001] ! ILR 383.
• b. whether it affect the position of the employee (redundant).
• See Advance Prestige Sdn Bhd v Benny Knut Newmann.
• [2002] 3 ILR 1256.
• Shahriman Sahalan & Ors v Natsevev TV Sdn Bhd.
• [2010] 1 LNS 1333.

12. • 3. Selection of staff to be retrenched.
• Article 22 (a) stipulates that an employer should select employees
for retrenchment in accordance with objective criteria
• Such criteria should have been worked out in advance with the
employees’ representatives or trade union
• Article spells out what are some of the appropriate criteria which
would ensure objectivity in the selection process
• Article, however, recognises that the interest of the employer to
maintain an efficient operation in its establishment are also
important criteria.
• -Article 22 (b) selection of employees based on objective criteria .
• Such criteria to have been worked out in advance with employees
representatives or trade union may as per Agreed Practices
annexed to the Code include ;

13. • (i) need for the efficient operation of the establishment or
undertaking
• (ii) ability, experience, skill and occupational qualifications of
individual workers required by the establishment or undertaking
under (i)
• (iii) consideration for the length of service and status (non-citizens,
casual, temporary, permanent)
• (iv) age
• (v) family situation;
• ( vi) such other criteria as may be formulated in the context of
national policies eg Section 60N EA – to terminate foreign
employees in similar position first and retain local employee.

14. • A fundamental principle closely adhered to is that
consideration should be given to an employee’s length of
service
• This is translated into the Last in First Out (LIFO)
principle
• It operates on the premise that where all things are
equal, management should retrench the latest recruit in a
retrenchment exercise
• LIFO grants a measure of protection to a more senior
employee who might otherwise be retrenched in
preference to a junior employee.
• Well recognised as a criteria by the union and
employees

15. • Has the advantage of saving an employer from
attempting to make invidious distinctions between the
merits and personalities of individuals of a kind likely to
stimulate jealousy and impair morale
• Where and employer does not have a set of Selection
Criteria which satisfies the Industrial Court as affording
objectivity in retrenchment decisions, the LIFO rule will
invariably be applied.
• See Kumpulan Peransang Selangor Bhd v Zaid Mohd
Nor.
• [1997] 2 CLJ 11
• See also Nordson (Malaysia) Sdn Bhd v Lee Chin Tao &
Anor

16. • Departure from LIFO
• Code recognises employers prerogative to manage an efficient
operation.
• If employer have valid reason to depart from LIFO Courts have
• Recognised them .
• Onus to justify departure lies with employer.
• Justifiable Grounds for departure ;
• a. Skill and Qualification –where the juniour employee has
special skills (technology) ,qualification or experience which
the company needed.
• See First Allied Corporation Bhd v Lum Siak Kee
• [1996] 2 ILR 1628

17. • b. Different level /category / establishment.
• LIFO applies only to employee in the same category and not
to an employee in a different category.
• See Aluminium Company of Malaysia v Jaspal Singh.
• [1980] 1 ILR 498
• Retrenchment carried out across the board for all categories
• See Norisham Ngah @ Ors v Saag Oil & gas Sdn Bhd.
• [2009] 2 LNS 0815.
• c. Parent and subsidiary company operating at different levels
and scale and distinct from each other..
• See Ekran Bhd v Cheong May Yoke
• [1997] 2 ILR 122.

18. • d . LIFO not one of the Criteria ;
• Selection criteria based on age , performance , medical
records and disciplinary records . Employers permitted to
adopt their own selection criteria as long as they have sound
and valid reason so to do.
• See Malaysian Shipyard & Engineering Sdn Bhd ,Johor bahru
v Mukhtiar Singh and 16 Ors [1991] 1 ILR 626.
• e . Efficiency and Trustworthiness. – basd on record .
• See Caree Publication Sdn Bhd v Sharmini Dorai
• [2000] 1 ILR 302
• f . Foreign Workers.- Employment Act 1955.
• See section 60 N –foreign workers to be retrench first.
• See also Section 60 O – Permanent resident exempted.

19. • 4. Notice / Warning.
• Employment Act 1955 section 12 (3) (a) – (d).
• Notification to Ministry at least one month prior to taking
retrenchment measures.
• Article 22 (a) of Code Employer to give early warning of
impending retrenchment as early as practicable.
• See Credt Corporation (M) sdn Bhd v Choo Kam Sing & Anor
• [1999] 8 CLJ 86
• See also Murni Murad v Federal Furniture (M) Sdn Bhd.
• [2009 2 LNS 0769.
• No legal obligation to warn but good practice to show done
bona fide. See Malayan Law Journal Sdn Bhd v Pok Li Ping.
• [2010] 2 ILR 140.

20. • Mutual Separation .
• Perfectly all right for employer to enter into a mutual agreement for employee to
leave employment.
• See Datin Noraini bt Kamal Bahrein v Perwira Affin Bank Berhad & Mahkamah
Perusahaan.
• [Semakan Kehakiman No R 1 -25-94-2002
• Voluntary Separation ;
• a. Discretion of company and voluntary in nature.
• See Kesatuan Pekerja Pekerja Letrik Malaysia Sdn Bhd v Panasonic AVC
Networks Kuala Lumpur Malaysia Sdn Bhd
• [2009] 1 ILR 259.
• Question of voluntariness will depend on facts of each ie .wether there had been
discussions ,request ,review of offer etc.
• See YM Raja Mohamood Raja Hamid v Rapid kl
• [2010] 2 ILR 538.
• Burden to prove forced to accept VSS is on employee.
• See Sagar V Velayuthan v Lucas Varity (M) Sdn Bhd
• [2009] 3 ILR 1079.

21. • A process in which the organisation delegates some of its core
operations or processes to experts.
• Consequence – specific function of employee outsourced .
• Employee becomes surplus / redundant
• See Mohd Ruslan Mohd Yusof & 24 Ors v Malayan Banking Berhad
[2011] 1 LNS 677.
• Reason to outsource must be justifiable. Ie – beneficial to company .
• See Mechmar Corporation (M) Bhd Elizabeth Kamalam Tegaraj
• [2007] 1 ILR 367.
• See also Muhammad Yusuf Awang & Ors v Guiness Aachor Berhad
• [2012] 4 ILR 134
• Employees affected offered fresh employment with outsorce
company
• See Ericsson Telecommunication Sdn Bhd vKamaruzaman Mohd
Yusof
• [2005] 1 ILR 843.

22. • Impact on manpower.
• Duplication of jobs, surplus employee and rightsizing.
• Employer to give notice under section 12 (1) (2) – (4) EA.
• See Barat Estates Sdn Bhd and Anor v Parawakan a/l
Subramaniam and ##5 Ors.
• [2000] 3 AMR 3030.
• Company should consider retention or offer Mutual / Voluntary
Separation before retrenchment exercise..
• See RHB bank Berhad v Mohd Sohimi Abu Bakar]
• [2004] 3 IILR 343.
• Employees entitle to retrenchment benefits.
• See Regulation 8 (1) and (2) Employment (Termination and
Layoff Benefits) Regulations 1980.

23. • Statutory requirements imposed by the EA eg section 13
• Employment(Termination and lay-off Benefits Regulation 1980.
• Regulations 2, 3, 4 and 5.on qualification .Regulation 6 on amount and mode ,
• Term of employment contract. . See also Regulation 7A terms to apply if better
than those provided by Regulation.
• Terms of a collective agreement
• Industrial court jurisprudence derived from Code of Conduct
• Less favourable terms in contracts of service re termination benefits
• Section 7 of Employment Act 1955 expressly provides that any terms and
condition of a contract of service or of an agreement which is less favourable
than a terms and conditions prescribed by the Act or regulations or other
subsidiary legislation made there under shall be void of no effect
• The more favourable terms and conditions of the Act or other subsidiary
legislation there under will be substituted in lieu thereof (Section 7A of EA)

24. • Section 14(3) the Industrial Relations Act 1967
• “Any term or condition of employment contained in a collective
agreement, which is less favourable than or in contravention of the
provision of any written law applicable to workmen covered by the
said collective agreement, shall be void of no effect to that extent and
the provisions of such written law shall be substituted thereof
• Why it is desirable to provide retrenchment benefits
• The provision of retrenchment benefits serve 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. In the context of good industrial relations
practice, it serves to minimize resistance and opposition to genuine
re-organization measures undertaken by management. It
acknowledge a workman’s security of tenure and recognizes the fact
that through no fault of his, such security of tenure has to give away
to his employer’s overriding interest of economy and efficiency.
• If CA provide better benefit than provisions of CA apply. See Reg 7A.

25. • A business organization which is in a sound financial
position should not retrench its workmen because it
wishes to achieve higher level of profitability without
giving fair and adequate compensation to its retrenchees,
its erstwhile employee who have contributed to the
success of the said company. It cannot be a
management prerogative of such an organization to
dispense with its workmen who have committed no
wrong and who enjoy security of tenure by paying
nothing at all to its retrenchees or making do with a paltry
or token sum of compensation
(Mamut Coppe Mining Sdn Bhd v Chan Fook King [1997] 2
ILR 625 )

26. 1. New Economic Model ;
a - moving up value chain , reform of labour laws with
enhanced safety net for protection of workers , effective
funding of unemployment insurance (UI).Best practice calls
for UI funding through contribution from employers and
workers.
b -Workplace Transformation ;
Modernise and align labour laws with International best
practices,
Strengthen HR management , enhance workers safety net
through
UI ,establish National Wage consultative Council and
facilitate PLWS.

27. • c . UI ;
• -purpose to alleviate reliance on retrenchment benefits to
cover income loss from a job by providing payouts when
needed.
• - need to be simple to minimise administrative cost .
• - it serves as partial income replacement before getting a
replacement job.
• - those retrenched to undergo up-skilling , re training for
continued access to UI benefits.
• - can look at various models.
• d .Preferential Payments of Retrenchment Benefits ;
• - to amend Companies Act 1965 to make retrenchment
benefits
• Priority over all other creditor in cases of winding up.

28. • e .-HR Management ‘
• i. job profiling . –to profile core business , job function and projection to ensure
growth / expansion /meet exigencies ‘
• Ii. Employee profiling – to profile each employees personality, performance ,team
spirit / work and networking .
• Iii. Career path – employees from the onset must be informed of their position ,
promotion opportunities / career path .
• iV – multi tasking – employees be given training , re training /reskilling ,relocation
to promote mobility and movement .
• f . Work life balance / Flexible working Arrangements .
• Flexible working hours ,Leaving early , Shift swap , Job sharing , choice of days
off , staggered hours , Telecommuting , Compressed work , home working ,
seasonal work , Project based work , fix term contract and pert time work .
• g .Legislative intervention .
• principle as per section 30(4) IRA. – public interest , financial implication and
effect on economy of the country , and on the industry concerned and also to
the probable effect in related or similar industries ..

29. • Managing Redundancy , Retrenchment and Separation is a
challenging task . It entails achieving a balance between
Employers managerial prerogative , viability and profitability in
a competitive globalised economy against employees security
of tenure.
• - The Statutory provisions and Court pronouncement stands
as a .guide to both employers and employees. Cases are
decided on facts which will differ and can never be the same .
They only stand as precedents or guide in our relentless effort
to strike a balance and make our beloved country more
productive and competitive.
• Towards this end there must be trust and confidence based on
mutual understanding creating a win - win situation.
• THANK YOU .