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Talking about retrenchment

(Rubber stamp by prototype7 |

(Rubber stamp by prototype7 |

S K WIGNESWARY was an executive at an established media organisation for more than nine years. One Monday, she went to work as usual. By that evening, she was out of a job.

“The department head made an announcement at about 4pm that a list of names would be called out and our services would be terminated,” Wigneswary tells The Nut Graph in an interview. Wigneswary, along with half her department, were paid a month’s salary in lieu of notice, and retrenchment benefits, and terminated with immediate effect. They were told their department would be closed and their remaining colleagues moved to a different department. They were asked to immediately pack their things and leave by the end of the day. Some of her colleagues had worked in the company for more than 10 years.

Was their retrenchment illegal? Can companies terminate long-standing employees within a day? And doesn’t a company have to follow the “Last In, First Out” (Lifo) principle?

What is binding?

Wigneswary says she and her colleagues were angered by the manner in which the termination was carried out. “I felt they should have given us more notice,” says Wigneswary. “I felt it was cruel of them to terminate us within a day. The management also watched us when we were packing, observing what we were taking with us. There was no need to stand guard and treat people like they were going to steal from the company.”

She also says the company did not follow the Lifo principle. Some junior colleagues of similar rank were retained, while senior staff were dismissed.

Furthermore, there had been no inkling that the company was unhappy with her performance. “There was no letter or memo sent for us to buck up. Appraisal was generally good; we were given increment and bonus. So on what basis did they keep the newer staff and let the older staff go?”

While Wigneswary’s questions are legitimate, the fact is, it’s not that straightforward. When retrenching employees, employers are bound by the Employment Act 1955 and the Employment (Termination and Layoff Benefits) Regulations. The Act and Regulations stipulate the amount of compensation retrenched employees should receive, as well as the notice they should be given. The law, however, allows for employees to be paid an amount in lieu of notice.

The best practices for carrying out retrenchments can be found in the Code of Conduct for Industrial Harmony, an agreement made between the Human Resources Ministry and employers. Under the code, employers are required to give workers as early a warning as practisable that retrenchment is imminent.

Employers should also try other cost-cutting measures such as limiting recruitment and restricting overtime work before resorting to retrenchment. They are also required to consider the length of service of employees when deciding whom to terminate.

However, the code itself states: “There is no legal obligation on the part of the employer to adhere to the contents of the Code.” That said, the Industrial Court may and does take the code into consideration when considering employees’ complaints.

Bona fide

The Industrial Court does not always apply the code rigidly. It is bound to make decisions according to rules of equity and good conscience. The Industrial Court therefore often looks at the circumstances as a whole in retrenchment cases to determine whether the terminations were done in good faith.

Labour lawyer and former Industrial Court chairperson Lim Heng Seng illustrates factors the court would consider, giving the example of when staff are terminated because their jobs have been outsourced.

“Outsourcing raises its own issues – for instance, whether consultation with the employees might have led to a situation where the employer could reduce costs in a way that the employees themselves agreed to and [hence] avoid outsourcing,” Lim tells The Nut Graph in a phone interview.

“There have been shocking cases where employees are retrenched on the pretext of outsourcing. However, when the terminations are challenged, it is found they were not genuine as the savings involved were so minimal, they could have been achieved with simple reorganisation within the company,” Lim says.

So how far should the law go in protecting employees? Is it sufficient that retrenchment best practices are found in a non-binding code and not in legally enforceable statutes? Can the courts be entrusted with balancing employers’ rights to reorganise its business and employees’ security of tenure and livelihood?


Electronic Industry Employees Union general secretary Bruno Pereira is doubtful. “The code is not binding and many companies do not follow it,” he tells The Nut Graph in an e-mail interview. This is even though the code recognises that ensuring employment security upholds good industrial relations because insecurity and fear have a major influence on attitudes to work.

Even then, despite the importance of employees’ emotional well-being, Pereira says the court does not take into account a retrenched employee’s emotional distress when considering if a retrenchment was done in good faith.

Labour law amendments

Meanwhile, the government has announced its intention to make amendments to Malaysia’s labour laws. Pereira, the Malaysian Trades Union Congress (MTUC) and the Bar Council have spoken out against the amendments, saying employees’ security of tenure would be jeopardised.

The proposed amendments would reportedly make it easier for employers to hire workers on fixed-term contracts, even for long durations. MTUC secretary-general G Rajasekaran said in a press statement that if the proposed amendments were passed, even workers who had worked for 10 years on a contract basis would have no recourse if terminated.

A balancing act

It’s a tough job for the government. On one hand, it does not want to stifle companies, and wants to ensure that they have enough flexibility to restructure their businesses and remain profitable. On the other, it is also in the national interests to ensure that employees are not arbitrarily terminated. Without a social safety net in Malaysia, those who are retrenched and unable to find new jobs end up being unable to contribute to economic activity and growth.

As it is, employees like Wigneswary would have to convince the court that her termination was done in bad faith before she would be entitled to reinstatement or further compensation. What would the effects be if labour laws were amended to make it easier for employers to terminate their employees?

Ding Jo-Ann is grateful The Nut Graph followed best practices in its retrenchment and is looking forward to continuing her column under Plan B.

Related post: Who’s protecting workers’ rights?

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One Response to “Talking about retrenchment”

  1. Jamie Khoo says:


    Citing the law and all is great- but like they said, implementing the law is a whole new world in Malaysia.

    Would it be possible for TNG to feature another article on exactly how long it takes to file a case in court and how effective are our courts in demanding compensation from the employer?

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