Announcement

Successfully addressing reorganisation, redundancy and compliance in Employee Retrenchment

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29 January 2024

P. Jayasingam from Zul Rafique & Partners’ Employment & Industrial Relations Practice Group had successfully acted for ROCA Malaysia Sdn. Bhd. (“the Company”) in an unfair dismissal claim by a former employee (“the Claimant”) at the Industrial Court, wherein YA Puan Eswary Maree handed down Industrial Court Award No. 2328 of 2023 dated 6.12.2023.

Brief Fact
The Claimant was employed by the Company in 2010 as a Quality Assurance (“QA”) Manager. Due to a series of events including drastic declination of the Company’s performance and absolute cessation of the Company’s operations during the Movement Control Order (“MCO”), the Company adopted several cost-cutting measures. In July 2020, the Claimant was served with a retrenchment letter which specified the economic situation of the Company and its decision to retrench her. The Claimant was paid RM91,905.55, being 3 months’ salary in lieu of notice, payment in lieu of earned annual leave arrears payment of voluntary salary reduction and retrenchment benefits. In addition to that, an amount of RM63,626.57 was paid to the Claimant as retirement benefit.

Decision of the Industrial Court
The Industrial Court ruled in favour of the Company based on 3 grounds below:

1) There was a genuine need for reorganiation exercise by the Company.   
The Company had successfully proven a genuine need of reorganisation due to factors such as (i) declination of Company’s performance; (ii) cash flow difficulties; and (iii) decrease in demand for the Company’ goods thereby resulting in the Company’s inability to resume production.
 
2) There was a genuine redundancy situation which led to the Claimant’s retrenchment.
The Company had successfully proven that that redundancy situation was genuine due to several factors including (i) reduction of workload in the QA and Technical departments resulted in a merger of both departments; (ii) the Claimant’s role was no longer material because deadlines for regulatory compliance applications were temporarily extended and no site visit was allowed during MCO; and (iii) the other employee who was selected over the Claimant had better overall experience in handling both departments; and (iv) the position of QA Manager has not been restored.
 
3) The Company had complied with the accepted standards and procedure in retrenching the Claimant.
The application of the principles of Last in First Out rule (“LIFO") is not mandatory in determining the retrenchment of employees. The Honourable Court decided that the Company had exercised its retrenchment selection based on a valid criterion which includes experience and skills.

Key Takeaway
  • In a scenario where a Company goes through exercises involving restructuring and/or retrenchment, it is crucial to apply an objective, genuine and valid criterion in determining affected employees.
  • In a scenario where a Company goes through exercises involving restructuring and/or retrenchment, it is crucial to apply an objective, genuine and valid criterion in determining affected employees.
  • The Industrial Court may take into account in arriving at its decision, whether the employer had ensured that the affected employee was fairly compensated when retrenched from service.
For more insight into this area of law, please contact our Partner in our Employment & Industrial Relations Practice Group:
P Jayasingam
Wong Keat Ching
Thavaselvi Pararajasingam
Teoh Alvare

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