“Redundancy refers to a surplus of labour and is normally the result of the reorganization of the business of an employer, and its usual consequence is retrenchment, i.e., the termination by the employer of those employees found to be surplus to his requirements after the reorganization. Thus, there must first be redundancy or surplus of labour before there can be retrenchment or termination of the surplus.”DunstonAyadurai in Industrial Relations in Malaysia: Law and Practice.
The Industrial Court plays a vital role in any representation filed for unfair dismissal which is premised on retrenchment due to redundancy. For clarity, retrenchment is the act of dismissal which is a result of redundancy. Redundancy is when a company has a surplus of labour.
Company may pursuant to its plan for reorganization, rightsizing, merger and costs cutting during the financial downturn, may make decisions that would inevitably lead to situations that there would be an overlap of job function or excess of the employee or phasing out of job function.
“implementation of a reorganizing scheme adopted for reasons of economy and better management of the business, the services of some of the employees become excess of the requirement of the business, the employer is entitled to discharge such excess.” – Firex Sdn Bhd v. Cik Ng Shoo Waa;  1 ILR 226
There is no restriction that such exercises can only be undertaken at times of financial turmoil, these exercises can be undertaken at any time by the company and originate from a genuine business decision. When any employer undertake such measures it has to be one exercised fairly, genuinely and without ulterior motive
In William Jacks & Co (M) Bhd v. S. Balasingam;  3 CLJ 235 wherein the Court of Appeal held “whether the retrenchment exercises in a particular case is bona fide or otherwise, is a question of fact and of degree depending for its resolution upon the peculiar facts and circumstances of each case. It is well-settled that an employer is entitled to organize his business in the manner he considers best. So long as that managerial power is exercised bona fide, the decision is immune from examination even by the Industrial Court. However, the Industrial Court is empowered, and indeed duty-bound, to investigate the facts and circumstances of a particular case to determine whether that exercise of power was in fact bona fide.”
What are the basic questions that will be asked in justifying whether any exercise of retrenchment is made fairly, genuinely and without ulterior motive are as follows:-
- Whether the retrenchment was justified by the circumstances of the case;
- Whether the grounds for the retrenchment given by employer are true, that is, whether there had in fact occurred a reduction in the business of the company due to circumstances such as scarcity of raw material on the availability of which the running of the factory depends or stoppage of work under the orders of the government, or changes in economy, which made it impossible to continue the business except at a loss or on meagre profits; and
- Whether the order of retrenchment was motivated by bad faith and a desire to victimize or harass the workman whom for some ulterior reasons the employer wanted to discharge or dismiss”.
There are numerous cases whether the Industrial Court and the superior court have both affirmed and/or rejected retrenchment exercises and apart from the related principles of law to be adhered, each representation of unfair dismissal must be evaluated and confined to its own facts.
Employers before undertaking such action are required to ensure that all formal legal consideration are taken first and make the statutory notification as required. Failure to do so can attract liability in the form of representation for unfair dismissal.
Employers that have a valid justification by way of internal reports, by conducting analysis of the impact of such an exercise and have undertaken the best effort possible to avoid retrenchment stands in a strong position to defend itself if confronted with any representation of unfair dismissal.
Premjit Singh is the Managing Partner of Prem & Associates and he can be contacted at 012-5236755 or email to email@example.com