Navigating Retrenchment in Malaysia: Legal Guidelines for Employers

BY: EMPLOYMENT LAW MALAYSIA

Navigating Retrenchment in Malaysia: Legal Guidelines for Employers

Understanding Retrenchment under Employment Law Malaysia

The economic disruptions caused by global events such as the COVID-19 pandemic have compelled many Malaysian employers to consider retrenchment as a means to manage operational costs. While this is a recognized managerial prerogative, it must be exercised with strict adherence to Employment Law Malaysia to avoid unfair dismissal Malaysia claims and protect both employee and employer rights.

Employer’s Right to Retrench: Within Legal Boundaries

Malaysian courts have acknowledged that employers have the right to reorganize their workforce for greater efficiency. In William Jack & Co. (M) Sdn. Bhd. v. S Balasingam, the court confirmed that retrenchment is permissible when it stems from genuine redundancy. However, this right is not absolute. Retrenchment actions must not be arbitrary, discriminatory, or executed in bad faith. As established in Nordson (Malaysia) Sdn Bhd v. Lee Chin Tao & Anor, employers are not legally required to offer alternative employment, but fairness and transparency are paramount.

Key Legal Considerations for Retrenchment in Malaysia

1. Filing of Form PK1/98 before retrenchments in Malaysia

   • Employers must notify the labour office at least 30 days before executing retrenchments by submitting Form PK1/98.

   • Failure to comply constitutes an offence under Section 99A of the Malaysian Employment Act.

     
     

2. Foreign vs. Local Employees

   • Employers are legally obligated to prioritize the retention of local workers over foreign employees in similar positions (Section 60N, Malaysian Employment Act).

   • Non-compliance may lead to prosecution under Section 99A.

     
     

3. Termination Notice Requirements before retrenchment in Malaysia

   • For employees covered under the Employment Act Malaysia (e.g., earning ≤ RM2,000 or performing manual labor), notice periods are as follows:

     • 4 weeks (< 2 years of service)

     • 6 weeks (2–5 years)

     • 8 weeks (> 5 years)

   • For others, contractual notice terms apply. Failure to observe notice periods may be a contractual breach or a statutory offence.

     
     

4. Last-In, First-Out (LIFO) Principle for retrenchment in Malaysia

   • Employers are encouraged to adopt the LIFO rule unless justifiable reasons exist to deviate (e.g., performance issues). Deviation without justification may result in wrongful dismissal Malaysia claims.

     
     

5. Code of Conduct for Industrial Harmony

   • While not legally binding, the Code provides guidelines that help strengthen an employer’s defense:

     • Early warnings

     • Voluntary separation schemes

     • Phased terminations

     • Retrenchment of retirees first

     • Employee/unions communication

       
       

6. Termination and Retrenchment Benefits

   • Employees under the Employment Act Malaysia are entitled to benefits under the Employment (Termination and Lay-Off Benefits) Regulations 1980.

   • For others, entitlements depend on the employment contract Malaysia. Failure to comply may result in breach of contract claims.

Legal Consultation with an Employment Law Consultant or Employment Lawyer and Alternative Measures

Before proceeding with retrenchment, it is essential to consult a qualified employment lawyer Malaysia to ensure that the decision complies with labour law Malaysia and upholds employee rights in Malaysia. Employers should also explore less disruptive cost-reduction strategies, such as:

• Salary adjustments

• Reduced working hours

• Voluntary exit packages

Protecting Your Business and Employees

Engage an expert from Employment Law Malaysia or consult an employment law firm in Kuala Lumpur for comprehensive legal advice. If faced with a claim for wrongful dismissal in Malaysia or unfair dismissal in Malaysia, experienced representation is crucial. Employers should also:

• Review contracts with an employment lawyer in Malaysia

• Understand their obligations under retrenchment law in Malaysia

• Consult on issues such as discrimination at work in Malaysia, workplace harassment in Malaysia, and salary disputes in Malaysia

Common Questions from Employers and Employees:

• What are my rights if I am fired in Malaysia?

• What is the Malaysian Employment Act?

For any of these concerns, searching for an employment lawyer near me Malaysia can connect you to reliable expertise.

Employment Law Malaysia – Your Legal Partner in Workforce Management

Employment Law Malaysia provides employers and employees with clear legal guidance on:

• Retrenchment procedures

• Termination of employment Malaysia

• Ensuring fair practice in line with labour law Malaysia

Whether you are facing salary disputes, planning a reduction in force, or navigating sensitive areas like maternity leave Malaysia, sick leave Malaysia, or overtime pay Malaysia, the right legal support is vital.

Reach out to our team of expert employment lawyers Malaysia today for clarity and protection.

Employment Law Malaysia: Your Employment Law Experts

Employment Law Malaysia is a premier employment law firm Kuala Lumpur, specializing in:

• Labour law Malaysia compliance for employers.

• Employment contract lawyer Malaysia services for drafting and reviewing contracts.

• Industrial relations lawyer Malaysia assistance for workplace disputes.

• Wrongful termination lawyer Malaysia services for unfair dismissal claims.

• Workplace discrimination lawyer Malaysia cases, ensuring fair treatment in the workplace.

• Employment lawyers near me Malaysia search solutions for quick access to expert legal support.

For expert employment law advice Malaysia, contact Employment Law Malaysia today to safeguard your workplace rights. For expert employment law advice Malaysia, contact Employment Law Malaysia today to safeguard your workplace rights.

Click here to contact us for a Free Consultation

At www.employmentlawmalaysia.com, we are your dedicated employment law firm in Kuala Lumpur, offering expert employment law advice in Malaysia for both employers and employees. Our experienced team includes top-rated employment lawyers in Malaysia, including specialists in wrongful termination, employment contracts, workplace discrimination, and employee rights.

Whether you're looking for an employment contract lawyer in Malaysia, a wrongful termination lawyer in Malaysia, or a workplace discrimination lawyer in Malaysia, our firm is here to help. We are passionate about upholding labour law in Malaysia, protecting clients through every stage of employment—from probation periods, resignation, and termination, to retrenchment laws in Malaysia and industrial court proceedings.

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