Retrenchment Law in Malaysia: Key Considerations for Employers - Employment Lawyer in KL Malaysia

BY EMPLOYMENT LAW MALAYSIA

Retrenchment Law in Malaysia: Key Considerations for Employers - Employment Lawyer in KL Malaysia

Navigating Retrenchment in Malaysia: Key Considerations for Employers

In light of economic challenges like the COVID-19 pandemic, many Malaysian businesses have turned to retrenchment as a cost-cutting measure. While employers have the right to retrench redundant employees, they must adhere to legal procedures to prevent claims of unfair dismissal. This article outlines essential considerations that employers must follow to ensure a lawful retrenchment process.

Employer's Prerogative and Legal Boundaries

Employers are entitled to restructure their business operations for efficiency, including retrenching redundant employees, as affirmed by case law like William Jack & Co. (M) Sdn. Bhd. v. S Balasingam. However, this right is not unrestricted. Retrenchment must be based on a genuine redundancy and should not be arbitrary, malicious, or discriminatory. Employers are not required by law to offer alternative employment, as seen in the case Nordson (Malaysia) Sdn Bhd v. Lee Chin Tao & Anor.

Key Considerations for Employers

1. PK Form Filing

Employers are required to notify the Labor Office of retrenchment by submitting Form PK1/98 (Employment Retrenchment Notification 2004) at least one month prior to action. Failure to comply is an offense under Section 99A of the Employment Act 1955.

2. Prioritizing Local Employees

Employers must prioritize local employees for retrenchment over foreign employees in the same roles, according to Section 60N of the Employment Act 1955. Failure to comply is also an offense under Section 99A.

3. Termination Notice

For employees covered under the Employment Act 1955 (those with salaries ≤ RM2,000 or those in specific manual labor roles), employers are required to issue written notice of retrenchment. Notice periods vary based on years of service:

• 4 weeks (less than 2 years),

• 6 weeks (2-5 years),

• 8 weeks (5+ years).Failure to provide proper notice constitutes a breach of contract or an offense under Section 99A of the Employment Act 1955, depending on the employee's status.

4. Adherence to "Last-In, First-Out" (LIFO) Principle

Employers should generally follow the "Last-In, First-Out" (LIFO) principle when selecting employees for retrenchment unless valid reasons exist for deviation, as highlighted in Saw Kong Beng v. Mahkamah Perusahaan Malaysia & Anor. Failure to adhere to LIFO may lead to unfair dismissal claims.

5. Code of Conduct for Industrial Harmony

While not legally binding, the guidelines under the Code of Conduct for Industrial Harmony should be followed. These include offering early warnings, voluntary retrenchment, assistance for job placement, and phased terminations. Adhering to these guidelines can help defend against unfair dismissal claims.

6. Termination Benefits

Employees under the Employment Act 1955 are entitled to termination benefits in line with the Employment (Termination and Lay-Off Benefits) Regulations 1980. Employees outside the Act should be compensated according to their employment contract. Failing to pay proper termination benefits can lead to claims of breach of contract.

Legal Counsel and Alternatives

Before proceeding with retrenchment, employers should consult with an employment lawyer Malaysia to ensure compliance with legal requirements. A well-executed retrenchment process can significantly reduce the risk of industrial disputes. Employers should also explore alternatives such as salary cuts or workforce restructuring before resorting to retrenchment.

Protecting Your Business and Employees

Employers are strongly advised to consult an employment lawyer in KL Malaysia or an employment law firm in Kuala Lumpur for expert guidance on retrenchment law in Malaysia. Whether facing claims of wrongful termination Malaysia, an employment contract dispute Malaysia, or concerns about HR legal compliance Malaysia, a qualified labour lawyer Malaysia can provide tailored advice.

For matters relating to constructive dismissal Malaysia, employee rights lawyer Malaysia, or employment dispute resolution Malaysia, professional legal assistance is crucial. If you suspect workplace discrimination Malaysia, contact a workplace discrimination lawyer Malaysia for representation.

Conclusion

Retrenchment remains a valid tool for business efficiency but must be handled with care to avoid legal complications. Employers should understand their obligations under labour law Malaysia and seek professional legal assistance when implementing retrenchment plans. Consulting an employment lawyer Malaysia ensures a fair process for both employers and employees, safeguarding your rights and minimizing the risk of unfair dismissal claims.

For expert advice, search for "employment lawyers near me" or reach out to Employment Law Malaysia, your trusted partner for employment law advice in Malaysia.

Employment Law Malaysia: Expert Legal Support for Employers and Employees

Employment Law Malaysia is a leading employment law firm KL offering comprehensive services in:

• Labour law Malaysia compliance for businesses

• Employment contract dispute Malaysia resolution

• Industrial relations lawyer Malaysia for workplace disputes

• Wrongful dismissal lawyer Malaysia representation

• Workplace discrimination lawyer Malaysia services

• Retrenchment law Malaysia compliance and guidance

Contact us today for a free consultation via WhatsApp (+6011-1630-0091) or email (general@employmentlawmalaysia.com) for expert advice tailored to your employment needs.