Introduction

3. 1) This is an Industrial Court decision relating to claims of unfair dismissal without just cause and/or excuse by four employees against their employer, Taylor’s University Sdn Bhd (“the Company”).
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5. 2) The case addresses the requirements and the procedures involved when an employer retrenches its employees. The case also addresses the Company’s obligations to abide by the Code of Conduct for Industrial Harmony (1976), in respect of retrenchment exercises.
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7. 3) For brevity, The Code of Conduct for Industrial Harmony refers to an agreement made between the Human Resources Ministry and the Malaysian Council of Employers’ Organisations. It provides guidelines for a harmonious relationship between employers and employees.

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Background Facts

1. 4) On September 2019, the Company had reorganised its structure and carried out a retrenchment exercise terminating the employment of a number of its employees. In this regard, the employment of the four employees (“Claimants”) were terminated as part of the Company’s reorganisation and retrenchment exercise.
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3. 5) The Claimants had signed the redundancy notice served by the Company under protests and thereafter pursued their claim against the Company for termination of employment without just cause and/or excuse. In this respect, the Claimants had individually pursued their claim against the Company and the matter was consolidated and heard before the Industrial Court.

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The Claimants’ Claim

1. 6) In this respect, the Claimants allege that the Company’s retrenchment exercise is carried out mala fide. The basis of all of the Claimants claims is summarised as follows:
   1. a) The Claimants had been under the Company’s employment for a period of more than 7 years and held various administrative or managerial positions within the Company.
   3. b) Their respective positions and departments were crucial and played an important role for the functioning of the Company. In this respect, the Claimants allege that their respective departments were still part of the Company after the alleged retrenchment exercise. It was also the Claimants’ claim that their positions were replaced by new employees. The Company had also been hiring third party contractors to take over the Claimants’ duties within the Company.
   5. c) The Company was not going through any financial difficulties as it had continuously recorded yearly profits, had given out yearly bonuses and had paid hefty dividends to the Company’s shareholders.
   7. d) The Claimants also contends that they were not consulted nor were provided alternative employment within the Company prior to the termination of their employment. In this respect, the Claimants claims that the Company had failed to look into other possible remedies to its alleged financial difficulties besides retrenchment.

1. 7) Premised on the above mentioned, the Claimants claim that the Company’s retrenchment exercise was carried out with mala fide intention. The Claimants also allege that based on the above, the Company had breached Code 20 of the Code of Conduct for Industrial Harmony by failing to practice the Last in First Out Principle.
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3. 8) The Last in First Out Principle (or commonly referred to as LIFO principle), is one of the guidelines provided under the Code of Conduct for Industrial Harmony for employers carrying out retrenchment exercises. Pursuant to the Code of Conduct for Industrial Harmony, an employer would need to consider the length of service by its employees before retrenching them. In this respect, the LIFO principle would mean that the last employee hired by the Company ought to be retrenched first, before other senior employees are retrenched.

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 The Company’s Defence

1. 9) The Company in this respect alleges that there is a change in the economic landscape of the Company’s industry, as a result the Company had decided to reorganise its operations in order to remain cost efficient.
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3. 10) As a result of the said change in economic landscape, the Company’s financial position is also affected and it is forced to carry out a reorganisation exercise involving the retrenchment of its employees. In this respect, the Company highlighted that it had retrenched a number of its employees and only the Claimants had pursued their claim against the Company.
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5. 11) The Company also highlighted that it had served out its redundancy notice earlier than it was contractually required to do under the Claimants’ employment agreements. The Company had also offered the Claimants compensation packages, which were accepted by the Claimants.
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7. 12) The Company thereafter set out its basis of selecting the Claimants for retrenchment, which is summarised as follows:
   1. a) The Claimants’ respective departments had been reorganised and merged with other departments within the Company. As a result of these mergers, each the Claimants’ role and duties within their departments had become redundant and a financial burden on the Company’s operations.
   3. b) Based on the Company’s own matrix of evaluation, the Claimants were the least performing members within their respective departments and/or roles within the Company. The Company utilised this evaluation to select the underperforming employees as part of its retrenchment exercise.
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8. 13) Premised on the above, the Company had decided to retrench the Claimants. In this respect, the Company also stated that it had not replaced the Claimants positions with new employees, in fact the employees who took over the Claimants’ positions are experienced individuals who have now taken on multiple duties as part of the Company’s reorganisation exercise.

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The Court’s findings

1. 14) The Court in determining whether the Claimants were dismissed with just cause or excuse in the retrenchment exercise undertaken by the Company addressed the following:
   1. i) Whether there was a genuine need for the reorganisation exercise by the Company;
   3. ii) Whether a genuine redundancy situation had arisen which led to the retrenchment of the Claimants; and
   5. iii) Whether the Company had complied with the accepted standards and procedure when selecting and retrenching the Claimants.
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2. 15) In this respect, the Court found that the Company was going through financial difficulties and had a genuine need to reorganise its structure and carry out the retrenchment exercise.
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4. 16) Further the Court found no mala fide intention with respect to the termination of the Claimants’ employment as the Company had given sufficient notice prior to their termination and had compensated them accordingly. The Court also noted that the Claimants were not the only employees retrenched by the Company.
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6. 17) With respect to the Company’s compliance of accepted standards and procedures, the Court held that the Code of Conduct for Industrial Harmony is not a statutorily binding legislation but a mere guideline of recommendations for the Company. Therefore, the Company is not bound by it and the Company is within its rights to carry out the retrenchment exercise based on its own evaluation and practices.

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Key take-aways

1. 18) The decision of this case provides that an employer carrying out a retrenchment exercise would need to discharge the burden of proof to show that a genuine redundancy situation had arisen which requires the retrenchment of its employees.
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3. 19) The case also establishes the employer’s autonomy and prerogative with respect to its own operations. In this case, this autonomy extends to reliance of its own evaluation methods to assess and retrench its employees. Further, the case provides that an employer does not necessarily need to consult and arrange for alternative employment for its retrenched employees.
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5. 20) The Court also clarified that an employer is not bound by the Code of Conduct for Industrial Harmony. This clarifies the authority and weight of the Code of Conduct for Industrial Harmony in situation whereby the Company may justify its own actions which are contrary to the Code of Conduct for Industrial Harmony.

This article is intended to be informative and not intended to be nor should be relied upon as a substitute for legal or any other professional advice.

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About the Author

Rohan Arasoo Jeyabalah

Partner

Harold & Lam Partnership

rohan@hlplawyers.com

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Syed Mohamed Ashiq

Associate

Harold & Lam Partnership

syed@hlplawyers.com