Redundancy VSS & MSS

1. For staffs whose positions are still needed by the company, are we allowed to exercise pay cut due to the reasons as aforementioned? What is the maximum percentage/amount that we can cut?

Ø Yes, however the law generally requires a pay cut to be with the employee’s consent.

Ø There no statutory limitation for an employer to impose a maximum or bare minimum reduction in Malaysia so long as the pay cut is done with the employee’s consent.

Ø Be that as it may, based on the MOHR’s 2016 Circular and good industrial practices–

(a) employee must be notified about it;

(b) employer must submit Form PK to Pejabat Tenaga Kerja (JTKSM) / Department of Labour 30 days before the any proposed pay cut is implemented.

(c) any reduction must not go below or be lower than the minimum wages prescribed under the Minimum Wages Order;

(d) employee’s written consent must be obtained as;

(e) timeline of when this policy will be reviewed;

(f) explaining the reason behind the pay cut;

(g) % of the cut;

(h) period of the pay cut duration;

(i) actions that will be taken to improve the situation.

Ø Also, employer must make sure that the employment contract does not prohibit the employer to impose a pay cut during the period stated in the contract.

Ø In Singapore, MOHR Singapore sets a maximum amount deductible at not more 50% of total salary payable.

Ø Draft Notice of Salary Reduction and the Consent Form

2. For staff that are redundant, are we allowed to exercise retrenchment? Any compensation required by law?

Ø Yes, Malaysian courts have taken the clear and settled position that it is the prerogative of the management to decide on the reorganisation of its business.

Ø Refer to Retrenchment Guidelines by JTKSM.

Ø However, the actual reason for retrenchment is when there is a situation that creates a ‘need’ to undertake retrenchment exercise (Gopal Sri Ram JCA-William Jack & Co.(M) v Balasingam, 1997).

Ø So it is the ‘situation’ that leads to deciding a retrenchment and not only due to redundancy. So what are the actual ‘situations’ that may influence an organisation to conduct a retrenchment exercise? Well the answers are as follows:

o When there is a plan to reduce manpower as part of business or organisation or cost restructuring plan.

o When company shuts down it’s business operations fully.

o When company closes down any of their branch operations or offices.

o When there is a merger of two or more companies.

o When a company has been bought over by another company.

o The factor of redundancy only happens when the above situations has created a ‘surplus’ of workers that are not re-hired, transferred or offered readjustment to new job or when the new management who had bought over the company had decided not offer re-employment.

Ø Employer is required to comply to the Retrenchment Circular and also inform the Labour Department at least 1 month before the retrenchment date by filing in Form PK/98.

Ø As for employees, though retrenchment is a managerial prerogative, they do have the following rights. Employees have-

· The right to know the reasons of such exercise to be carried out;

· The right to be notified within a reasonable time before the date of retrenchment;

· The right to be compensated in accordance to the employment provisions stipulated in Malaysia; and

· The right to challenge the retrenchment if there is any element of unfair labour practice.

Ø Retrenchment Method (VSS & MSS)

There are 3 common types of retrenchment in Malaysia-

1. Involuntary Separation

2. Voluntary Separation

3. Mutual Separation

ØInvoluntary Separation

Involuntary separation happens when the employee has no control over the retrenchment planning and decision to retrench is fully decided by the employer. This is a common retrenchment exercise where companies can lay off workers due to cost, business or operational factors. The only thing that matters in this sort of exercise is valid grounds for such decision to be made, reasonable time to notify the selected employees and compliance to legal requirement when compensating them.

ØVoluntary Separation

Unlike involuntary separation, voluntary separation gives employees the choice to decide if he/she is willing and ready to accept his/her contract to be ceased. This type of retrenchment exercise gives both parties the advantage. Employees can review the criteria and terms and the lay- off package offered before they decide to apply for it. There is no compulsion or pressure to accept such lay off and they can still choose to continue working.

For employer, this sort of method can help them to reduce manpower cost such as medical and wage bills of those who are having continuous medical issues resulting in dip in work performance. Also it helps to reorganise their manpower and promote career pathway for younger employees when senior employees are given a choice for alternative employment options when they offered an attractive lay off package.

ØMutual Separation

Similar to Voluntary Separation, Mutual Separation provides an avenue for both the employer and employees’ who are selected to negotiate terms and conditions for retrenchment. The employer still has the right to select the potential employee to be retrenched. However, the employee can still negotiate a better and attractive lay off benefits as long as both parties are agreeable. The objective here is to have a win-win situation where the retrenchment exercise makes both of them satisfied and happy.

Ø Section 60N of the Employment Act 1955 has clearly states that if there is a situation arises for staff reduction, then the company must retrench their foreign workers first. The Termination and Lay Off Regulations 1980 under Regulations 5(1) indicates that if an employee is not provided a minimum of 12 days work continuously or pay 12 days wages in 4 weeks shall be deemed that he/she has been “laid off”. Regulation 6 further states that employers are obligated to pay lay off benefits based on the following condition:-

1 – 2 years of service - 10 days wages for each year of service

More than 2 years – 5 years - 15 days wages for each year of service

More than 5 years - 20 days wages for each year of service

The Industrial Relations Act 1967 on the other hand provides avenue for employees’ who may feel that the retrenchment is conducted in mala fide manner or without valid reasons or as a window dressing with intention to hire other workers. Section 20(3) provides an opportunity for the retrenched employee to file case as “unfair dismissal” and claim for reinstatement. For employees who are not covered by the Employment Act 1955, they can file their case and seek any possible remedy if they are not paid any lay off benefits. There are some cases of which IR Court have instructed employers to pay retrenchment benefits based on lay regulations terms.

ØAn employee who is not covered by the EA is only entitled to termination benefits if it is provided in his employment contract. If the contract is silent, then it is up to the employer whether or not to pay termination benefits, and how much to pay.

ØHowever, the bare minimum redundancy benefits accepted and practiced by the industries are that in absence of such redundancy benefits’ terms in the employment contract-

1 – 2 years of service - 10 days wages for each year of service

More than 2 years – 5 years - 15 days wages for each year of service

More than 5 years - 20 days wages for each year of service

ØThe Code of Conduct for Industrial Harmony — a guide for employers considering retrenchment

Although it is not legally-binding, the Industrial Court encourages employers to comply with the Code of Conduct for Industrial Harmony which was issued in 1975.

The Code recommends that, where redundancy is likely, an employer should take positive steps to avert or minimise reductions of workforce by adopting appropriate measures such as —

· limitation on recruitment;

· restriction of overtime work;

· restriction of work on weekly day of rest;

· reduction in number of shifts or days worked a week;

· reduction in the number of hours of work;

· re-training and/or transfer to other department/work.

Where a retrenchment becomes necessary, the Code encourages employers to take the following measures:

· Giving as early a warning as practicable to the affected employees.

· Introducing schemes for voluntary retrenchment and retirement and for payment of redundancy and retirement benefits.

· Retiring workers who are beyond the retirement age.

· Assisting workers to find alternative employment.

· Spreading the termination of employment over a longer period.

· Ensuring that the employees are informed or consulted before a formal announcement is made.

The Code also recommends that the employer should select the employees to be retrenched based on an objective criteria, and that retrenched employees should be given priority to be re-employed by the employer if the employer decides to employ workers again in the future.

Non-compliance with the Code will not mean that a retrenchment will be deemed to be unfair, but employers should try to comply with the Code where possible because the recommendations in the Code are good practice, and it could also strengthen the position of an employer if an employee brings an unfair dismissal claim as a result of the retrenchment.

ØRetrenchment Process and Procedures

During Pre- Retrenchment phase, the following steps must be undertaken.

a. Notification in writing to all employees on company’s planned retrenchment exercise detailing the reasons, selection process and procedures;

Length of service Length of notice

< 2 years 4 weeks

2 years to < 5 years 6 weeks

5 years & above 8 weeks

b. Notify the Labour Department pertaining to the retrenchment exercise and file Form PK/98 (30 days before the retrenchment date);

c. Prepare retrenchment package in accordance to the required regulations;

d. Conduct individual meeting session with selected employees and explain clearly every detailed information on terms and lay off package offered and possible other assistance if required;

e. Issue a comprehensive offer letter with details of the lay-off package, job hand-over process, checklist of documents and other relevant information.

During Retrenchment phase, the HR department should-

a. Assist employees in job counselling and job re-placement;

b. Provide the employees the necessary advice and information on job openings within the industry;

c. Provide testimonial letters in support for job application;

d. Post employees profile to the HR networking group within the industry circle.

During the post –retrenchment phase, the HR department must at least get in touch with the employees and find out if they have secured any jobs. This is to show concern and value their contributions to the company. Let them know that the company is willing is ready to give feedback if their potential employers are seeking for reference check.

Ø Retrenchment Notice and Acceptance Form.

3. Based on the aforementioned reasons, can the employees pursue the action in industrial court? If yes, do we stand a high chance to win the case?

Ø As for Pay Cut usually the employee may claim for constructive dismissal (unless consent is not procured and no informed consent) whereas for Retrenchment, the employee may claim for unfair dismissal.

Ø It all depends on whether the decisions made by the Company, be it on a pay cut or retrenchment is done with just cause and excuse and is done in good faith.

Ø In Goon Kwee Phoy v. J & P Coats (M) Bhd [1981] 1 LNS 30; [1981] 1 MLRA 415; [1981] 2 MLJ 129 Raja Azlan Shah CJ (Malaya) (as Almarhum DYMM Paduka Seri Sultan Azlan Shah Sultan Perak Darul Ridzuan then was) speaking for the Federal Court ruled:

“Where representations are made and are referred to the Industrial Court for enquiry, it is the duty of that court to determine whether the termination or dismissal is with or without just cause or excuse. If the employer chooses to give a reason for the action taken by him, the duty of the Industrial Court will be to enquire whether that excuse or reason has or has not been made out. If it finds as a fact that it has not been proved, then the inevitable conclusion must be that the termination or dismissal was without just cause or excuse. The proper enquiry of the court is the reason advanced by it and that court or the High Court cannot go into another reason not relied on by the employer or find one for it.”

Dr Dunston Ayadurai in his text Industrial Relations in Malaysia: Law & Practice 3rd Edn at p 297 states:

“A workman can seek a remedy under s. 20 only if he had been dismissed. More often than not, there is no dispute that there was an actual dismissal of the workman by his employer. The only issue for the Industrial Court to determine is whether the dismissal had been for just cause or excuse, the onus of proving the existence of the same being cast upon the employer.”

Ø In discharging its duty, the Court is guided by the Court of Appeal's decision in William Jacks & Co. (M) Sdn Bhd v. S Balasingam [1997] 3 CLJ 235. It was held in that case that "whether the retrenchment exercise 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 was affirmed by the Court of Appeal that "an employer is entitled to organise 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." Nevertheless, according to the Court of Appeal, the Industrial Court is empowered, and duty-bound, to investigate the facts and circumstances of the case to determine whether that exercise of power was in fact bona fide.

Ø The Company in defending the dismissal contended that the Claimant's termination from his employment was due to the restructuring of the Company and the retrenchment exercise that follows. Hence it has to be stated at the very outset that the burden to proof redundancy or retrenchment lies on the employer hence the Company. This has been enunciated in various cases, one of which is Bayer (M) Sdn Bhd v. Ng Hong Pau [1999] 4 CLJ 155.

Ø The Court of Appeal in that case held that the employer must come with concrete proof to prove actual redundancy on which the dismissal was grounded. Merely showing evidence of a re-organisation undertaken by the employer is not sufficient.

4. Is there any way we can avoid/reduce legal implication?

Ø Adhere to proper procedure before retrenching;

Ø Adequate notice must be given;

Ø Proper consultation and explanation with affected staff/employees;

Ø Informed consent;

Ø Offer alternative options and remedies;

Ø Follow good industrial harmony practice;

Ø Decisions must be made with just cause & excuse and employees must be informed about the extent of the impact;

Ø Employee must sign the consent form for pay cut; and

Ø As for retrenchment – no further claims clause has been inserted.

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