This paper focuses on retrenchment due to redundancy during

reorganization. It begins by defining 'retrenchment' and then explores the

legal conditions for permissible retrenchment. It will explain the process
of retrenchment based on established codes, discuss the 'last in, first
out' principle, reasons for departing from this principle, and conclude
with findings based on relevant laws.

Retrenchment due to redundancy

Retrenchment means the termination of the contract of service of

employees in a redundancy situation which arises from several factors
such as reorganization.

The term ‘retrenchment’ has also been explicitly explained by His

Lordship Datuk Gopal Sri Ram JCA in William Jacks and Co (M) Bhd
v S Balasingham as Employer's dismissal of extra staff for any reason
except disciplinary action

s 13(3) of the IRA 1967, recognises the right to terminate a contract of

employment due to redundancy or reorganization. A redundancy may be
said to occur in the circumstances mentioned under S 12(3)(a).

In East Asiatic Co v Valen Yap ,An employer can reorganize for

efficiency or convenience and retrench redundant employees, but they
must do so in good faith without unfair motives or discrimination.In
Stephen Bong v FCB (M) Sdn Bhd & Anor ,The Industrial Court
approved the retrenchment exercise made by employe because there
was less work, so those employees were no longer needed.In Harris
Solid State (M) Sdn Bhd v Bruno Gentil Pereira & Ors ,If employer
terminates services of employees purely because of their trade union
activities, this is victimisation & unfair labour practice

In the case of Gold Coins Feedmills Sdn Bhd v Ibrahim Shah, the
court's evaluation of retrenchment due to redundancy revolves around
three pivotal questions. Firstly, it examines whether the company's
restructuring was conducted in good faith, Secondly, the court assesses
whether the reorganization resulted in redundancy, thereby justifying the
necessity for employee retrenchment. Lastly, the court delves into the
fairness of the employee selection process for retrenchment according to
fair guidelines such as LIFO
PROCEDURE OF RETRENCHMENT

Per Zainuddin Muhamad employers must strictly follow the Code of

Conduct for Industrial Harmony's provisions on retrenchment. (‘Code’).
The code offers guidance to both employers and workers, aiming for
better industrial harmony, with a specific focus on issues like redundancy
and retrenchment.S30(5A) IRA states that Industrial court may take into
consideration any agreement or Code relating to employment practices
in making award. In Lilly Industries,Ignoring the agreed terms in the
Code would be seen as unfair treatment of workers or even as acting in
bad faith. However In Said Dharmalingam v Malayan Breweries Sdn
Bhd it was held that Requirements of Code are not absolute but
S30(5A) IRA requires Industrial Court to consider compliance of code
as a factor in determining employer’s conduct. While section 30(5A) remains
discretionary, the Industrial Court consistently leans on the Code when deciding
retrenchment cases

RETRENCHMENT PRINCIPLES ENUNCIATED BY THE INDUSTRIAL

COURT

LIFO is an objective criteria under Clause 22(b) of the Code ,this

principle should always be considered as an important feature in the
selection of employees for retrenchment. LIFO means junior employee
would have to leave employment before senior could be directed to
leave.If LIFO not complied with, it may render company’s decision to
retrench an employee an unfair labour practice. This System rewards
employees who have so far been loyal to employer.

In Poly Electronic ,Selection of employees for retrenchment must be in

accordance with LIFO principle. If not, even a justifiable retrenchment
exercise could be declared invalid.

Departure from LIFO

In Supreme Corporation Bhd v Doreen Daniel & Ong Kheng Liat,The
principle of LIFO has to be adhered to by the employer in retrenchment
exercises very strictly unless there are valid, acceptable and sufficient
reasons for departure from the said principle. It's the employer's
responsibility to explain why they didn't follow the "Last In, First Out"
rule.

There are several criteria that determine what qualifies as a reasonable

and valid justification. These criteria include

a. Qualification & skill of junior staff over senior staff

In Louden,it was decided that if Old employee's role became obsolete

with new technology. This justifies a departure from LIFO principle.

b. Junior staff more efficient & trustworthy

Employer can choose to retrench senior staff and keep junior staff if
junior staff is more efficient .Employer should maintain past records &
evidence of unreliability of older worker to show genuineness of his act.

c. Claimant only staff in category

LIFO will not apply if there is only one employee in the claimant’s job
category.In Yeo Seow Mei v WR Grace Specialty Chemicals (M) Sdn
Bhd ,claimant was only staff in category of administrator; LIFO principle
was held to have no scope of application as it is really a retrenchment of
the post itself.

d. Parent & subsidiary companies are separate & distinct

entities

Sejati Motors Sdn Bhd v Peter Lam,It is pertinent to note that the
courts may view whether the company operates as a group or a single
entity. He contended that his retrenchment was unfair on the grounds
that it breached the principle of LIFO in the context of the group of
companies ruled that the retrenchment exercise should be viewed
whether the group of companies actually belonged to a single
establishment.
 e. Foreign Workers

Apart from LIFO, there is a requirement that mandates all employers to

comply with s Section 60 N of the Employment Act when carrying out a
retrenchment exercise. The employer must lay off all foreign employees
before terminating the services of a local employee even If the foreign
workers is senior workers.In Seong Thye Plantations Sdn Bhd v All
Malayan Estates Staff Union, Employer has to first retrench all foreign
employees of a similar work capacity before retrenching local workers.

Findings.

Per S30(5A) IRA,the code is discretionary rather than mandatory, in

cases like retrenchment decisions, consistency is crucial for fairness and
predictability. The reliance on guidelines or codes by the Industrial Court,
rather than a clear mandate within the law itself, can create ambiguity
and inconsistency in how these cases are decided. Having a clear,
mandatory provision in the law regarding retrenchment criteria would
establish a definitive framework for decision-making. making it
compulsory for the court to follow the established code or guidelines
regarding retrenchment can offer legal clarity .

Per Louden v Crimpy Crisps,In redundancy situation, It's unjust to

retrench a senior staff member solely because a junior employee is more
adept at using technology, especially if the senior employee hasn't
received adequate training to utilize those technological skills.

Per Section 60 N Of EA, In redundancy situation,The law mandating the

retrenchment of senior foreign workers over junior citizens, while
seeming unfair, is designed to prioritize employment opportunities for
citizens, thus serving a greater good despite its perceived inequity

Conclusion

While adherence to the rule and code simplifies court decisions, the
preference remains for a definitive statute rather than leaving it to the
court's discretion. Even if the court has historically utilized the law
extensively, relying on 'may' and 'may not' leaves a level of uncertainty,
underscoring the necessity for a clear and unambiguous legal
framework. Moreover, the criteria for departing from LIFO should be
more precise and equitable, ensuring fairness for both senior and junior
staff members. This specificity is crucial to maintain a balanced
approach in exceptional cases that warrant departure from the
established guidelines