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Redundancy, Layoff, Retrenchment and

Redundancy refers to a surplus of labor and is normally the result of a
reorganization and restructuring of the business of an employer. It is
usually direct to the implementation of retrenchment.
In Radio & General Trading Sdn. Bhd. Vs Pui Cheng Teck & Others
(Award 243 of 1990) the court stated that the company must
considers whether he made a reasonable decision concerning the
necessity of redundancy at that particular time or in view of the
particular commercial conditions. The company has to proof that the
workmen are surplus and therefore need to retrench. The court also
said that if there was a redundancy situation, was the consequent
retrenchment made in compliance with accepted standards of
procedure; for example last in first out.
In National Union of Cinema & Places of Amusement Workers Vs Shaw
Computer & Management Services Sdn. Bhd. (Award 22 of 1975),
when the workmen were discharged due to redundancy, the
employer has to proof the redundancy and show how, by whom and
on what basis that selection of retrenchment was made.

Industrial Harmony Code For Conduct 1975

Article 21
The ultimate responsibility for deciding on the size of the workforce must
with the employer but, before any decision on reduction is taken, there
should be
consultation with the workers or their trade union representatives on the
Article 20
In circumstances where redundancy is likely, an employer should, in
consultation with his employees representatives or their trade union, as
appropriate, and in consultation with the Ministry of Human resources, take
positive steps to avert or minimize reductions of the workforce by the
adoption of
appropriate measures such as:
Limitation of recruitment. 2. Restriction of overtime work.
Restriction of work on the weekly 4. Reduction in number of shifts
days of rest.
or days worked a week.
Reduction in the number of hours of
6. Retraining and/or transfer
other department/work.

Layoff become one the alternative to overcome redundancy.
In Goodyear Berhad Vs National Union of Employees in Companies
manufacturing Rubber Products (Award 176 of 1982) the court stated
that the company has the right to shut down its plant at any time. It
also has the right to lay off its employees for proper cause. In Dunlop
Malaysian Industries Berhad Vs Dunlop Industries Employees Union
(Award 76 of 1982) the court has mentioned the reason why layoff has
been implemented. The court said that the employer merely wants work
to stop for a short period and at the same time to keep his workmen.
In Regulation 5(1) The Employment (Termination and Layoff Benefits)
Regulation 1980, it was stated that if a workman who is hired under a
contract of service has been laid off if his employer did not give any
work more than twelve normal working days within any period of four
consecutive weeks.
If the days of layoff less than 12 days it is called as temporary layoff.
Regulation 5(1)(b) The Employment (Termination and Layoff Benefits)
Regulation 1980 noted that a workman has not entitled to receive any
wages under his contract for the period or periods where he did not
assigned any work.

Layoff benefits
Dunlop Malaysian Industries Bhd Vs Dunlop Industries Employees Union
(Award 76 of 1982) stated that if the employer wants his workmen to be
available on call, it is only fair that the workmen be compensated whilst
they are waiting. There must be some inducement for them to stay and
not looking for other jobs. At the same time it will not fair to the employer
for the workmen to demand full wages when they are not doing any work.
Therefore, Regulation 6 The Employment (Termination and Layoff
Benefits) Regulations 1980 indicates the amount of benefits for
termination and layoff. The regulation noted that benefit for a layoff
cannot less than (a) ten days wages for workmen who are worked less
than 2 years (b) fifteen days wages for workmen who are worked for two
years but not more than five years or (c) twenty days wages for workmen
who are worked more than five years. Wages are calculated in pro-rate
daily basis according to the nearest month.
The layoff benefits must be paid not later than seven days after such
date (Regulation 11). Where the parties themselves are unable to agree
on the compensation to be paid to employees during temporary layoffs,
the Industrial Court will resolve the issue for them.

In Cycle & Carriage Bintang Bhd Vs Cheah Hian Lim (Award 342
of 1992) the court has noted an important general principles on retrenchment.
1.It is for management to decide on the strength of the staff which it considers
necessary for efficiency in its undertaking. When the management decides that
workmen are surplus and that there is therefore a need for retrenchment, an
arbitration tribunal will not intervene unless it is shown that the decision was
malafide or unfair labor practice.
2.It is the right of every employer to reorganized his business in any manner for
the purpose of economic or convenience provided he acts bonafide.
3.An employer has the right to determine the volume of his staff consistent with
his business and if, by the implementation of a reorganization scheme adopted
for reasons of economy and better management, the services of some
employees become excess of requirement, the employer is entitled to discharge
such excess.
4.In the absence of any express agreement on the point, an employer is not
obligated to find suitable employment for redundant workers.
5.In effecting retrenchment, the employer should comply with the industrial law
principle of LIFO unless there are sound and vital reasons for departure. Thus,
an employer is not entirely denied the freedom to depart from this principle.
6.The retrenchment of an employee can be justified if carried out for profitability.
The services of an employee may well become surplus if there is reduction or
cessation of work the employee was performing.

Industrial Harmony Code for Conduct 1975

Article 22 (a)
If retrenchment becomes necessary, the employer should take the following
1.Giving as early a warning as practicable to the workers concerned.
2.Introducing schemes for voluntary retrenchment and retirement and for
payment of redundancy and retirement benefits.
3.Retiring workers who are beyond their normal retiring age.
4.Assisting in cooperation with the Ministry of Human Resources the workers to
find work outside the undertaking.
5.Spread termination of employer over a longer period.
6.Ensuring that no such announcement is made before the workers and their
representatives or trade union have been informed.
Article 22 (b)
The employer should select employees to be retrenched in accordance with the
criteria. The following workers should consider later to be retrenched.
1.Need for efficient operation.
2.Have unique skills, abilities and knowledge for the operation.
3.Senior workers, permanent workers and citizen workers.
4.Age. 5. Family situation.
6. Other criteria formulated as national policies

Employment Act 1955

Section 60 M
No employer shall terminate the contract of service of a local
employee for the purpose of employing a foreign employee
Section 60 N
Where an employer is required to reduce his workforce by reason
of redundancy necessitating a retrenchment of any number of
employees, the employer shall not terminate the services of a
local employee unless he has first terminated the services of all
foreign employees employed by him in a capacity similar to that
of the local employee.
Section 60 O
For the purpose of this part, the term foreign workers shall not
include a foreign employee who is a permanent resident of

Retrenchment Principle (LIFO Last in first out)

The Industrial Court has suggested to implement LIFO for retrenchment
purposes. This principle only implemented firstly, within the establishment
(if the company has branches, the principle of LIFO only implemented where
retrenchment is required) which is the retrenchment is to be made.
Secondly, the principle only applies to the category of workers to which
retrenchment is performed (Associated Pan Malaysia Cement Sdn. Bhd Vs
Kesatuan Sekerja Pekerja-Pekerja Perusahaan Simen; Award 375 of 1986).
For the second situation it may be direct to bumping in retrenchment. This
doctrine is defined as if there is a reduction in the requirement for
employees in one section of an employers business, and an employee who
becomes surplus or redundant is transferred to another section of the
business, an employee who is displaced by the transfer of the first
employee and is discharged by reason of that displacement is discharged by
reason of redundancy (W Gimble & Sons Ltd Vs Sprunet [1961] ITR 308
The bumping in retrenchment must be in the same category or work
group, job classification or department or division, else, employees may
claim for malafide retrenchment or victimization.

The Implementation of LIFO Principle

In Aluminium Company of Malaysia Bhd Vs Jaspal Singh (Award 363 of
1987) the court said that in performing LIFO, the employer should as
far as possible select employees to be retrenched within the same
category. The question of the comparative seniority or juniority of a
workman for applying the principle of LIFO has to be determined with
reference to the workmen working in the same category of
employment not the length of service. For example in retrenching the
employee as fitter, at the time of retrenchment, seniority is
determined on the strength and length of each workman acting in the
category of fitters and not on the length and service of the workman
in a different category (length of service in the company).
In Supreme Corporation Bhd Vs Doreen Daniel & Ong Kheng Liat
(Award 349 of 1987) the court pointed out the employer should follow
clause 22(b) of the Code of Conduct for Industrial Harmony in
performing LIFO in retrenchment.

Retrenchment Benefits
Many awards from Industrial Court have gave responsibility to
employer and employees/trade union to negotiate regarding benefits
for retrenchment. If the collective is silent regarding retrenchment
benefits, the employer shall follow Regulation 6 Employment Act
(Termination and layoff) Regulations 1980 (Atlas Electronic Sdn. Bhd Vs
Electrical Industry Workers Union [Award 168 of 1986), Public Corp Bhd
Vs Penang & Prai Textile Vs Garment Industry Employees Union [Award
101 of 1985] and Central Elastic Corp Sdn. Bhd Vs National Union of
Employees in Companies Manufacturing Products [Award 205 of 1984]).
In Malayan Commercial Banks Association Vs Association of Bank
Officers (Award 88 of 1988) the court remarked that an officer should
be paid retrenchment benefits base on one months basic salary for
each completed year of service.
In Electrical Power Engineering Sdn. Bhd Vs Electrical Industry Workers
Union (Award 193 of 1986) the court said that a study should be made
to see which formula provides the higher benefits. A much higher
benefit should be given to the employee so that the ill-effects of
unemployment might be better cushioned.


Definition the termination of the employment relationship or

the termination of the employment contract.
The contract may be terminated by employer (for example
retrenchment) or by the employee (for example resignation)
or by an event (for example retirement or death).
Where the termination is due to misconduct, it is called

Termination by Notice
A contract of service may be terminated by one party (either
management or employee) giving notice to the other party of his
intention to terminate the contract. The length of notice must be
same for both the employer and the employee.
According to Section 12(2) Employment Act 1955, in the absence
such provision in writing, the length of notice shall not less than
(a)four weeks notice if the employee has been employed for less
than two years on the date on which the notice is given
(b)six weeks notice if he has been employed for two years or
more but less than five years on such date
(c)eight weeks notice if he has been employed for five years or
more on such date.

Section 12(3) Employment Act 1955

The employer shall also give a notice stated in section 12(2) if:
a.The employer has ceased or intends to cease to carry on the
business for the purpose of which the employee was employed;
b.The employer has ceased or intends to cease to carry on the
business in the place at which the employee was contracted to
c. The requirements of that business for the employee to carry out
work of a particular kind have ceased or diminished or are
expected to cease or diminish;
d.The requirement of that business for the employee to carry out
work of a particular kind in the place at which he was contracted to
work have ceased or diminished or are expected to cease or
e.The employee has refused to accept his transfer to any other place
of employment unless his contract of service requires him to
accept such transfer;
f. A change has occurred in the ownership of the business for the
purpose of which an employee is employed, or of a part of such
business regardless of whether the change occurs by virtue of a
sale or other disposition or by operation of law.

Termination Without Notice

A contract of service may be terminated by either party

without notice.
Section 13
1) Either party to a contract of service may terminate such
contract of service without notice or if notice has already
been given in accordance to Section 12 without waiting for
the expiry of that notice by paying to the other party an
indemnity of a sum equal to the amount of wages which
would have accrued to the employee during the term of
such notice or during the unexpired term of such notice.
2) Either party to a contract of service may terminate such
contract of service without notice in the event of any willful
breach by the other party of a condition of the contract of

Termination for Special Reasons

An employer may inter alia dismiss without notice an

employee for misconduct (that is to say summarily terminate
the contract of service between them) but he may do so only
after due inquiry (for example a proper domestic inquiry)
Section 14(1) Employment Act 1955.