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Employers Risk and Liability Mitigation in Business Downsizing during Movement Control Order

Employers Risk and Liability Mitigation in Business Downsizing during Movement Control Order

This article is updated as of the date of publication stated above. As this situation is novel and the government’s response to the outbreak is continuously developing, this article may not necessarily include updates or developments after this date. In situations of doubt, you are advised to check for updates directly with the government authorities.

The outbreak of Covid-19 in Malaysia much like in any other places of the world, have impacted the economy to the brink of a standing halt. We understand that at these trying times, corporate and business sectors are forced to make hard decisions in order for their business to stay afloat and survive. We understand that these choices are never easy and when it comes down to making these choices, it is imperative that businesses know how to mitigate the risks and liabilities when making these tough choices. At every given juncture, it is  always important for business owners and corporations to abide with the law so that they do not expose themselves to legal liabilities.

On March 2020, the Ministry of Human Resources released a FAQ concerning the COVID- 19 outbreak regarding the issue of retrenchment of employees. Ultimately, the Ministry believed that the issue of retrenchment is the prerogative of the employers. However, the Ministry advised employers to ensure that they comply with the requirements and guidelines of retrenchment. In that FAQ, the Ministry laid down three main foundational requirements for retrenchment. First of all there must be a genuine financial impact on the business. Therefore, employers cannot opt for termination and retrenchment as a pre-emptive action before facing financial crisis nor should employers opt for termination before undergoing a genuine financial impact because of the outbreak.

Second of all, employers must exhaust other means first before opting to retrench employees, in short reducing working hours, reducing or freezing the hiring of new employees, reducing or limiting overtime, limiting employees from working on weekends or on public holidays, reducing employees’ wages or laying -off their employees temporarily.

The second requirement brings us to The Code of Conduct for Industrial Harmony. The Code provides useful guidelines in the area of industrial relations practice. There is no legal obligation for the employer to abide by this Code of Conduct however it has been given “legal teeth” by virtue of sec 30(5A) of the Industrial Relations Act 1967. Where an employer does not follow the procedures set out in the Code, the employer in fact commits an unfair labour practice.

The Industrial Court has been very consistent in its reliance of the Code in retrenchment cases. Failure to follow the Code can result in a retrenchment being declared an unfair dismissal. According to the Code of Conduct for Industrial Harmony these are how companies should conduct themselves prior to opting for termination of employees:-

  • Limitation on recruitment or hiring new employees
  • Limiting overtimework
  • Restriction of work on weekly day of rest
  • Reduction in number of shifts or days worked aweek
  • Reduction in the number of hours ofwork
  • Re-training and/or transfer to otherdepartment/work.

Third requirement, in the event, retrenchment of employees cannot be avoided, employers should terminate the services of foreign workers first before considering local employees (i.e. Foreign Worker First Out). If retrenchment of local employees is being considered,  employers are encouraged to comply with “Last In First Out”. However, the Ministry has stated that employers can depart from these principles if it has strong justifications to do so. Employers facing financial difficulties as a result of the Covid-19 pandemic may find it necessary to reduce its business costs and expense, amongst others by undertaking retrenchments, lay-offs and/or pay-cuts.

Employers Responsibilities On Retrenchment

When companies can no longer support cost of labour and are now opting for retrenchment, there are a few responsibilities that the companies must take in order to ensure their actions does not contravene the legal guidelines. Generally, it is very important for the companies to not only notify their employees but engage in a discussion on the manner of the termination with the employee or the employees Union representative. As per the Employment Act 1955, companies must notify their employees before the date of the termination accordingly. For employees with less than 2 years of service, the company must notify the employees 4 weeks prior to the date of termination. For services more than 2 years but less than 5 years, the proper time frame for notification should be 6 weeks prior and for services above 5 years, companies must notify 8 weeks prior to the date of the termination. Also, the companies must file a Termination Form and report to the Jabatan Tenaga Kerja 30 days before engaging with any acts of retrenchment, lay-offs, pay-cuts, and voluntarily separation.3

Ultimately, retrenchment should be in accordance to the general principles of industrial law, and retrenchment benefits may be payable. Temporary lay-offs and salary reduction may only be done after consultation and with the consent of the employees. Lay-off benefits may be payable under the Employment (Termination and Lay-Off Benefits) Regulations 1980.

Reference :

  1. Cheah, Donovan, and Amirul Izzat Hasri. Retrenchment of Workers Due to COVID-19. dnh.com.my/retrenchment-of-workers-due-to-covid-19/
  2. http://www.amco.org.my/n-archives/CodeOfConductforIndustrialHarmony.pdf
  3. Malaysia, Ministry of Human Resources “Garis Panduan Pemberhentian.” Garis Panduan Pemberhentian, 2009. http://jtksm.mohr.gov.my/ms/sumber-sumber/penerbitan/garis- panduan/810-garis-panduan-pemberhentian.

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