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Easing The Pain Of Retrenchment
Alfred Charles, Managing Consultant

Retrenchment is the discharge of the surplus employees due to a downturn in business, the installation of labour-saving machinery, the standardisation or improvement of plants and techniques. This will result in the reorganisation of the employer's undertaking; consequently, some employees may be redundant and may have to be retrenched. However, the retrenchment must be bona fide and not for the purpose of victimising employees in order to get rid of their services.

When redundancy becomes imminent, employers have to adhere to the provisions relating to redundancy and retrenchment in the Code of Conduct for Industrial Harmony. Conditions precedent to retrenchment are the employer should, in consultation with the employees' representatives or their trade union, or with the Ministry of Human Resources, take positive steps to minimise the reduction of the workforce by adopting appropriate measures such as:

- limiting recruitment
- restricting overtime work
- restricting work on the weekly day of rest
- reducing the number of shifts or working days in a week
- reducing working hours
- retraining including transfer to other departments and reassignment of duties

Where retrenchment becomes inevitable, the employer must undertake the following

- give as much advance as possible to affected employees
- introduce voluntary retrenchment and early retirement schemes and the payment of compensation
- retire employees who are over the normal retirement age
- offer help to employees in finding alternative employment, in collaboration with the Ministry of Human Resources
- ensure a phased rundown of employment
- do not publicise the impending retrenchment until the union and employees have been informed

Criteria for selecting employees to be retrenched may include:

- the need for the efficient operation of the establishment
- the ability, experience, skill and occupational qualifications of workers required by the establishment
- length of service and status (non-citizens, casual, temporary, permanent)
- age
- family situation
- any other criteria formulated in the context of national policies

The principle "last in, first out" (LIFO) when retrenching employees must be adhered to by the employer unless there are valid, acceptable reasons for a departure from this principle. The LIFO principle is subject to two limitations: first, the rule operates only within the establishment in which the retrenchment is to be made; second, the rule applies only to the category to which the retrenched workmen belong.

Departure from the LIFO principle may include the following. For instance, the employer may take into account the efficiency and trustworthiness of an employee with substantive and reliable evidence (recorded history) showing the inefficiency or unreliability of the employee. If poor performance is to be asserted, it is vital for the employer to maintain a proper and transparent appraisal system. An employee who is less productive due to long absences through medical leave may be selected for retrenchment in the interest of operational efficiency. Staff possessing special qualifications pertinent to the business may be retained over a senior employee with longer years of service.

If retrenchment s inevitable, advance notice must be given to affected employees and the union, so the criteria for selection can be worked out between the company and the union. Employees who come within the purview of the Employment Act 1955 must be given notice before retrenchment. The notice period ranges from four to eight weeks, depending on years of service with the company. serving this notice to retrenched employees is mandatory. Where there is a collective agreement, the union must be served with the notice before serving notices to employees.

Faced with redundancy, a reasonable employer must consider the alternatives before embarking on retrenchment, as this is provided for in the Code. It becomes imperative for the Industrial Court to examine the measures adopted and the consideration of alternatives by the company before it contemplated retrenchment. If there is evidence before the court that the company did not adopt cost-containment or cost-control measures and did not consider alternatives before embarking on retrenchment, it becomes imperative for the court to declare the retrenchment of employees mala fide and an unfair labour practice.

Industrial law in Malaysia has developed to a level at which employees have security of tenure of employment. Once an employee has been inducted into the permanent service of an organisation, the employee is said to have acquired proprietary rights. Thus the employee cannot be terminated, dismissed or retrenched, unless there is just cause for doing so.

Published in The New Straits Times February 28, 1998