In 2012, our partner Donovan Cheah represented PPG Coatings (Malaysia) Sdn Bhd (“Company”) in a claim of unfair dismissal by a former employee. The Industrial Court found in favour of the Company and dismissed the Claimant’s claim. In its reported decision, the Industrial Court laid down several important findings relating to the obligation of an employer in a retrenchment exercise.

Background Facts

  1. The Claimant was employed as a maintenance worker with PPG.
  2. In November 2008, pursuant to a restructuring of the PPG group of companies in the region, the Claimant’s position was made redundant and he was retrenched.
  3. Retrenchment benefits of approximately 54 months of the Claimant’s last drawn salary were paid to the Claimant, in recognition of his long service with the Company.
  4. The Claimant was dissatisfied with the retrenchment benefits provided and claimed unfair dismissal. The Claimant alleged, among other things, that the Company had failed to comply with a Collective Agreement entered into between the Company and the union, and that there was a shortfall of retrenchment benefits in the sum of RM85,240.08

Findings of the Court

  1. The Company had successfully proven the existence of a redundancy situation as there was substantive evidence adduced to show that the retrenchment was made pursuant to a restructuring of the PPG Group in order to reduce costs due to the Group’s poor financial performance at the time.
  2. The Company had legitimate reasons to organise its business and implement a headcount reduction. The decision to carry out the retrenchment exercise is within the Company’s managerial right and prerogative, taking into account the severe difficulties faced by the Company at the time.
  3. The Claimant’s claim that there was an alleged shortfall and non-compliance with the Collective Agreement was never pleaded in his Statement of Case, and as such the Industrial Court was not obligated to consider this claim. In any event, his claims were unfounded since the Collective Agreement only came into force after the Claimant’s retrenchment.

Commentary

This case once again establishes the importance for Companies to have complete and proper documentation when undergoing a termination exercise, especially large scale retrenchments or restructuring.  In this particular case, the Company had successfully proven the existence of a redundancy situation by adducing sufficient documentary evidence to prove: (a) that the restructuring exercise affected the Group as a whole throughout the region, so the Claimant was not being unfairly victimised; and (b) the Company and the Group’s financial performance justified the retrenchment and restructuring.

The Company was able to show through witness testimony and income statements that revenue had declined and the Company had suffered net losses during the relevant period. There was also sufficient evidence from the Company’s records to show that a total of 58 other employees were retrenched during the same period in 2008 and 2009, including other employees in the same category as the Claimant.

This case reaffirms the managerial prerogative of companies to reorganise and restructure their business to achieve commercial efficacy. That being said, employers must be mindful that such prerogative should not be exercised carelessly and without regard to the principles of natural justice. If the Company is able to prove that there were legitimate grounds for the retrenchment, they can be assured in the fact that the Industrial Court will dismiss attempts by former employees to extract further monetary payment from their former employers.

On a side note, the Claimant’s failure to plead the issue of shortfall and non-compliance of the Collective Agreement was fatal to his case. This once again highlights the necessity for parties to understand and be consistent with their position in Court.  It will not bode well for a party to take a stance that is different from their pleadings.

It is also worth highlighting that the Industrial Court is empowered under Section 20 of the Industrial Relations Act to deal with claims arising from unfair dismissal. The Industrial Court has no power to adjudicate on other causes of action such as breach of contract, or tort. The Claimant’s position during the trial not to challenge the redundancy but instead focus on the alleged breach of the Collective Agreement was therefore peculiar and appears to be a strategic decision that did not pay off.

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The full text of the Industrial Court’s judgment can be downloaded here:  Segaran Venoo v PPG Coatings (Malaysia) [2012] 3 MELR 617

 

 

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