HRM Asia Magazine spoke to Donovan Cheah about the controversial closure of True Fitness in Malaysia, and how it impacts employees. Many employees allege that they have not been paid their salary for several months, and were not given notice of the closure.

Donovan Cheah, a partner at Malaysian law firm Donovan & Ho, says that in this instance, because True Fitness employees were not paid wages for several months, they may deem themselves “constructively dismissed”, and could file a complaint of unfair dismissal against the company.

With regards to notice of closure or retrenchments, Cheah says “companies are advised to give as early a warning or as much notice as possible to the affected employees”.

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Because the group has yet to legally wind up its operations, Cheah says it is still legally obligated to pay wages to its employees for the period in which they were employed.

Failure to pay wages may subject the company to proceedings before the Director General of Labour (for employees who were earning RM5,000 a month and below) and/or before the civil courts.

But True Fitness, as reported earlier, has stated that all outstanding wages will be resolved by this week.

Still, even in the event that True Fitness does wind up the business due to insolvency, the small ray of hope for ex-staff is that unpaid wages will be prioritised over other normal trade debts.

“In some cases, employees’ claims for unpaid wages would even have priority over a secured creditor – for example, where there is a sale of the employees’ place of employment,” says Cheah.

A lot of coverage in the media has been focused on how the closure of True Fitness affected its customers who were recently recruited or who have lifetime/unexpired memberships. However, True Fitness employees are in a difficult position as well. This once again highlights the importance of companies acting responsibly (and legally) when making mangerial decisions. A complete closure of business is not something to be taken lightly as it is a complicated exercise with many moving parts that has to be managed carefully and correctly in compliance with applicable laws and accepted practices.

The dilemma faced by True Fitness employees is perhaps one of the reasons why the government is looking into implementing the Employee Insurance Scheme, which is meant to provide, among other things financial aid to employees who are retrenched due to the insolvency of their employers. The Employee Insurance Scheme is still a controversial and hotly debated topic, so we will have to wait and see if and how it’s implemented.

To read the full article, click here.

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