Retrenchment should always be perceived as the “last resort” for a business. We explore some alternatives to retrenchment that employers can consider to maintain business viability while retaining their workforce.

  1. Reorganization

Over the years, the functions of a business organization could be stagnated where some business divisions may not be performing in an optimized level. As such, the Company may undergo an internal review exercise to streamline its business. A reorganization does not always mean reduction in headcount, and a more efficient method of operating could result in long term cost savings that may obviate the need for retrenchment.

  1. Redeployment

Some employees may be capable of taking on different responsibilities. As such, while a particular role may be redundant or surplus, an employer can still consider whether those employees can be redeployed to other parts of the business (or other subsidiaries within the group) and add value there.

  1. Training and Upskilling

Employers should commit to training (or re-training) their existing employees to acquire new skills to meet business requirements. A skilled workforce will allow the Company to optimize its operations and also explore new opportunities. For example, an employee performing an administration function could, with the right training, perform certain human resources functions. This would not only fill the gap in the Company’s work force, but also helps the employee feel valued and motivated as the Company places trust on in its employee’s personal development.

  1. Cutting Down Hours of Work

Some employers have reduced working hours (with a corresponding reduction in salary) to save costs.  Employees may be prepared to accept a lower salary if it comes with less commitments and less working hours. Some studies have also shown that reduced working hours may improve a worker’s productivity.  Of course, changing working hours and salary has to be done carefully as there are legal requirements that need to be met to minimize the risk of an employment dispute.

  1. Unpaid leave

While Malaysia does not have the concept of “furlough” per se,  one option that employers have been using is to ask employees to go on unpaid leave for a specific period. Given that it involves non-payment of salary, an employee’s written consent is required. This approach allows the Company to save salary costs for that period, without having to dismiss its employees.  However, there could be consequences to this action as employee’s morale may still be affected and employees may also look for alternative employment during the unpaid leave period.

  1. Salary Reduction or Deferment

Some employers have implemented salary cuts as an alternative to retrenchment. Salary cuts can either be temporary or permanent, but as this involves the variation of an express term in the employee’s employment term, written consent from the employee is required. The Company’s reduction in salary should not however be lower than minimum wage. We have also seen some companies which opt to “defer” salary – eg: informing employees that the balance of their salary will be paid on a later date.

Sometimes, retrenchment is still inevitable. In such a situation, if employers end up in a dispute or unfair dismissal claim, being able to show that they considered alternatives to retrenchment would be useful in demonstrating that they had complied with fair labour practice.


Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation. 

Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, and real estate/conveyancing. Have a query? Contact us.


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