Retrenchment is never pleasant as it affects the livelihood of employees and their families. Sometimes, this cannot be avoided especially given the current economic climate. Dismissal of employees should always be handled with empathy, besides meeting legal requirements. Compassion can go a long way in minimizing disputes, since aggrieved employees are the ones most likely to file a complaint of unfair dismissal. We share here suggestions that can be implemented to cushion the blow of retrenchment:

  1. Consultation

The Code of Conduct for Industrial Harmony in Malaysia (the “Code”) encourages employee consultations in retrenchment exercises. Although the Code is a guideline and not mandatory, consulting employees and giving them early warnings would help cushion the damage:

  • In Mamut Copper Mining Sdn. Bhd. V Chau Fook Kong @ Leonard & Ors [1997] 1 MELR, the Court explained that consultations are valued as employers are encouraged and expected to have a more consultative, if not participatory style of management;
  • In William Michael Newberry v Silicon Graphics Sdn. Bhd. [2009] 2 MELR 397, the Court held that the Company should have consulted the retrenched employee given he has “uprooted his family and severed other connections to come to work here in Malaysia.”
  1. Offers for Alternative Employment or Roles

An employer should consider if there are alternative roles available for the employee, as a substitute for retrenchment.  While there is no legal requirement to offer this, genuine attempts to avert retrenchment is a positive factor for the Company in defending an unfair dismissal claim. In Rani a/l Periasamy v Pdz Shipping Agency Sdn. Bhd., the Court held that an offer of alternative employment “helps the employee with her loss of means to earn an income and a way of balancing the competing interest of the employer to run a profitable business.”  If the offer is made and the employee accepts the new role, parties should provide a written confirmation setting out the terms of employment.

  1. Upskilling and Job Placement Assistance

We have seen employers offer upskilling and job placement assistance to affected employees. For example, some employers assist with interview skills and tips, and CV reviews to improve the retrenched employee’s employability.  Again, there is no legal requirement to do this, but this gesture could boost morale and improve the chances of a retrenched employee securing a new job.

  1. Letters of Recommendation

Retrenchment is not a “fault based” dismissal. It means that the employee is dismissed because they are surplus to the needs of the Company. It is generally not a reflection on the employee’s conduct, behaviour or performance. Some employers are happy to provide letters of recommendation for retrenched employees. These letters are positive appraisals to aid the employee’s application in securing a job with another company.

  1. Goodwill payment

Not all employees are entitled to statutory termination benefits. Even so, if it is commercially viable for the Company to do so, it can still consider paying termination benefits to those employees, to soften the hardship that will arise from the employee’s loss of a job. The payment or non-payment of termination benefits is a factor that the Industrial Court may consider in assessing whether a dismissal was fair.

Retrenchments are challenging and can sever good relationships. However, when done correctly and humanely, it does not always spell the end of the road for employees. We have had many clients who have undergone retrenchments, only to re-hire their former employees after things improved.  As the retrenchment was done fairly and compassionately, there was no bad blood with those employees, and they were pleased to return to the company.


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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