LIFO is a selection process whereby the most junior employee (in terms of length of service) in a category of redundant workers is selected for retrenchment. While using LIFO is not mandatory, it is recognised as an objective means of selection; an employer that does not comply with LIFO must justify why they departed from the established principle, and show that their selection process was fair and objective.
In Vigniswary A/P Sundram & Commercial Marketers and Distributors Sdn Bhd (Award No. 1201 of 2021), the Industrial Court considered the applicability of the Last In First Out (“LIFO”) principle in a retrenchment exercise.
Brief Facts
- The Claimant was a Confidential Administrator of the Company and had worked there since 1982 until she was dismissed by way of retrenchment on 31.12.2019
- In 2019, the Company carried out a restructuring exercise in its administration department to rationalize and reduce its headcount. Some administration staff, including the Claimant, were offered a mutual separation scheme. The Claimant refused this
- Later, the Company’s headquarters undertook a global restructuring exercise which involved subsidiaries like the Company, to streamline operations
- The Claimant was again offered a mutual separation. She refused
- The Claimant was issued a retrenchment letter by the Company as her role was identified as redundant following the global restructuring exercise
- The Claimant claimed unfair dismissal.
Court’s findings
The Court found in favour of the Claimant, and held that her dismissal was unfair:
- The Company’s evidence was lacking in that there were no documents to show the Claimant’s change in job scope that resulted in her redundancy, and neither were key witnesses called to testify
- When the restructuring exercise was carried out, a junior colleague held the same position as the Claimant. Despite the difference in years of service, the Company opted to retrench the Claimant instead of this junior employee
- The Company explained that it had departed from the LIFO principle because the junior colleague was more competent than the Claimant. However, there was no evidence to prove this or to explain how the junior employee was more competent. The Court observed that if the Company had issue with the Claimant’s performance, there would have been action or warning given to her; but there was none
- The Company also argued that the Claimant did not have the “skill set” of the junior employee. An example given was that when the junior employee went on leave, the Claimant could not cover for her. However, there was also no evidence put before the Court whether the junior employee could cover for the Claimant, either. The Court held it as unfair to judge the Claimant based on her ability to do someone else’s job when they are on leave
- Absent material documentary evidence to support the redundancy, the Court found that the Claimant’s retrenchment was an ill-attempt to rid the Claimant from employment.
Key Takeaways
LIFO is commonly used by businesses to select employees to be retrenched. However, applying LIFO is not set in stone as employers may depart from it if they have good reason to do so and have an objective and fair selection process they can use in substitute.
Departing from LIFO does carry some risk, especially when it involves long-serving employees. Here, the Industrial Court awarded the employee 52 months of her last drawn salary as back wages and compensation in lieu of reinstatement, less the retrenchment benefits she already received. The Industrial Court observed:
“The Claimant had worked for the Company for exceeding 37 years, which is almost the entire working life of most the people in our country and she had only less than five (5) years before attaining the mandatory retirement age of 60 years old.
This is a fit and proper case for the Court to exercise its discretion to apply the LIFO principle. As stated above, the Company has failed to provide any good and strong reason to depart from the LIFO principle…”
The Court was not convinced with the Company’s explanation for why it departed from LIFO, especially when the employee had such a long tenure. While it is acceptable to consider competency or performance as part of the selection criteria, an employer must also have the supporting documentation to explain how the selection criteria worked. For example, if a junior employee is retained because they have a specific qualification that the more senior employee does not possess, there must be evidence of this qualification and why it is important to the Company. Similarly, if performance is a factor in the selection process, evidence like previous performance reviews and discipline records would be beneficial.
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Amirul Izzat Hasri is a Senior Associate in the dispute resolution practice group at Donovan & Ho. He has experience in a diverse area of practice, including general civil and corporate litigation, judicial reviews, land related matters, defamation, debt recovery, and shareholder and boardroom disputes. He has also appeared in Industrial Court proceedings, having represented both employers and employees in unfair dismissal claims.
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.
