Right sizing is a process where a business reorganizes the size of its workforce to “the right size” so it is properly aligned with its business objectives.  In employment law, where rightsizing leads to dismissal of employees, this is viewed as a termination on grounds of redundancy. The right sizing exercise is treated no differently from a retrenchment exercise where employees are dismissed if they are surplus to the needs of the organization.

The recent case of H’ng Siew Hoon v Thermo Fisher Scientific Malaysia Sdn Bhd [2020] 2 LNS 1590 considered a rightsizing exercise which resulted in the dismissal of several employees.

Brief Facts

  • The Claimant was the General Manager for a business unit of the Company, having worked there for 14 years. The Claimant’s function was akin to that of a senior sales manager, in charge of managing the sales for that business unit and having 2 other employees reporting to her.
  • The Company underwent a right sizing exercise to bring its operations in line with the current demand in the Malaysian market for the Company’s products.
  • Due to the sales efficiency of the workforce and the current financial performance of the Malaysian market, the Claimant’s position was considered surplus to the needs of the Company.
  • Given the reduced sales in the Malaysian market, the Claimant’s functions could be redistributed and absorbed by another Senior Manager based in another country, who was handling more profitable markets.
  • The Claimant filed a claim of unfair dismissal, alleging that her functions were not redundant. She claimed that her functions still existed but were just transferred to the other employee.
  • The Claimant also alleged that as the Senior Manager who took over her functions had only joined the group 10 months ago, the Company did not correctly apply the “Last In First Out” principle.

Court’s Findings

The Court upheld the Claimant’s dismissal. The Court found that a genuine redundancy had arisen because there was a real need to reorganize the business, and the decision to right size and retrench was based on the business performance of the Company. The business simply required fewer employees.

The Court further held:

  • There was evidence to show the Company’s financial performance. It was not disputed by the Claimant that the Malaysian market achieved lower sales for 4 consecutive years compared to other Southeast Asian markets.
  • The Claimant’s job functions were greatly diminished due to the business decline. Any other Sales Manager could absorb the diminished or shrunken functions and handle the Malaysian business.
  • Regarding the Claimant’s allegation that the Company did not apply the “Last In First Out” (LIFO) principle correctly, the Court held that “it made no sense for the Company to include the other senior sales managers handling other markets when the business that needs to be right sized is Malaysia.” The Claimant was the only person holding her role in Malaysia, and there was no reason to include other senior sales managers (handling other markets) into consideration for LIFO.
  • The Company’s efforts to reorganize and right size began months before the Claimant’s dismissal, with other employees being retrenched. The Claimant was not the only employee retrenched in this rightsizing exercise.
  • Given all the commercial considerations, it “made sense” that the Company had to do a restructuring for economic reasons. There was no evidence to show this rightsizing was done for a collateral purpose, or in bad faith.

Key Takeaways

A rose by any other name would smell as sweet.  “Right sizing” which involves dismissal of employees because they are no longer required by the business is the same as a “retrenchment” in legal context.  It is a legitimate ground to dismiss employees, provided there is a genuine redundancy and the Company is not motivated by bad faith or any other collateral purpose.

This case also underscores the importance of understanding the evidence needed to support your position in a redundancy claim. Here, the Company justified (with documentary evidence) the commercial reasons for the right sizing.  The Claimant, despite alleging bad faith, could not substantiate her position, despite calling 3 additional witnesses. The Court observed that the Claimant’s own witnesses were other retrenched employees of the Company. This indirectly supported the Company’s position that the Claimant was not the only one affected by the right sizing. By calling these witnesses unnecessarily, the Claimant unintentionally confirmed (in favour of the Company) that other employees were retrenched around the same time as her or within the same year.

In these challenging economic times, the need to “right size” or reorganize is something that many businesses must face.  Such exercises, if embarked upon, have to be carried out equitably and weighing the delicate balance between employee welfare and business survival. A right sizing done right will be upheld by the Court.

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This article was written by Donovan Cheah with assistance from Tiffany Chin (Intern). Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019, 2020 and 2021, and he has also been recognised by Chambers Asia Pacific and Asialaw Profiles for his employment law and industrial relations work.

Donovan & Ho is a law firm in Malaysia. Our practice areas include employment law, dispute resolution, tax advisory and corporate advisory.  Have a question? Please contact us.

 

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