During the many forms of movement control orders that were imposed by the Malaysian Government, we have seen a significant decline in business activities. Although the Government had since implemented various forms of aid to assist business owners and companies during this period, some companies are still facing an adverse financial situation, forcing these employers to take the difficult step in cutting down their workforce by retrenching employees.

Once an employee is retrenched and his services terminated, he is entitled to file a complaint for unfair dismissal if he feels he has been dismissed without just cause and excuse. If the matter is not settled at the Industrial Relations Department stage, it will be referred to the Industrial Court for adjudication.

Here are some questions for both employers and employees to think about when preparing for an unfair dismissal claim in the Industrial Court following a retrenchment.

What were the grounds of retrenchment?

A retrenchment can be validly done if it is pursuant to a “genuine redundancy”. What causes a genuine redundancy can vary from company to company. As the retrenchment could have happened some time ago, it is important to look back on the reason and grounds that justified the retrenchment – eg: was it due to a decline in profits? Outsourcing of roles?  Closure of a department?  Determining the correct commercial reason behind the retrenchment will assist parties in identifying the issues that have to be proven at the Industrial Court.

Are there any documents that identify or support the reason?

In an unfair dismissal claim resulting from retrenchment, the Company bears the burden of proof. However, this does not mean that the employee does not have to adduce any documents. If the employee has documents that would support his case, he can adduce them during trial.

Identifying the grounds for retrenchment is important because it will assist in determining what documents are crucial to the case. For example, if the Company was forced to retrench employees due to poor financial conditions, relevant documents relating to its accounts such as profit and loss statements and audited accounts will be relevant.

If the employee is alleging that they were being victimised or there was an ulterior motive behind the retrenchment, they will have to adduce evidence of that victimisation. Otherwise, the weight of their word may not be sufficient to convince the court that victimisation took place.

What was selection process for the retrenchment?

A retrenchment exercise must be always objective, as such, both parties should know and understand how the employee came to be selected for retrenchment. Was it done in accordance with LIFO? Or were other factors considered? An employee would typically argue that the selection process was vague and not objective, whereas an employer would argue that the selection process was fair (and must therefore be able to explain in detail how the employees were selected).

How was the retrenchment communicated?

The requirement of proper communication in retrenching an employee is important as it concerns the livelihood of an employee. It is best practice that employees be given as much notice of an impending retrenchment as possible. Notice can take many forms such as organised town halls, direct 1-on-1 consultations with the employees, etc.

Who are the witnesses?

A witness should be someone who has personal knowledge of relevant facts. For example, the Company will usually call someone from the management or finance team to testify about the commercial reasons behind the redundancy.  Depending on the allegations made throughout the case, other witnesses may have to testify to establish certain facts.

It is tempting to believe that “the more witnesses you have, the better”. This is a misconception.  We have encountered matters where the opposing party calls irrelevant witnesses such as their spouse, who would have no personal knowledge about the grounds of redundancy or the legitimacy of the dismissal. Calling unnecessary and irrelevant witnesses is a waste of precious judicial time. It may affect the strength of your case as it will be clear to the Court that you are unaware of the main issues to be determined.

Should you be legally represented?

There is no requirement to be represented by a lawyer in the Industrial Court. An employee can self-represent, and a Company can send its own employee to argue the case.

However, some may consider appointing lawyers so they can present their case effectively in Court.  Although self representation is allowed, an issue like retrenchment may involve many technical issues that would benefit from the expertise of a subject matter expert. For example, a self-representing employee who is not familiar in finance may not be able to effectively cross-examine the Company’s witness on financial statements.

The above is just an example of some of the broad considerations involved in an unfair dismissal claim involving retrenchment. Legal proceedings are serious matters that have severe consequences if they are not conducted correctly. As such, always ensure that you are fully prepared in the event you find yourself involved in an unfair dismissal claim – whether as an employer or as an employee.


This article was written by Donovan Cheah and Zi-Han Lim. Donovan has been named as a Recommended Lawyer for Labour and Employment by the Legal 500 Asia Pacific 2017, 2018, 2019 and 2020, 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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