Some businesses are still facing the consequences of retrenching their workforce during the pandemic, as unfair dismissal claims can take years to resolve. Throughout the pandemic, cases took longer than usual to be disposed of, as delays were attributed to court closures, Covid-19 positive cases, and the inability of witnesses to travel.
We analysed recent court cases relating to retrenchment during the MCO period:
1. Documentary evidence is still the core consideration in justifying the reasons for retrenchment
The Court still relies heavily on documents and evidence tendered by the employer to prove its reasons for retrenchment. Given that majority of these cases cited business and revenue downturn caused by the COVID-19 pandemic and Movement Control Order (“MCO”) as the main reason, we observed that the Court will usually look at the company’s financial documents (eg: profit and loss statements or audited financial statements).
In Kok Tzzy Yen v Far East Offset  3 ILR 343 the Court held that the company had adduced no evidence to show its financial condition that had led to the closing of the company’s Night Shift Department. There was therefore no genuine redundancy. Whereas in Jayaprakas Ramadass v Anytime S/B  1 ILR 439, the company tendered financial statements to show that the company had not been doing well. There, the Court observed through the profit and loss statement that although the Company was still in business, it was loss making. The Court found in favour of the employer.
In Rasaletchumi Kanagaratnam v Lourdes Medical Sdn. Bhd. Award No. 1298 of 2021 the Court pointed out that although the company’s justification for ret1renchment is due to a reduction of revenue caused by the MCO, the Court could not accept this as the company did not provide a complete picture of its revenue.
2. Conduct of Company Post Retrenchment
The Court has also considered the conduct of the company during the immediate post-retrenchment period, in assessing whether the circumstances were true to support the company’s cited reasons for retrenchment.
In Choong Wai Kit v Tropicana Shared Services  2 ILR 401, right after terminating the Claimant, the company appointed 3 new Directors under the department that was shut-down.
In Kilby Jacob Atticus v Halliburton Business Services  3 ILR 281, the Court observed that the Claimant’s functions and responsibilities still existed after the Claimant was terminated, and there was evidence that the Company was thriving financially after the Claimant’s dismissal.
3. Payments of Salary and Statutory Obligations
In Badariah v Mudra Resources Sdn. Bhd.  2 ILR 539, the Court considered that the company’s delay in settling statutory deductions, its payment of penalties and a delay in the settlement of outstanding utility bills supported the contention that the company was undergoing financial hardship.
In Jayaprakas Ramadass (supra) the Claimant alleged that the company had ‘betrayed’ him in not paying him his salary due to allege financial difficulties. The Court however, made a finding of fact that there is no betrayal given that the company had consistently paid his full salary during the entire MCO period. The Court found in favour of the company as the redundancy was genuine and the company had no ill-intentions against the Claimant in terminating his services.
4. Departure from Last In, First Out (LIFO)
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. The Court reasserted the position that LIFO is not mandatory.
In Badariah (supra)., the Claimant contended that her dismissal due to retrenchment was unfair as the company did not comply with the LIFO principle. The Court disagreed and held that the company’s decision to cease its operations indefinitely goes to show that there had not been a need to apply the LIFO principle as the closure of the company’s outlets would mean that the Claimant’s job functions in the company had cease to exist.
The Court however in Han Lit Chaw v. SDP Packaging Sdn. Bhd.  3 ILR 159 did not agree with the company’s decision in departing from the LIFO principle. Here, the company departed from the LIFO principle because the Claimant had issues of habitual absenteeism and tardiness. The Court held that the company cannot use the reason of habitual absenteeism and tardiness as a reason to depart the LIFO principle as the Company had contended that the Claimant’s dismissal was specific towards the redundancy caused by the COVID-19 pandemic.
5. Other cost-cutting measures and alternatives to retrenchment
We also observed that the Court will consider other cost-cutting measures by the employer, which will help demonstrate that retrenchment was a ‘last resort’.
In Kilby Jacob Atticus (supra), the Court in deciding that the retrenchment was unfair, held that retrenchment had been the first and only cost-cutting measure taken. The company did not implement other measures before dismissing the Claimant through retrenchment. The Court further states that the Claimant’s retrenchment had been “akin to a ship captain throwing his crew overboard in the face of an oncoming storm to keep enough speed to manoeuvre out of it, leaving them to fend for themselves in the ocean of uncertainty.”
The Court in those cases concluded that the company’s conduct contradicted its position that retrenchment was necessary.
6. Other considerations by Court
We also observed several other contributory considerations that Court has considered in assessing if the retrenchment is genuine. For example, past performance and loyalty of the employee was considered in Rasaletchumi (supra) where the Court considered the contributory consideration that the Claimant had worked with the company for over 37 years and have not been a poor performer. The Court however held that the justification for retrenchment has not been established as the employer had not provided a complete picture of its revenue to support its position.
Further, it is also observed that the Court may still rule in favour of the employer even if it alleges business downturn, but continues to be in business. The Court in Jayaprakas Ramadass (supra), still decided in favour of the company even though the Company remained in business after the retrenchment, as the continuance of business only led to a loss-making revenue, but not a profit.
The consistent trend between all these decisions is that the Court will scrutinize the evidence available to assess whether there is a genuine redundancy and whether the dismissal was conducted under the principles of natural justice. Despite the pandemic, these recent decisions do not alter the established principles for retrenchment.
This article was written by Lim Zi-Han (Senior Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation. Have a question? Please contact us.