EMPLOYMENT LAW
WHAT IS RETRENCHMENT?
What is Retrenchment?
In Malaysia, the termination of employees is subject to specific criteria and cannot be not carried out arbitrarily. It is essential to have clearly defined objectives and selection criteria in place. In essence, there should be a justifiable reason for discontinuing the employment of a particular individual. These same principles apply to the retention of employees as well.
The selection criteria are outlined within the guidelines of the Code of Conduct for Industrial Harmony. This document results from an agreement involving Malaysia’s Ministry of Human Resources, the Malaysian Trades Union Congress, and the Malaysian Council of Employers’ Organisations. Employers must consider this comprehensive set of guidelines.
The “Last In, First Out” Guideline
A commonly employed principle in Malaysia is the “last in, first out” rule. Essentially, this means that when retrenchment becomes necessary, the employee with the shortest length of service within a particular team or role would typically be the first to be let go. Those who have been with the company for a longer duration would be retained before those with less seniority.
Providing Adequate Notice
When the decision to terminate or retrench an employee is reached, it is imperative to issue a formal Notice of Retrenchment. The length of the notice period is contingent upon company policies or collective agreements.
In accordance with the Employment Act of 1955, an employee earning up to RM2,000 per month is entitled to notice based on their tenure. This same regulation applies to manual laborers, regardless of their monthly income.
For employees with less than two years of service, a minimum notice of four weeks is generally expected. If the duration of employment ranges from over two years to less than five years, the notice period should be no less than six weeks. In cases where the employee has rendered more than five years of service, the minimum notice period increases to eight weeks.
Reporting Retrenchment to Relevant Authorities
Following the termination or retrenchment of an employee, it is mandatory to inform the appropriate authorities. This requirement is stipulated by the Employment Retrenchment Notification 2004. To comply, employers must complete the Employment Notification Retrenchment Form (Borang PK). The form consists of several sections, each of which needs to be submitted in stages to the nearest Labor Office.
