RESTRUCTURE,

RE-ORGANISATION
AND
RETRENCHMENT
(Presented by
Aresandran.LLB.Hons.,CAHRP.)
Legal Adviser,HR & Employment Law,
MIHRM)

1
 HRM -MANY CHALLENGES
 Changing economy
 Changing workforce
 Changing share-
holders expectations
 Govt. Laws and
Regulations
 Technology changes
 Global competition
 Cost reduction
 Productivity
improvement
 What else?

2
HRM’S RESPONSE

Change And Keep Changing

and
Re–structure
and
Re-organisation

may arise 3
 DICTIONARY- DEFINITIONS

RESTRUCTURE: means’ to change the

make-up or organisation of

REORGANISATION: means “to organise

again or in a different way

RETRENCH: means “to reduce, to make

reductions
4
MANAGERS MUST RESTRUCTURE
AND REORGANISE ALSO

WIN PEOPLES HEART AND MIND

SHOW CONCERN TO STAFF
MANAGE THEIR EMOTIONS,AND
HAVE EMPATHY
BE HONEST, PASSIONATE, AND
COMPETENT IN HANDLING IT
BE OPEN AND TRUSTWORTHY
5
 MATTERS BEGINS WITH YOUR
COMMUNICATION
1. Ensure all employees understand the company’s business
situation and its financial downturn.

3. Brief them of the company’s contingency plan in advance

3. Communicate business news on regular basis from there on,

i.e
* changes taking place
* Issues and problems handled
* other business matters
9. Ensure communication is consistent and the source

5. Avoid any management activities inconsistent with the situation

( At all times Avoid-making predictions about the future)

6
 THE LAW ON
RESTRUCTURE,
RE-ORGANISATION
AND
RETRENCHMENT

7
 1.PROVISIONS IN THE EMPLOYMENT

ACT 1955, ON WORKFORCE CHANGE

1.Sect.12(3)anticipates 6 situations of change:
1.Employer ceasing business
2.Employer ceasing business at certain place
3.Employer’s business diminishing
4.Employee refusing transfer
5.Employer’s ownership of business has
changed

(Therefore the Law anticipates that Jobs will not

be permanent) 8
• Similarly is the Principle in Industrial Law which
supports Re-Structure and Re-Organisation and
workforce change

(P.1.PURPOSE 0f REORGANISATION MUST BE IN GOOD FAITH

1.1 In KSM Credit v Leasing Sdn. Bhd.

- Award No. 323 of 1988 it was held:

“A Company has every right to reorganise its

business in any manner for the purpose of economy or
convenience, provided that it acts bona fide and no
arbitrator should interfere with the bona fide exercise
of that right.”

9
 P2.Purpose must be of a genuine
commercial/economic consideration

1.2. In TV1 Training & Certification (SE Asia) Sdn. Bhd. v

Jose A. Sebastian (1998) 2 ILR 879 @ p.882, it was pointed out.

“ As long as it is a genuine commercial and economic

consideration that a company undertakes a restructure exercise, it is
within managerial prerogative to decide in the best interest of its
business arrangements to identify its own area of weakness, and then
proceed to discharge its own surplus. It is a well organised principle
in all retrenchment exercise and as long as the company is bona
fide in the exercise of this prerogative, the Industrial Court will not
generally interfere.”

10
 (P 3.Reorganisation -Must not be done with motive of
victimizations or unfair labour practice)

1.3. In East Asiatic Company (M) Bhd v Valen

Noel Yap (1987) 1 ILR 363 THE Court held:

“It is the right and privilege of every employer to

re-organise his business… But the right of the employer is
limited by the rule that he must act bona fide and not
capriciously or with motives of victimisation or unfair labour
practice.”

11
 (P.4.SURPLUS -Employees CAN BE RETRENCHED)

1.4. In United Services and Automotive Industries

Bhd v Khong Peng Kee & ors (1997) 2 ILR 52 the Court
held:

“If a Scheme for re-organisation results in a

surplus of employees, no employer is expected to carry the
burden of economic dead-weight and retrenchment is
evitable.

12
 SUMMARY -PRINCIPLES

FOLLOWING REORGANISATION OR
RESTRUCTURE-SURPLUS WORKFORCE CAN
BE RETRENCHED,PROVIDED:

1.
2.
3.

13
EMPLOYEES RIGHT ON WORKFORCE CHANGE

1.Security of Employment based on contract

2.Claim for Unfair Termination allowed

under Sect:20 of the IND.REL.ACT 1967:
‘where a workman ,considers that he has
been dismissed without just cause or
excuse, by his employer, he may make
representations in writing to be reinstated….
not later than 60days.’
14
 INDUSTRIAL COURT

 When the Industrial Court is dealing with a reference

under Sec 20 IRA, the first thing that the court will have
to do is to ask itself 2 questions:

a. Whether there was a dismissal,

– If so, whether it was with or without just cause or excuse.

Point to note: Burden is on the employer to prove that the

dismissal was with just cause or excuse.

WONG CHEE HONG vs CATHAY ORGANIZATION

15
 3. Application OF Law and Principles in Case

CASE:(1)Case : Career Publications Sdn Bhd v

Sharmini Dorai - Award No: 98/2000

Facts
1. Following substantial losses by the Company ,there
was re
organisation ,and Claimant, an Assistant Editor, was made
redundant together with others.
2. The Claimant was offered alternative employment
with
adjustment in monthly salary from RM2,320 to RM1,820
WITH 3% commission.
3. All employees accepted, except Claimant and was
terminated.
16
 APPLICATION

WAS THE COMPANY’S

ACTION RIGHT?
Was the 3 P’S
followed,

17
 Held

1. Since Company had suffered

substantive losses, re-organisation was
inevitable.
2. The employee was informed of
the changes, even though there is no legal
obligation on the part of the Company to
consult or warn his employees before
retrenchment.
3. The Court concluded that there
was no element of mala fide on the part of the
Company.

18
 Application in Cases

Case(2) Case : Integrated Warehouse Sdn Bhd v

Raja Amiruddin Raja Ahmad - Award
No:
768/2002
Facts

1. The Company claimed that the

Claimant was retrenched due to fall of demand which
resulted in his position as Warehouse Manager becoming
redundant.
2. The Claimant claimed that he was
retrenched without just cause.

(what’s your view on this)

19
Held

1. The Company had failed to prove there was

downsizing and restructuring of Company as
result of severe financial difficulties because it
was making profits.

2. The Claimants job function was not redundant, in

effect the General Manager took over the
Claimant’s position. This showed his work still
existed and had to be done by other employee.

20
 DELIBERATION

1. WHY COMPANY
LOST THE CASE

2. WHAT IS THE
DIFFERENCE
BETWEEN THE
1ST CASE AND
SECOND CASE
21
Case(3) Case : Ranhill Bersekutu Sdn. Bhd v Noor
Zuzinee Abu Bakar – Award No: 722 of 2002

Facts
1. The Claimant as Senior Engineer in the Company took
unpaid leave and then sought request to work only 3 days a week
due to family problems.
2. The Company granted the leave and converted the
Claimants appointment to part-time consultancy services.
3. Then following a financial hardship faced by Company,
the Claimant was retrenched and Claimants function passed on
to another.

22
 DELIBERATION

1.What’s your view on

this case

2.Is the company right

in its action

3.Will the employee

win in this case
23
Held

1.The Company’s submission that Claimant

did not protest to appointment as part-time
consultant is not acceptable to Court.

2.Converting permanent position to part-time and

then to retrench is a convenient way for the
Company to remove Claimant and retain junior
engineer.

24
Held

3 .The Court agrees with the Company’s

submission as stated in the case Cycle &
Carriage Bintang Bhd v Cheah Hian Lim
(1992) 2 ILR 400 (Award No. 342/92) where
the Court stated:

25
 “It is for the Management to decide the
strengths of its staff which it considers necessary for
efficiency in its undertaking.
When the Management decides that the workmen are
surplus and that there is therefore, a need for
retrenchment, an arbitration tribunal will not intervene
unless it is shown that the decision was capricious or
without reason or was mala fide or was actuated by
victimisation.”

4. The whole evidence here, shows the

Company’s intention to victimise the Claimant.

26
Case(4) Case : SGAP (Malaysia) Sdn Bhd & Anor v Kevin
Dooley – Award No: 340 of 2002

Facts

1 The Claimant, a Senior Consultant following a regional

re-organisation, initially was offered a job in Singapore.

2. The Claimant submitted valid reasons for his refusal and was offered
a new position (in Malaysia) but with certain benefits and
allowances removed.

3. There was also no clause for transfer.

4. Claimant rejected and was terminated.

27
 DELIBERATION

1. Is the Company right in its action

2. Does the employees have a case

28
.

Held

1.An employer has the right to re-organise his

business and to terminate employees pursuant
to such re-oreganisation.

2.There was nothing to show that the Claimant has

been made redundant in his job.

29
3. The alternative Malaysian offer was a demotion
to the Claimant a drop in his job
classification;
reduction of 40% in his basic salary and removal of
monthly allowance. This constituted fundamental
breaches to his existing terms.

4. The Company had no right when organising

itself to make fundamental changes to the
Claimants terms of employment without his
consent. If company had been genuine it would not
have provided terms of employment which were
much less favourable than his existing terms.

30
 DELIBERATION

WHY THE COMPANY LOST THE CASE

31
RETRENCHMENT PROCEDURE

IN MALAYSIA-PART 2

32
(P.4.SURPLUS -Employees CAN BE RETRENCHED)

1.4. In United Services and Automotive Industries

Bhd v Khong Peng Kee & ors (1997) 2 ILR 52 the Court
held:

“If a Scheme for re-organisation results in a

surplus of employees, no employer is expected to carry
the burden of economic dead-weight and retrenchment is
evitable.

33
 RETRENCHMENT PROCEDURE
STEP 1:Observe clause 20 to 24 of code
of conduct for Industrial Harmony.

• STEP 2: Notify the Ministry - I month ahead

• STEP 3: Start with VSS and with Better

Terms

• STEP 4:Then apply “Last in-First out” with

compulsory terms.
34
EXAMINE STEP:1- RETRENCHMENT

Code of conduct for Industrial Harmony 1975

(Observe Rule 20-24)

1.Rule 20: Consult with Trade union and

Ministry reps. to minimize reductions by:

i. Limitation on recruitment

ii. Restriction of o/t work

35
iii. Restriction of work on rest day

iv. Reduction in the number of shifts

v. Reduction in the number of hours of

work

vi. Re-training and transfer to other Dept.

36
 Rule 21:
When any decision on reduction
of workforce is taken have
consultation with workers and Reps.

Rule 22:
Inspite of all measures ,if retrenchment
is necessary, move to step 2.

37
 STEP 2:RETRENCHMENT

1.Notify the Ministry of Human Resource,

i.e. the nearest Labour Dept at least one(1)
month before any
retrenchment/layoff/salary deduction is
done.
2.Note:Failure to do so is an offence under
Sect.63 of the Employment Act 1955

38
 APPLICABLE LABOUR DEPT.FORMS

1.FORM PK 1/98– FOR RETRENCHMENT

2.FORM PK 2/98 –FOR VSS

3.FORM PK 3/98- FOR LAY-OFF

4.FORM PK 4/98- FOR SALARY

REDUCTION
39
 STEP 3: RETRENCHMENT

Rule:22 (a).
1. Give early warning to the workers
2. Introduce Schemes for Voluntary retrenchment
with benefits (Note: Retrench Foreign workers first)
3. Retire workers beyond retirement age
4. Assist with Ministry to find work outside the
undertaking
5. Spread termination period over longer time
6. Do not make announcements before unions and
workers have been informed

40
Rule:22(b).
Selection of employees be made on objective
criteria, with discussion, to include :

a) Need for efficient operation

b) Need for right skill, experience, qualification
for the establishment
c) Length of service,
d) Status of occupation and citizens
e) Age
f) Family situation
g) Any national policies

41
 Rule 23:
Employees who are retrenched should be
given priority for re-engagement when vacancy
occurs

Rule 24:
Objective criteria should comprise part of the
company’s employment policy

42
 STEP:3(A) - VSS COMPENSATION
PACKAGE AND BENEFITS

(GENERAL MARKET PRACTICE)

1.*EMPLOYEES WITH LESS THAN 36MTHS REMAINING

SERVICE:

-------X Basic Salary x Balance mths. Srv. to retirement

(Market payment lowest 50%,highest 75%)

43
STEP:3(B) - VSS COMPENSATION
PACKAGE AND BENEFITS

(GENERALMARKET PRACTICE)

2 .Employees with 24yrs service and

below:
LOWEST PAYMENT: 1.25MONTHS
HIGHEST PAYMENT: 2 MONTHS

44
 STEP:4-(A)COMPULSORY RETRENCHMENT

 1ST Principle to be applied is strictly

“LAST IN-FIRST OUT ”

• 2ND PAYMENT

-IF CA EXIST –PAYMENT BASED ON CA

-IF NO CA AND FOR -Non-Executive category

(MINIMUM FOLLOW TERMINATION AND LAY-OFF
REGULATIONS1980 )
Less than 2yrs-10days wages for every yr.
More than 2yrs-5yrs -15days wages for every yr.
More than 5yrs -20days wages for every yr.

45
 GENERAL MARKET PRACTICE

 Less than 2 yrs Service-

Lowest 15days-Highest 30days for
every year of service
 Between 2 yrs to 5 yrs Service-
Lowest 20days-Highest 30days for
every year of service.
 More than 5 yrs Service –
Lowest 25days – Highest 45days for
every year of service.
46
STEP:4- COMPULSORY RETRENCHMENT

FOR EXECUTIVE CATEGORY

PAYMENT

-IF CA EXIST –PAYMENT BASED ON CA

-OTHERWISE –SIMILAR AS PREVIOUS

(NOTE: NO REGULATION FOR

COMPULSORY MINIMUM PAYMENT
FOR EXECUTIVE CATEGORY)
47
5. CASES ON RETRENCHMENT

5.1. Selection Criteria Chosen and successful

Award no:165 of 1991

Malaysia Shipyard & Engineering
Sdn Bhd, JB v Mukhtia Singh &Other

Facts of case
1.350 employees were compulsorily
retrenched on a selection criteria
and not on ‘last in-first out’as per code.
48
2. The union contended this is contrary to
the code and industrial practice

EXAMINATION BY THE COURT

1. The company has found the ‘Lifo’

principle inadequate and unfair.
2. Company has shown concern for
achieving efficiency of operation and etc
3. So company has adopted own criteria

49
 Company’s criteria
.Based on point system on the following
factors:
1.Age -20pts - 50yrs and above
-10pts - 45 -50yrs
-5pts - below 45yrs

(Physical fitness and endurance is essential

in the ship industry as involves long and hard
hours of work and climbing)

50
2.Performance of employees based on

 past 3 years:
3.Medical records of employees
- points were awarded based on days
of medical leave taken, excluding
socso, hospitalisation and unpaid
leave.
4. Disciplinary records of employees
- based on 5 years.

51
 COURTS VIEW
1. The selection criteria applied to all
categories of employees.
2. There was contract workers engaged on
temporary basis to cut cost but were not
performing duties of the retrenchees.
3. The selection criteria devised by
themselves is reasonable
4. The company has given valid reasons for not
following ‘Lifo’ principle.

52
 CASES ON RETRENCHMENT
(5.2.A CASE NON-COMPLIANCE TO ‘LIF0’)
AWARD NO:247 OF 2001CHR’STEELSDN
AND ABU SAMAH

1.Facts of case:
-Claimant Production Supervisor was
retrenched following economic slowdown as
supervisor was surplus. Production two shifts
to one shift.
53
 2. CLAIMANTS ARGUMENT
1.Another supervisor junior to him was
retained.
2.He claimed he was not informed of the
retrenchment before the exercise.
3.He argued the company was not in
hardship.
4.Company did not follow ‘lifo’ principle, as a
junior trained by him was retained.
5.There was advertisement for general
workers 54
 3. COMPANY’S SUBMISSION
1.There is no need for a Supervisor.

2.The claimant was given oral notic inadvance

3.Production has shrinked from 2 shift to one

55
 APPLICATION-YOUR VIEWS

WAS THE
COMPANY’S ACTION
RIGHT?

56
 3. COURT DECISION
1. Company has the inherent right to reorganise to derive
maximum benefits, provided not’ mala fide’, or has motives
of victimization or unfair labour practice.
2. In retrenching employees, company must not only act
reasonably but also observe Code of Conduct and
accepted principle of ‘LIFO’
3. Company admitted ‘code’ not complied
4. No official records or statistics to show economic gloom
and had advertisement for new workers
5. No justification for departure from’ LIFO’
6. His kind of work has neither ceased or diminished-
therefore unjust dismissal.

57
 SUMMARY-RETRENCHMENT
CHECKLIST

1. Company to support with financial

facts and figures on need for retrenchment
2. Consult Employees rep. and Ministry
3. Follow Code of conduct for Industrial
Harmony, Rule 20-24
4. Notify the Ministry of HR- Labour
Dept-1month ahead.
5. Retrench foreign workers before locals
6. On local employees, apply ‘LIFO’
7. Pay the appropriate termination
benefits
58
THE END

THANK YOU 59