Major Teoh’s Blog

April 30, 2007

Guide to Retrenchment

Filed under: Guide to Retrenchment,Labour Laws of Malaysia — Major (Rtd) Teoh @ 10:56 am

GUIDELINES ON THE IMPLEMENTATION OF RETRENCHMENT

 

Source: MOHR Website

1. INTRODUCTION

This guideline is to explain the best possible ways to implement retrenchment and other related matters.

2. WHAT IS MEANT BY RETRENCHMENT OF EMPLOYEES?

Retrenchment means termination of the contract of service of the employees in a redundancy situation which arise from several factors such as closure of business, restructuring, reduction in production, mergers, technological changes, take-over, economic downturn and others.

3. WHAT MEASURES SHOULD BE TAKEN BY EMPLOYERS TO AVOID TERMINATION OF EMPLOYEES?

When there is a situation of redundancy, the employers concerned must first take relevant measures to avert termination of employees. For industrial harmony, measures as follows are suggested:-

3.1 To stop recruitment of new workers except for critical areas.
3.2 To limit overtime work.
3.3 To limit work on weekly rest days and public holidays.
3.4 To reduce weekly working days or reduce the number of shifts.
3.5 To reduce daily working hours.
3.6 To conduct retraining programmes for workers.
3.7 To identify alternative jobs and to transfer workers to other divisions/other jobs in the same company.
3.8

To implement temporary lay-off i.e. temporary shut down by offering fair salary and to assist the employees affected in obtaining temporary employment elsewhere until normal operation resumes.

3.9

To introduce pay-cut in a fair manner at all levels and to be implemented as a last resort after other cost cutting measures have been carried out.

Measures in 3.7, 3.8 and 3.9 must be implemented with the consent of the workers or the trade unions representing the employees.

4. WHAT MEASURES SHOULD BE TAKEN BY THE EMPLOYERS IF REDUCTION OF THE WORKFORCE NEED TO BE IMPLEMENTED?

If the retrenchment of workers still has to be exercised despite the implementation of the above steps (para 3), employers should implement the following measures to lessen the negative impact on the workers:

4.1

To immediately inform and discuss with the workers or the trade unions which represent them regarding any impending retrenchment.

4.2 To offer retrenchment/voluntary retirement scheme with the best possible compensation.
4.3 To terminate workers who have attained normal retirement age.
4.4

To assist workers in seeking alternative employment elsewhere before retrenchment with the cooperation of Labour Department and Manpower Department under the Ministry of Human Resources.

4.5 To implement retrenchment in stages over a long period.
4.6 To terminate the foreign workers first before terminating the local workers in the same category.
4.7

When the retrenchment involves local workers, the ‘LIFO’ principle (last-in-first-out) must be practiced for the same category of work. However, employers may carry out retrenchments in accordance with certain criterias after consultation and the approval of the workers and trade unions representing them.

5. WHAT IS THE EMPLOYER’S RESPONSIBILITY IN TERMS OF REPORTING THE RETRENCHMENT AND OTHER RELATED MATTERS?

5.1

Employers are required to report to the nearest Labour Office at least one month prior to taking the measures as stated below by using the following forms:

5.1.1 Retrenchment of workers – Form PK1/98
5.1.2 Voluntary separation – Form PK2/98
5.1.3 Lay-Off – Form PK3/98
5.1.4 Pay-Cut – Form PK4/98
5.2 These forms are available free of charge from any Labour Office in Peninsular Malaysia.

6. WHAT ARE THE RIGHTS OF WORKERS INVOLVED IN THE RETRENCHMENT?

6.1 The Employees Rights Under The Employment Act 1955.
6.1.1

The notice of termination in accordance with the contract of service but shall not be less than those specified in the Employment Act 1955, i.e. :

a) 4 weeks notice if the worker has been employed less than 2 years;
b) 6 weeks notice if the worker has been employed for 2 years but less than 5 years;
c) 8 weeks notice if the worker has been employed more than 5 years.
6.1.2

Should the employer failed to give sufficient notice, the employee is entitled to be paid wages in lieu of notice. Wages in lieu of notice must be paid in full, latest on the day the contract of service is terminated.

6.1.3

Retrenchment benefit must be in accordance with the contract of service but should not be less than the rate specified in the Employment Act 1955 which is:

a) 10 days wages for each year of service if the worker has been in employment for less than 2 years;

b) 15 days wages for each year of service if the worker has been in employment for 2 years but less than 5 years;

c) 20 days wages for each year of service if the worker has been in employment for 5 years or more.
6.1.4 Retrenchment Benefits must be paid latest by the 7th day after the date of retrenchment.
6.1.5 Should the above rights be denied, the worker can file a claim at the nearest Labour Office.
6.2 The Employee’s Rights Under the Industrial Relations Act.
6.2.1

If there is a Collective Agreement on terms and conditions relating to Retrenchment the benefits payable to the workers shall not be less than those stipulated in the Collective Agreement.

6.2.2

If the employee is not satisfied with the retrenchment, he or she may seek advice from the nearest Industrial Relations office which is under the Ministry of Human Resources.

7. WHAT ARE THE TYPES OF SERVICES AVAILABLE TO WORKERS AND EMPLOYERS AT THE MANPOWER DEPARTMENT?

7.1 Procedures in getting alternative employment.

Retrenched workers can come personally to register at the nearest Manpower Department free of charge, by bringing along with them their identity cards, educational certificates and other related documents. If the worker failed to get a job after 3 months, he or she must renew the registration with the Manpower Department. Successful applicants must also inform the Manpower Department immediately.

7.2 Procedures in recruiting retrenched workers to work in other companies.
7.2.1

Employers who wish to employ retrenched workers can request for suitable candidates from the nearest Manpower Department by stating relevant information on the vacancies available, salaries offered, minimum qualifications and other requirements. Upon interviewing the candidates supplied by the Manpower Department, employers should inform the Department of the number of candidates that have been recruited.

7.2.2

The government will not consider any request from employers to employ foreign workers if the employers do not give priority for local workers to fill the vacancies.


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1 Comment »

  1. Dear Major,

    If a company is closing down:
    1) what compensation can the employees get?
    2) under the industrial court, if the sdn bhd company has been operating at a loss for the past few years, and the paid up capital is only 100k, can the employees sue the boss exceeding the 100k?

    Comment by chasershdw — January 6, 2008 @ 6:55 pm | Reply


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