redundancy, retrenchment and separation

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REDUNDANCY , RETRENCHMENT AND SEPERATION. HOW TO MANAGE IT. By Dato ‘ Jalaldin b Hussain

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REDUNDANCY , RETRENCHMENT AND SEPERATION.

HOW TO MANAGE IT.

By Dato ‘ Jalaldin b Hussain

Redundancy• Dictionary meaning ;

- “Superfluity, profusion or abundance”.• Dunstan Ayadurai ;

- “A surplus of labour as a result of reorganisation and its usual consequence is retrenchment”.Case law ;

1) Steven Bong v FCB [M] Sdn Bhd & Anor [1999] 3 MLJ 411.

“it arises when the business requires fever employees of whatever kind”.

RETRENCHMENT• Dictionary meaning;- “reduction or curtailment of cost”.

• Official website Ministry of Human Resources;“termination of contract of employment in a redundancy

situation.” .see also Guidelines on Retrenchment Management Booklet by Jabatan Tenaga Kerja , Kemnterian Sumber Manusia., Case Law;

-see Hotel Jayapuri ‘s case [1979]1 LNS 32 where the Federal Court followed the Indian Supreme Court’s case of Pipraich Sugar Mills AIR 1957 SC 95:

“Retrenchment connotes in its ordinary acceptation that the business itself is continued but that a portion of the staff or labour force is discharge as surplusage”.

SEPARATION• Dictionary meaning ;- To discontinue or terminate the relationship.Case law;

BASF [M] Sdn Bhd v Lee Suan Sim [2001] 3 ILR 159.

“A scheme that is offered to selected employees of the company to opt for early retirement on their own with the company paying separation benefits as an alternative to retrenchment.”

HOW TO MANAGE( common issues )

Issues by employees1. Cause of redundancy,

retrenchment and separation not their fault

2. Not told – reason3. No choice – forced4. 4. wide discretion – who is

redundant Offer VSS or MSS or to be retrenched

5. Benefits – unfair 6. No alternative employment7. Whole process done in bad

faith8. Change of ownership

transfer / benefits9. Outsourcing – job still there

Issues by employer- External causes- Beyond their control

- Notice given MSS or VSS- Followed procedure - Done bona fide

- Fair distribution - Company’s offer not

accepted - comply with code- Carried out in good faith

- Termination of contract of service

- Prerogative to transfer- Company’s right to transfer

HOW TO MANAGE• First and foremost -.Creating Trust and confidence.

-Relationship between Employer and Employeeis based on trust and confidence.

See Pearce v Foster [ 1886 ] 12 QBD 536.• Lack of trust by employees is based on instances where it

is a dismissal disguised as retrenchment ie. that the Grounds of redundancy unjustified / done mala fide as follows ;a) Kopalan Chinniah v Allied Pickfords [M] Sdn Bhd [2011] 1

LNS 0020. There was lack of evidence to show that the re organization had rendered the claimant’s position redundant.

. Nowhere in any of the company’s meeting to indicate that there was a business downturn and a need for cost cutting measures that warrant retrenchment.

How To Manage – trust and confidence• B. Food Specialist [M] Sdn Bhd v Esa bin Hj Mohammad.• [1989] 1 ILR 502.• Colourable exercise to get rid of employees.• The right of the employer to re organize must be limited to the

rule that he must act bona fide and not capriciously or with motives of victimization or unfair labour practise.

• C. Persatuan Pekerja – Pekerja Kilang Papan dan Kayu kayan v Kim Chin Hoe Sawmills Sendirian Berhad.

• [ Award no 115 of 1976 ]• ….it seemed obvious that the re organisation was a sham

thereby creating a camouflage or veil behind which the original company sought to hide and to run away from it’s obligation to recognise the union and thereafter negotiate a collective agreement.

HOW TO MANAGEEmployers concern ;• Employers too have their concern as they have valid and justifiable grounds due to the following;• 1. Global economic slowdown.• see Perak Freight Service Sdn Bhd v Azlan Muzaffar Othman• {2001] 3 ILR 44.• 2. Recession or Economic downturn.• See Rajendran Samannan & Ors v Harvick Rubber Industries Sdn Bhd• [2010] 2 LNS 1313.• 3. Losses and Declining Profits.• See FACB v Selina Selvi V Sabapathy• [1999] 3 ILR 282• 4. Re organisation and Restructuring.• See Hagemayer Marketing Services Bhd v Tan Pang Leong• [1996] 1 ILR 83• 5. Take-Overs and Mergers.• See Phuah Liew Geok v Equant Intergration Services Sdn Bhd.• [2010] 2 LNS 0859• 6. Automation / change in nature of work.• See Louden v Crimpy Crips • [ 1996 ] 1 LTR 307.• United Asian Bank v Vasalakshi a/p Palaniappa.• [1990 ] 1 ILR 278.

How to manageNeed to Balance Employer’s prerogative to re organiseAnd Employee’s security of tenure .1.Decision Makers vs implementation. Normally Decision to retrench made by BOD based on paper prepared / presented containing detailed information.I Reason to retrench and information must be made known to HRMReason which is legitimate and substantiated by evidence(statistics or facts ) indicate bona fide..Company must ensure a redundant situation had arisen.Otherwise take other measures ie. Limitation on recruitment , restriction on overtime, reduction in Shifts / hours of work ,relocation to other department , re training , multitasking , review bonuses / promotion exercise / rationalising cost and expenditure , early retirement / VSS..See Mamut Copper Mining Sdn Bhd v Chau Fook Kong @ Leonard & Ors [ 1997 ] 2 ILR 625- Clause 20 Code of Conduct For Industrial Harmony – steps to avert retrenchment. 2

HOW TO MANAGERETRENCHMENT SHOULD BE THE LAST RESORT BUT IF IT IS INEVITABLE PROPER PROCEDURE SHOULD BE COMPLIED WITH AND ADEQUATE COMPENSATION ASSURED.

PROCEDURE ;Code of conduct fo industrial harmony 1975 .- Code has no legal force or sanction. see ; Prai Textile Garment Employees Union v Aragon & Phoenix Penang & Anor [1989 ] ! MLJ 481.- Section 30 (5A) IRA 1967 –in making its award , the court may

take into consideration any agreement or tri-partite code relating to employment practices.

- Judicial recognition of the applicability of the Code and Agreed - Practices is found in Said Dharmalingam bin Abdullah v Malayan

Breweries (Malaysia ) Sdn Bhd [1997 ] 1 MLJ 352 FC.

Steps in managing Retrenchment• 1.Pre Retrenchment - see Code of conduct for Industrial Harmony.• Clause 20 of Code – take positive steps to avert retrenchment.• 2. Consultation ;• Clause 21 of Code.• Company must consider whether ;• a. consultation will have a bearing towards averting retrenchment.• See Kelab Gymkhana Miri v Lim Ngiang Wei & Ors • [2001] ! ILR 383.• b. whether it affect the position of the employee (redundant).• See Advance Prestige Sdn Bhd v Benny Knut Newmann.• [2002] 3 ILR 1256.• Shahriman Sahalan & Ors v Natsevev TV Sdn Bhd.• [2010] 1 LNS 1333.

How to Manage.• 3. Selection of staff to be retrenched.• Article 22 (a) stipulates that an employer should select

employees for retrenchment in accordance with objective criteria• Such criteria should have been worked out in advance

with the employees’ representatives or trade union• Article spells out what are some of the appropriate criteria

which would ensure objectivity in the selection process• Article, however, recognises that the interest of the

employer to maintain an efficient operation in its establishment are also important criteria.• -Article 22 (b) selection of employees based on objective

criteria .• Such criteria to have been worked out in advance with

employees representatives or trade union may as per Agreed Practices annexed to the Code include ;

• (i) need for the efficient operation of the establishment or undertaking• (ii) ability, experience, skill and occupational qualifications

of individual workers required by the establishment or undertaking under (i)• (iii) consideration for the length of service and status

(non-citizens, casual, temporary, permanent)• (iv) age• (v) family situation; • ( vi) such other criteria as may be formulated in the

context of national policies eg Section 60N EA – to terminate foreign employees in similar position first and retain local employee.

Selection for Retrenchment: The Principle of Last in First Out (LIFO)

• A fundamental principle closely adhered to is that consideration should be given to an employee’s length of service

• This is translated into the Last in First Out (LIFO) principle

• It operates on the premise that where all things are equal, management should retrench the latest recruit in a retrenchment exercise

• LIFO grants a measure of protection to a more senior employee who might otherwise be retrenched in preference to a junior employee.

• Well recognised as a criteria by the union and employees

.

LIFO (Cont’d)

• Has the advantage of saving an employer from attempting to make invidious distinctions between the merits and personalities of individuals of a kind likely to stimulate jealousy and impair morale

• Where and employer does not have a set of Selection Criteria which satisfies the Industrial Court as affording objectivity in retrenchment decisions, the LIFO rule will invariably be applied.

• See Kumpulan Peransang Selangor Bhd v Zaid Mohd Nor.• [1997] 2 CLJ 11• See also Nordson (Malaysia) Sdn Bhd v Lee Chin Tao & Anor• [2010] 1 LNS 1987.

LIFO continued• Departure from LIFO • Code recognises employers prerogative to manage an

efficient operation.• If employer have valid reason to depart from LIFO Courts

have • Recognised them .• Onus to justify departure lies with employer.• Justifiable Grounds for departure ;• a. Skill and Qualification –where the juniour employee has

special skills (technology) ,qualification or experience which the company needed.

• See First Allied Corporation Bhd v Lum Siak Kee• [1996] 2 ILR 1628

LIFO continue• b. Different level /category / establishment.• LIFO applies only to employee in the same category and

not to an employee in a different category.• See Aluminium Company of Malaysia v Jaspal Singh.• [1980] 1 ILR 498• Retrenchment carried out across the board for all

categories• See Norisham Ngah @ Ors v Saag Oil & gas Sdn Bhd.• [2009] 2 LNS 0815.• c. Parent and subsidiary company operating at different

levels and scale and distinct from each other..• See Ekran Bhd v Cheong May Yoke • [1997] 2 ILR 122.

LIFO continue• d . LIFO not one of the Criteria ;• Selection criteria based on age , performance , medical

records and disciplinary records . Employers permitted to adopt their own selection criteria as long as they have sound and valid reason so to do.

• See Malaysian Shipyard & Engineering Sdn Bhd ,Johor bahru v Mukhtiar Singh and 16 Ors [1991] 1 ILR 626.

• e . Efficiency and Trustworthiness. – basd on record .• See Caree Publication Sdn Bhd v Sharmini Dorai• [2000] 1 ILR 302• f . Foreign Workers.- Employment Act 1955.• See section 60 N –foreign workers to be retrench first.• See also Section 60 O – Permanent resident exempted.

Notice / Warning• 4. Notice / Warning.• Employment Act 1955 section 12 (3) (a) – (d).• Notification to Ministry at least one month prior to taking

retrenchment measures.• Article 22 (a) of Code Employer to give early warning of

impending retrenchment as early as practicable.• See Credt Corporation (M) sdn Bhd v Choo Kam Sing & Anor• [1999] 8 CLJ 86• See also Murni Murad v Federal Furniture (M) Sdn Bhd.• [2009\ 2 LNS 0769.• No legal obligation to warn but good practice to show done

bona fide. See Malayan Law Journal Sdn Bhd v Pok Li Ping.• [2010] 2 ILR 140.

Separation.• Mutual Separation .• Perfectly all right for employer to enter into a mutual agreement for employee to

leave employment.• See Datin Noraini bt Kamal Bahrein v Perwira Affin Bank Berhad & Mahkamah

Perusahaan.• [Semakan Kehakiman No R 1 -25-94-2002• Voluntary Separation ;• a. Discretion of company and voluntary in nature.• See Kesatuan Pekerja Pekerja Letrik Malaysia Sdn Bhd v Panasonic AVC Networks

Kuala Lumpur Malaysia Sdn Bhd• [2009] 1 ILR 259.• Question of voluntariness will depend on facts of each ie .wether there had been

discussions ,request ,review of offer etc.• See YM Raja Mohamood Raja Hamid v Rapid kl • [2010] 2 ILR 538.• Burden to prove forced to accept VSS is on employee.• See Sagar V Velayuthan v Lucas Varity (M) Sdn Bhd • [2009] 3 ILR 1079.

Outsourcing• A process in which the organisation delegates some of its core

operations or processes to experts.• Consequence – specific function of employee outsourced .• Employee becomes surplus / redundant • See Mohd Ruslan Mohd Yusof & 24 Ors v Malayan Banking Berhad

[2011] 1 LNS 677.• Reason to outsource must be justifiable. Ie – beneficial to company .• See Mechmar Corporation (M) Bhd Elizabeth Kamalam Tegaraj• [2007] 1 ILR 367.• See also Muhammad Yusuf Awang & Ors v Guiness Aachor Berhad• [2012] 4 ILR 134• Employees affected offered fresh employment with outsorce company• See Ericsson Telecommunication Sdn Bhd vKamaruzaman Mohd Yusof• [2005] 1 ILR 843.

Merger, Acquisition & Takeover• Impact on manpower.• Duplication of jobs, surplus employee and rightsizing.• Employer to give notice under section 12 (1) (2) – (4) EA.• See Barat Estates Sdn Bhd and Anor v Parawakan a/l

Subramaniam and ##5 Ors.• [2000] 3 AMR 3030.

• Company should consider retention or offer Mutual / Voluntary Separation before retrenchment exercise..

• See RHB bank Berhad v Mohd Sohimi Abu Bakar]• [2004] 3 IILR 343.• Employees entitle to retrenchment benefits.• See Regulation 8 (1) and (2) Employment (Termination and

Layoff Benefits) Regulations 1980.

Retrenchment Benefits • Statutory requirements imposed by the EA eg section 13 • Employment(Termination and lay-off Benefits Regulation 1980.• Regulations 2, 3, 4 and 5.on qualification .Regulation 6 on amount and

mode ,• Term of employment contract. . See also Regulation 7A terms to apply

if better than those provided by Regulation. • Terms of a collective agreement• Industrial court jurisprudence derived from Code of Conduct• Less favourable terms in contracts of service re termination benefits

• Section 7 of Employment Act 1955 expressly provides that any terms and condition of a contract of service or of an agreement which is less favourable than a terms and conditions prescribed by the Act or regulations or other subsidiary legislation made there under shall be void of no effect

• The more favourable terms and conditions of the Act or other subsidiary legislation there under will be substituted in lieu thereof (Section 7A of EA)

Collective Agreements (CA) Section 17 (1) IRA 67. CA binding’• Section 14(3) the Industrial Relations Act 1967

• “Any term or condition of employment contained in a collective agreement, which is less favourable than or in contravention of the provision of any written law applicable to workmen covered by the said collective agreement, shall be void of no effect to that extent and the provisions of such written law shall be substituted thereof

• Why it is desirable to provide retrenchment benefits• The provision of retrenchment benefits serve as a cushion against the

hardships faced by an employee who has to contend with the loss of his employment and the consequential loss of his immediate means to earn an income. In the context of good industrial relations practice, it serves to minimize resistance and opposition to genuine re-organization measures undertaken by management. It acknowledge a workman’s security of tenure and recognizes the fact that through no fault of his, such security of tenure has to give away to his employer’s overriding interest of economy and efficiency.

• If CA provide better benefit than provisions of CA apply. See Reg 7A.

Principle derived from application of Code of Conduct .see also Article 22(c)(i) of Code

• A business organization which is in a sound financial position should not retrench its workmen because it wishes to achieve higher level of profitability without giving fair and adequate compensation to its retrenchees, its erstwhile employee who have contributed to the success of the said company. It cannot be a management prerogative of such an organization to dispense with its workmen who have committed no wrong and who enjoy security of tenure by paying nothing at all to its retrenchees or making do with a paltry or token sum of compensation

(Mamut Coppe Mining Sdn Bhd v Chan Fook King [1997] 2 ILR 625 )

New Development / views.

1. New Economic Model ; a - moving up value chain , reform of labour laws with enhanced safety net for protection of workers , effective funding of unemployment insurance (UI).Best practice calls for UI funding through contribution from employers and workers. b -Workplace Transformation ;Modernise and align labour laws with International best practices,Strengthen HR management , enhance workers safety net through UI ,establish National Wage consultative Council and facilitate PLWS.

New Development / views continue• c . UI ;• -purpose to alleviate reliance on retrenchment benefits to

cover income loss from a job by providing payouts when needed.

• - need to be simple to minimise administrative cost .• - it serves as partial income replacement before getting a

replacement job.• - those retrenched to undergo up-skilling , re training for

continued access to UI benefits.• - can look at various models.• d .Preferential Payments of Retrenchment Benefits ;• - to amend Companies Act 1965 to make retrenchment

benefits • Priority over all other creditor in cases of winding up.

New Development / views.• e .-HR Management ‘• i. job profiling . –to profile core business , job function and projection to ensure

growth / expansion /meet exigencies ‘• Ii. Employee profiling – to profile each employees personality, performance ,team

spirit / work and networking .• Iii. Career path – employees from the onset must be informed of their position ,

promotion opportunities / career path .• iV – multi tasking – employees be given training , re training /reskilling ,relocation

to promote mobility and movement .• f . Work life balance / Flexible working Arrangements .• Flexible working hours ,Leaving early , Shift swap , Job sharing , choice of days

off , staggered hours , Telecommuting , Compressed work , home working , seasonal work , Project based work , fix term contract and pert time work .

• g .Legislative intervention .• principle as per section 30(4) IRA. – public interest , financial implication and

effect on economy of the country , and on the industry concerned and also to the probable effect in related or similar industries ..

Concluding Remarks;• Managing Redundancy , Retrenchment and Separation is a

challenging task . It entails achieving a balance between Employers managerial prerogative , viability and profitability in a competitive globalised economy against employees security of tenure.

• - The Statutory provisions and Court pronouncement stands as a .guide to both employers and employees. Cases are decided on facts which will differ and can never be the same . They only stand as precedents or guide in our relentless effort to strike a balance and make our beloved country more productive and competitive.

• Towards this end there must be trust and confidence based on mutual understanding creating a win - win situation.

• THANK YOU .