REDUNDANCY AND RETRENCHMENT

It is the prerogative of the employer to reorganise one’s business as it is the companies right and privilege to structure its operation to best fit its requirements. A reorganisation may involve closure or scaling down of business operations in an effort to reduce cost due to decline in profit or reduction in business, usually caused by a financial crisis, a slowdown in the economy and/or recession. At this stage, an employer may have good reasons to reorganise its business and to determine its workforce.

Redundancy occurs when an employer ceased or intends to cease in continuing the operation of the company or business and/or certain project or work. Retrenchment, on the other hand, occurs when the company and/or employer decides to cut cost and expenses usually due to financial difficulties, but the company and/or employer would continue operation of the company or business. It is an act by the employer in terminating the services of the employee because the employee has become a surplus to the requirement of the company and/or employer.

There are various reasons for retrenchment e.g. the spread of COVID-19 sent the global economic market into a tailspin and sparked a global economic slowdown. The three (3) common type of retrenchment methods are:-

Involuntary Separation

The employee has no control over the decision to retrench and the employer solely decides on the retrenchment planning. In this type of retrenchment, the selected employees should be given time before the retrenchment takes effect and the retrenchment shall comply with the law.

Voluntary Separation

The employee would have the opportunity to review the retrenchment package before deciding to apply for it.

Mutual Separation

This type of retrenchment encourages both the employer and the employee to negotiate on the terms and conditions of retrenchments.

The CODE OF CONDUCT FOR INDUSTRIAL HARMONY ("CCIH") is a guideline for employers in the event of redundancy and retrenchment which shall be observed though the same is not legally binding.

In circumstances where redundancy is likely, an employer should in consultation with the employee, employee’s representative, the trade union (if any) and the Ministry of Human Resources take appropriate measures including but not limited to:-

1. limitation on recruitments;

2. restriction on overtime work;

3. restriction on the number of shift or days at work in a week;

4. reduction of the number of hours; and

5. retraining and/or transfer to another department.

If retrenchment becomes necessary, the employer shall adopt the followings (the list is not exhaustive and the employer shall at all times act in good faith):-

1. provide the employees with early notice;

2. implement schemes of Voluntary Separations (“VSS”) and retirement schemes including packages for redundancy and retirement benefit;

3. retiring employees that are beyond the normal retirement age;

4. spread termination of employment over a longer period;

5. take reasonable steps to ensure that no announcements on retrenchments are made prior to informing the employees, employees' representative, trade union (if any) and other relevant parties;

6. assist the employees to find new employment; and

7. to select the employees to be retrenched in accordance with some objective criteria.

It is also of paramount importance for employers to take note of the principle of Last In First Out “LIFO” and Foreign Workers First Out “FWFO” principle. Lastly, employers shall always ensure that the prerogative to dismiss is properly exercised and exercised in good faith.

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