CAT OUT OF THE BAG SERIES #3 - Why I am like Ryan Bingham the Malaysian Edition and What You Need To Know About Retrenchment in Malaysia

"Oh You Made It Alive" should soon replace the common greeting of "Oh You Are Finally Here" after surviving the Covid-19 pandemic season. The first half of 2020 has forced everyone to re-evaluate our priorities, actions and future.

Evidently my maturity level bumped up 2x during the Movement Control Order 2020 (MCO) a cordon sanitaire implemented by our government in response to the COVID-19 pandemic, which started on 18 March 2020. I never been so alone in my life. Being home alone without a TV and internet (exaggerated info because I still have my phone data) during the entire lock down made me realised I am pretty much apocalyptic-proof my life and capable to sustain in a zombie-alien-predator invasion (again, exaggeration). If I could have a movie after my life during the lock down; it will be called "LIVING WITHOUT (TV, INTERNET, HUMAN TOUCH ETC)". Truly, it felt that way.

When the announcement of MCO was made, it left many businesses in a lurch. Many SMEs had suffered from the backlash of the quick-step approach by the Government asking all Malaysians to stay home. As we progressed into recovery mode, we are seeing pockets of null survivors i.e. companies which had tanked due to the lockdown. To add salt to an open wound; Malaysians were forced to watch hostile political party takeover which left the country in a far worst disarray of matters.

During these period, my team and I were working remotely with many of our clients who had to face with a lot of employment related conundrum. I will be dead-honest to ya'll - I never work as hard as I did during the lockdown. Remote connection with all clients while managing expectations as well as making sure the advice received was delivered and executed correctly were sure as hell difficult and taxing to the body and mind.

There are days my anxiety got the best of me especially when I was asked questions which I know will affect the livelihood of hundred of employees. I admit I was stressed out because there are days where hard decisions had to be made and drafting the letters and notices left me with wet eyes and heavy heart. (Yes, despite popular belief, lawyers are still humans with all spectrum of emotions intact! We are not always irreverent.)

The most drastic step an employer could take is to retrench employees in order to save the Company and keep only a handful who are important for corporate sustainability. During these times, employers have to make crucial decisions on how to let go redundant employees based on the current law and guidelines. But there are many who misunderstood the terms redundancy and retrenchment; thinking that the both are the same - tomahto-tomaeto some say. On the contrary, they are in fact like tomato puree vs pumpkin spice latte.

Redundancy is when there is a surplus of manpower and that surplus is now without work. Such surplus of manpower is due to changes in the Company's structure and dynamics. As such, the Company will start to retrench those who are redundant. Retrenchment is essentially an exercise to remove redundancy.

A few options an employer could consider when deciding to retrench are as follows:

1. LIFO - Last In First Out; letting the youngest and most inexperience employees go before considering older and more experienced employees. This is to ensure that the business will sustain with senior employees who can do twice/thrice as much as juniors.
2. Performance Based - Considering letting go employees whose performance is not up to par or not able to function fully in the new Company environment or structure.
3. Complete closure of department/branch/office - This is when the Company has to consider removal of an entire hierarchy, department, or branch office.

These methods are reasonably accepted but regardless; do keep in mind when executing any retrenchment exercises, that the Company must observe any statutory orders or regulations for notice period and payment of any benefits; if any. For employees who are protected under the Employment Act 1955, the Company must observe the Employment (Termination and Lay Off Benefits) Regulations 1980 for such statutory payment of termination benefits.

There you find the algebra of termination benefits which are often overlooked or miscalculated by employers.

Firstly, a Company needs to know that for employees to be entitled for termination benefits - the employees have to had served more than 12 continuous months of service with the Company. Failing which, they will not be entitled to the termination benefits.

Secondly, for those who are entitled, the breakdown are as follows:

< 2 years of service = 10 days of average true day wage for each year of service

> 2 < 5 years of service = 15 days of average true day wage for each year of service

> 5 years of service or more = 20 days of average true day wage for each year of service

Finally, the meaning of Average True Day Wage = RMX

RMX = (Total Gross Wages Earned for the last 12 months from the last date of service / 365 days)

The definition of Gross Wages would include commission, overtime, bonus, incentive, allowances, and even encashment of leave value.

(Simple isn't it?)

This payment is mandatory - meaning it is compulsory whenever there is termination by the Company except in situations where employees have voluntarily resigned, retired or dismissed due to misconduct or breach of contract.

For those who are not protected under the Employment Act 1955, you should take a look at the Company's policies or your contract of employment if there are any retrenchment benefits clauses. If there are none, then by law the Company only needs to observe the standard termination clause which would usually provide the termination notice period.

However, being paid the termination benefits does not mean the retrenchment could not be challenged. In the event the employees felt that the retrenchment is unfair and that their termination was without just cause and excuse; the employees WILL ALWAYS AND FOREVER have unfettered discretion to file a s.20 IRA complaint at the Industrial Relations Department. Your rights as an employee to file against unfair dismissal is protected even though statutory termination benefits are paid.

Such is retrenchment in Malaysia.

Do note that the employers must provide notification to the Labour Department (via PK Form) as well as to the employees within the stipulated time. The PK Form was in force since 11 November 2004 and failing to file the PK form may lead to an offence under s.63 of the Employment Act 1955 where an employer can be fined up to RM10,000 per offence. For the purpose of Sabah and Sarawak, the same form will apply but do check the entitlements for employees under the definition of Sabah Labour Ordinance and Sarawak Labour Ordinance.

For more information, you may refer to this PDF guideline from Labour Department.

Well, that pretty much sums up my life as a female Ryan Bingham (from Up in the Air). The only difference is that I am stuck at home and not out travelling while having international booty calls. All I m doing is legitimately - giving the boot.