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Regardless of whether the employee’s monthly salary is lower than MYR 2000, retrenchment is still subject to the Labour Law Practice.
In the eyes of the law, the employer must have a legitimate reason and dismiss the employee with due process (dismissal with just cause and excuse).

In the event that the employee reports to the Labour Department and the employer loses the lawsuit,
The employee must be compensated for up to 24 months’ monthly salary (backwages),
and responsible for the employee’s loss of future earnings according to the Industrial Relation Act 1967.



What are Retrenchment?

Basically, retrenchment is one type of termination of contract of service under Section 12 of the Labor Law,
Retrenchment have their own set of legal principles and legal requirements to comply with.

The definition of retrenchment is job surplus (redundancy),
It can be happened due to economic recession, which leads to business closure or consolidation, and lower profits ,
and/or even the business has stopped operation.
The employer must be able to prove that the employee’s job position is no longer required by the company (lay-off).
it’s not employee’s poor performance nor the employee violates the employment contract.
The employer cannot simply retrench without proper justification.



The Retrenchment process

If the employer is aware of the plan to lay off workers,
it must report to the nearest labor department within 30 days ,
submit Form PK and report the company’s next measures and the list of employees involved.

Violation of the above regulations can lead to employers being prosecuted under Section 63 of the Employment Act,
and fines not exceeding RM 10,000.00

The decision to lay off employees must be progressive, for example, by letting employees to participate voluntary separation scheme,
temporary suspension of work, or salary reduction plan.

In the Code of Industrial Harmony (Code of Industrial Harmony), the Ministry of Human Resources of Malaysia encourages employers to implement the following measures to prevent employers from making the worst plan for layoffs.

  1. Stop hiring;
  2. Reduce overtime work;
  3. Reduce holidays;
  4. Reduce working days or shifts;
  5. Reduce working hours;
  6. Provide training;
  7. Transfer to another department or branch;
  8. Reduce expenses;
  9. Reduce Salary;
  10. Help employees find career vacancies.

* Any salary reduction or transfer must have an separate written contract.

If the above measures have been implemented and did not bring positive results,
employers can consider retrechment to lay off employees.



Principles in Retrenchment practice

  1. 1st priority -lay off foreign workers (FWCO) (Foreign Worker-First Out);
  2. 2nd priority- lay off foreign workers (LIFO) (Last-in First Out) ;
  3. 3rd priority- layoff of employees who do not have important skills;
  4. Retain technical personnel who have important skills and are irreplaceable.


Notice of Retrenchement

Once the employer determines that the Retrenchment is inevitable,
The employer must give a notice of dismissal in accordance with the Employment Act  ( Notice of Termination):-

If the employee is subject to the Employment Act of 1955 (monthly salary less than two thousand ringgit),

  1. If the employment is less than two years, the employee must be given 4 weeks’ notice;
  2. If the employment is more than two years and less than five years, the employee must be 6 Weekly notice;
  3. If you have been employed for more than five years, you must give the employee 8 weeks’ notice.

If not subject to the Employment Act of 1955 (monthly salary exceeding MYR 2,000),
employers must give appropriate layoff notices in accordance with the original employment contract.



Employee severance payment

According to the 1980 Employment (Dismissal and Severance) Regulations,
All employees have a monthly salary of MYR 2 Below 1,000 will enjoy the following severance payment:-

  1. If the employee has been employed for less than two years, the employee must be compensated for 10 days’ daily salary
  2. If the employee has been employed for more than two years and less than five years, he must be given 15 days’ salary Daily salary compensation
  3. If the employee has been employed for more than five years, the employee must be compensated for 20 days of daily salary.

If the employee’s monthly salary exceeds two thousand ringgits, the employee can be compensated according to the employment contract signed at that time.