MIIP EDUCATIONAL SERIES: LEGAL ASPECTS OF EMPLOYEE LAY-OFF

Sean Lee, Consulting Director, inTalent Consulting Sdn Bhd, shared about the various aspects of retrenchment.

Tong, MIIP President welcomed the attendees to the session and introduced Sean. In introducing the topic, Sean highlighted that there is a difference between “contract of service” and “contract for service”, which are commonly used in organisations today.

“Contract of service” bears a “masterservant” relationship which involves an employer-employee structure where there is an appointment letter or letter of employment to hire an individual. The completion of contract is the consideration which comes in the form of payment for service or product. In the case of the employer-employee consideration, the employer commits to pay wages while the employee commits time and effort to the organisation.

Meanwhile, “contract for service” involves vendors that offer services or products to the organisation in exchange for payment.

According to Employment Retrenchment Notification 2004, all employers are required to report to the nearest Department of Labour before taking actions such as retrenchment, voluntary separation scheme (VSS), temporary lay-offs, and salary reduction. The employer must submit FORM PK to the nearest Department of Labour at least 30 days before the said actions are taken. Employers who fail to undertake this process are committing an offence according to Section 63 of the Employment Act 1955 and shall be liable to a fine not exceeding RM10,000 for each offence.

Sean explains that lay-off exercises involve 8 key steps that include holding a townhall session for employees to inform them of the intention to lay-off; making an application to the Labour office; 1-to-1 sessions with the affected employees; submission of the second time to the Labour Office; obtaining the affected employees’ profiles to be sent to competitors; preparing pay-out based on retrenchment benefits; send them to PERKESO-certified trainers for reskilling; and, making a final submission to execute the retrenchment. He also highlighted that PERKESO has a compensation programme called EIS which compensates employees according to a pre-set quantum.

To a question from the floor on Voluntary Separation Scheme (VSS) and Mutual Separation Scheme (MSS), Sean explains the first employees to go during a retrenchment exercise is the foreigner or the last person that came in. He elaborates that after the retrenchment exercise the employer is not allowed to hire any new employees for the next six months. In the event that hiring is needed, the employer has to rehire the retrenched employees first. Sean says that VSS is an exercise whereby the company calls for volunteers to offer themselves up for retrenchment, and the company is not allowed to make selections, thus whoever wants to be retrenched has to be released. Meanwhile, MSS involves approaching certain employees and seeking for them to agree to a mutual separation with a specific compensation.

Sean also shared measures that employers can take to avoid retrenchment. This includes freezing recruitment of new workers except for critical areas, limiting overtime work as well as work on weekly rest days and public holidays, reducing the number of shifts or daily working hours, providing workers with retraining, identifying alternative jobs, and carrying out temporary lay-offs. Other measures include implementing pay-cuts fairly at all levels, and identifying vacancies in other companies to be offered to workers who will be retrenched.

Sean explained that the guidelines that employers should follow when retrenching employees include taking into consideration the employee’s abilities, experience, skill and occupation qualifications, age, family situation, length of service, status (noncitizens, casual, temporary or permanent). A few common industry practices to retrench employees include the FWFO principle (Foreign worker – first out), and the LIFO principle (Last In, First Out).

In sharing a case study, Sean advises employers to never discriminate women who are pregnant. The case involved an organisation who removed an employee who went on early maternity leave, while in the midst of her contract. The employee won RM346,000 for the breach of constitutional rights. He ended the session by cautioning employers to be just and carry out periodic performance reviews in order to be fair to employees.