It is part of companies’ strategy to help affected employees

WHILE the law recognises security of tenure in employment, the employer’s overriding interest of business efficiency is equally emphasised.

It is trite law that the employer is entitled to organise his business in the manner he considers best. The employer is, therefore, empowered to retrench a worker based on the operational requirements of the organisation. The services of an employee may become surplus if there is a reduction, diminution or cessation of the type of work the employee was performing.

For example, an employer may reduce his workforce due to automation, or he may choose to restructure his business by combining two or more departments. Again, when the business is less profitable, the surplus labour may be discharged to save costs.

Undoubtedly, retrenchment of workers on grounds of redundancy is a difficult area of labour law as it raises considerations on economic efficiency, industrial autonomy and social justice. It involves an employee who has not done any act justifying his dismissal.

Rather, he is still considered a competent and loyal worker. If the employer does not resort to discharging the redundant worker, but carries on the business and loses money, this may lead to insolvency, bankruptcy or winding-up of the organisation.

Therefore, the employer must explore all possible alternatives to retrenchment by taking the necessary interim measures such as cutting down working hours, overtime and the number of shifts; extending time-off without pay; freezing bonuses and increase in salaries; reducing wages (by agreement); ceasing new recruitment, except for critical areas; decreasing the number of contractors or casual labourers; rationalising costs and expenditure; temporary layoff; early retirement offers, gradual reduction of workforce by way of natural turnover; and conducting retraining programmes for skills development to enable employees to move into different positions.

The decision to retrench should only be made when the job is redundant and the employer had exhausted all available options.

If the employee is retrenched on genuine commercial reasons, the affected employee should be paid appropriate compensation.

Retrenchment benefits are paid to the affected workers to ensure that they and their families have some form of financial compensation to cushion the often harsh effects of losing their livelihood.

In Malaysia, where an employee’s contract of service is terminated by his employer, the employee, who is within the purview of the Employment Act 1955, is entitled to termination benefits as provided for under the Employment (Termination and Layoff Benefits) Regulations 1980.

The amount of compensation that employees receive would depend on their last drawn monthly salary and the length of time they have been with the organisation.

Unfortunately, however, the Employment Act is only applicable to the category of employees specified in the First Schedule. If an employee falls within the purview of the First Schedule, he will be entitled to the retrenchment benefits as provided in the regulation. But if the worker does not come within the purview of the act, whether or not he is entitled to benefits would depend on whether there is any contractual arrangement between the parties for the payment of retrenchment benefits or whether the collective agreement to which the workers are members stipulates for such payment.

Undoubtedly, the very existence of retrenchment denies a worker job security.

Job loss justified by economic needs is an inevitable painful sequel of a restructuring or reorganisation process. Hence, the Employment Insurance System Bill tabled in Parliament recently is aimed at addressing the above by providing, inter alia, financial assistance to affected workers for a limited period and this is not an unemployment benefit system, as practised in some developed countries.

A significant part of any retrenchment plan is a strategy to help affected workers find new employment and this is also addressed in the bill.

It is hoped that the proposed law would be able to minimise the financial hardship of the retrenched workers.