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Both retrenchment and closure of business are exercises of managerial powers. However, neither can be undertaken for any collateral reason[1] (e.g. to victimise an employee).

So how does retrenchment differ from a closure of business?

Retrenchment

The Company continues to operate.  The closure of a division of the Company may not necessarily amount to redundancy.[2]

Generally speaking, retrenchment/lay-off/termination benefits (treated as compensation for long service[3]) have to be paid out as follows:[4]

Category of Employees Retrenchment/Lay-Off/Termination benefits
Employees within the scope of the Employment Act 1955 and whose wages do not exceed RM4,000.00 a month

 

Follow the Employment (Termination and Lay-Off Benefits) Regulations 1980
Employees within the scope of the Employment Act 1955 whose wages exceed RM4,000.00 a month but with a retrenchment/lay-off/termination benefits clause in their contract of employment

 

Follow the contractual term
Employees within the scope of a Collective Agreement which includes a clause on retrenchment/lay-off/termination benefits

 

Follow the clause in the Collective Agreement

 

Closure of business[6]

The Company no longer operates – all employees from the highest ranks to the lowest will lose their jobs.[7]

As soon as the closure is completed, the Industrial Court ceases to have jurisdiction to hear any representations on dismissals from former employees of the Company.[8]

The act of closure of business amounts to a discharge of the employees[9] and the courts in some cases have taken the position that no retrenchment/lay-off/termination benefits need to be paid out.[10]

Disclaimer: The contents of this article are intended for information dissemination and academic discussion only, and should not be construed as legal advice on a specific set of facts or circumstances. Should you require legal assistance, you may contact us via email (liti@pelim.my) or via WhatsApp/telephone call (+6011-5672 7813).


[1] Harris Solid State (M) Sdn. Bhd. & Ors v. Bruno Gentil s/o Pereira & Others [1996] 4 CLJ 747; [1996] 1 MELR 42: “Whether the particular exercise managerial powers were exercised bona fide or for collateral reasons is a question of fact that necessarily falls to be decided upon the peculiar circumstances of each case. When the facts of the case are such that they would lead a reasonable tribunal to conclude that the exercise of managerial powers such as the closure of a business was for a collateral purpose, aimed at depriving a workman of his fundamental right to earn a livelihood, then, any termination of employment in consequence of such exercise may be struck down as constituting unfair labour practice.”

[2] See e.g. Malaysian Oxygen Bhd v. Ahmad Razman Mohamad Yunus [2004] 2 ILR 1040 (Award No. 927 of 2004): “The closure of the division where the claimant held the position of sales development manager-special gases does not amount to redundancy in law. This is because the closure of the technical and business development division where the claimant was placed renders his position or title redundant but not his job functions. This is because as mentioned earlier the work still existed and were carried out by other employees after the claimant’s dismissal. There was no evidence that the work which was previously performed by the claimant had diminished or expected to diminish. Since the claimant’s job functions were still in existence and there was no likelihood they would diminish, there was therefore no redundancy.”

[3] Lloyd v Brassey [1969] 1 All ER 382 at 383: “[Redundancy payments] is, in a real sense, compensation for long service.”

[4] Adapted from Maimunah Aminuddin, Termination of Employment: Understanding The Process, 2nd Edition (CLJ Publication, 2013), p.172

[6] Abu Bakar Salleh & Ors v Langkasuka Resort Sdn Bhd (Langkawi Beach Resort) & Langkawi Airport Sdn Bhd (Hotel Helang) & Anor [2017] 8 CLJ 643, at paragraph 65: “In the Book Law of Dismissal co-authored by Nallini Pathmanathan, Sivakumar Kanagasabai and Selvamalar Alagaratnam (see p. 225 of Jilid 2 of appeal record Part B & C) it was stated that “the law allows an employer to terminate an employee for good reason and closure of business is a valid reason”. This principle is entrenched in s. 12(3) of the Employment Act 1955.”; Andrew David Nicolson & Ors v Lotus Engineering Malaysia Sdn Bhd [2017] 2 LNS 0393: “It is in fact trite that the employer as the right to close down the whole or a part of his business and as long as the closure is real and bona fide the Court will not interfere.”

[7] Maimunah Aminuddin, Termination of Employment: Understanding The Process, 2nd Edition (CLJ Publication, 2013), p.172

[8] See e.g. Perwaja Steel Sdn Bhd v Menteri Sumber Manusia Malaysia & Ors [2017] 3 ILR 225: “[22] Learned counsel for the respondent workers’ position is that the Industrial Court has the jurisdiction to adjudicate on the workers’ representations as it can award compensation in lieu of reinstatement. On this issue I accept the applicant’s submission that once there is no room for reinstatement, the Industrial Court ceases to have jurisdiction to hear the matter.

[23] In the case of Unilever (M) Holdings Sdn Bhd v. So Lai & Anor [2015] 3 CLJ 900 the court held that:

From the phrase “compensation in lieu of reinstatement”, it is our judgment that the element of compensation will only arise when the employees is in a position or situation to be reinstated. It is a condition precedent to such compensation. Our view is fortified by the clear provision of s. 20(1) of the IRA 1967, where the primary remedy of such a presentation to the Director General is for the workman “to be reinstated in his former employment”… After all, reinstatement is a statutorily recognized form of specific performance can only be ordered in a situation where the legal basis for such performance does not exist. One cannot substitute when the one to be substituted does not or cannot exist. This can be seen in the legal maxim: “lex non cogit ad impossibilia “, ie the law does not compel the impossible.”

[9] See Hotel Jaya Puri Bhd v National Union of Hotel, Bar & Restaurant Workers & Anor [1979] 1 LNS 32

[10] See e.g. Chin Siew Yoong v Nota Asia (Malaysia) Sdn Bhd c/o D. G. Kom Sdn Bhd [2018] 4 ILR 321: “[36] … this court had perused the company’s handbook on the payment of retrenchment benefits and finds that such benefits are designed in circumstances where the company is active, operational and the retrenchment exercise affecting only a group or some employees, undertaken for reorganizational purposes of the company. It does not cover circumstances as the instant case before this court where all the employees are terminated on grounds of cessation of business due financial loss. In short there is no financial standing of the Company to make any payment to the claimant. [pls see Andrew David Nicolson & Ors(supra)].”