Four Employees Awarded RM569,898.40 by Industrial Court Over Unlawful Retrenchment

Four employees challenged their termination after the company claimed they were retrenched due to restructuring and redundancy following the COVID-19 pandemic. One employee was also alleged to have been employed under a fixed-term contract that had expired.

The Industrial Court considered whether:

• The retrenchment was genuine and carried out in good faith.
• The employees were lawfully selected for retrenchment.
• The fourth employee was genuinely employed under a fixed-term contract.
• The dismissals were with just cause or excuse.

The Court ruled in favour of all four employees because:

• The employer gave inconsistent reasons for the dismissals, claiming retrenchment in its pleadings but later alleging absenteeism during the trial.
• The company failed to produce evidence of a genuine restructuring or redundancy exercise.
• The company’s financial records indicated it continued to perform well during the relevant period.
• The termination letters did not mention retrenchment or restructuring.
• For the fourth employee, the employer failed to prove the existence of a valid fixed-term contract and even admitted during cross-examination that no such contract existed.

Industrial Court Decision

The Industrial Court held that all four employees were dismissed without just cause or excuse. As reinstatement was not appropriate, the Court awarded:

• * Compensation in lieu of reinstatement; and
• * Back wages (subject to a 10% deduction for post-dismissal earnings).

Key HR Takeaway

An employer relying on retrenchment must prove there is a genuine business necessity, follow a consistent and properly documented process, and provide credible evidence. Changing the reason for dismissal during proceedings or relying on unpleaded arguments will likely cause the dismissal to be held unlawful.

With rising oil prices and increasing business costs, many employers are considering retrenchment. However, this case shows that financial pressure alone is not enough. Employers must prove genuine redundancy, follow a fair process, and comply with employment laws. Otherwise, as seen in this case, the Industrial Court may award substantial compensation—RM569,898.40—to affected employees.

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