MCO and the retrenchment of employees — Joshua Wu Kai-Ming

MARCH 25 — The Prime Minister of Malaysia, Tan Sri Muhyiddin Yassin, announced on March 25, 2020 that the movement control order (“MCO”) which has been in force since 18th March 2020 will be extended until 14th April 2020.

Epidemiologist Datuk Dr Awang Bulgiba Awang Mahmud has opined that the MCO needs to be in force for at least six (6) consecutive weeks in order to bring down the Covid-19 infections to a manageable level. This could mean a further extension beyond April 14,  2020.

Unemployment estimates

In its preliminary assessment note on “Covid-19 and world of work: Impacts and responses,” the International Labour Organisation “estimates indicate a rise in global unemployment of between 5.3 million (“low” scenario) and 24.7 million (“high” scenario) from a base level of 188 million in 2019.”

Meanwhile, the President of the Small and Medium Enterprise (“SME”) Association of Malaysia, Datuk Michael Kang, estimates that up to one million Malaysians could lose their jobs if 10 per cent of SMEs are forced to close for good.

The Malaysian Institute of Economic Research, a think tank, estimates that around 2.4 million Malaysians could lose their jobs as a result of the MCO being extended by two weeks.

Redundancy and retrenchment

The Ministry of Human Resources has released a list of Frequently Asked Questions mandating that employers pay the full salary of all employees including allowances throughout the MCO period.

In light of the MCO extension, and the legal requirement to pay the salaries of employees, employers may have to resort to retrenching employees in order to keep their businesses afloat. In fact, it is reported that as at March 20, 2020, 2,041 employees from the hotel industry have been retrenched.

In Woo Vain Chan v Malayawata Steel Bhd (currently known as Ann Joo Steel Bhd) [2016] 2 MLJ 848, at paragraph 16, the Court of Appeal referred to “... the authoritative book entitled Industrial Relations in Malaysia (3rd Ed) at pp 255–256” which defined redundancy as follows:

“Redundancy refers to a surplus of labour and is normally the result of a reorganisation of the business of an employer; and its usual consequence is retrenchment, ie the termination by the employer of those employees found to be surplus to his requirements after the reorganisation. Thus, there must be redundancy or surplus of labour before there can be retrenchment or termination of the surplus.”

Due to the Covid-19 pandemic and the ongoing MCO, there is likely to be a surplus of labour and a reduction in profits giving rise to a bona fide need for an employer to reorganise his/her business by way of retrenchment.

In Tennarasu a/l SM Shanmugam v YB Menteri Sumber Manusia, Malaysia & Anor [2017] MLJU 1718, at paragraph 78, Asmabi Mohamad J (as her Ladyship then was) held that:

“At the time of the retrenchment, the 2nd Respondent was suffering reduction in profits for over RM200 million, a drop of 50 per cent in a single year. Reduction in profit had been recognised as a valid ground for retrenchment.”

Retrenchments need to be properly carried out as an employee can challenge his/her involuntary termination in the Industrial Court and the employer has “ the burden to prove on the balance of probabilities that the case for redundancy was made out so as to justify the dismissal of the [employee] from its employment. Otherwise, it would tantamount to unfair labour practice, thereby rendering the dismissal invalid and without lawful excuse.” [Woo Vain Chan v Malayawata Steel Bhd (currently known as Ann Joo Steel Bhd) [2016] 2 MLJ 848, at paragraph 18]

* This is the personal opinion of the writer or publication and does not necessarily represent the views of Malay Mail.

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