Retrenchment: What It Actually Is, and What Employers Are Supposed to Do
ARTICLEINDUSTRIAL COURTEMPLOYMENT
Amirul Syafiq
9/27/20262 min read
Let's get one thing straight first: retrenchment is not a way to get rid of someone you don't like. It's dismissal because the role is redundant, not because the person is a problem. Malaysian law treats it as its own category — section 12(3) of the Employment Act 1955 recognises it as a valid reason for termination, but it comes with its own rulebook, separate from a misconduct dismissal. Mix the two up and you're asking for trouble.
Is it actually genuine?
The Industrial Court's default position: employers get to reorganise their business how they like, as long as it's done in good faith. But if the "reorganisation" conveniently only affects the one employee who's been a thorn in management's side — the Court will look past the paperwork and ask what's really going on. This is well-worn Industrial Court territory. (If you want a superior court authority for something you're filing, come back to me. This is fine for simple article, not for a submission.)
Who goes first? The LIFO principle
When more than one person is doing a comparable job, selection is supposed to follow objective criteria — operational need, ability, experience, length of service. This is the "Last In, First Out" idea, and it traces back to the Code of Conduct for Industrial Harmony 1975, which the Industrial Court can take into account under section 30(5A) of the IRA 1967. It's not a hard rule — you can depart from it — but you'd better be able to show, on paper, why. "We just felt like it" doesn't hold up, and recent awards have punished employers who couldn't produce anything showing how a role actually became redundant.
The paperwork: Form PK
Retrenching someone (or doing a lay-off, VSS, or pay cut) means notifying the Labour Office — Borang PK — under section 63 of the Employment Act 1955 and the Notification of Retrenchment of Employees 2004 [P.U.(B) 430/2004]. Parts I–IV go in at least 30 days before; the rest follows after. Important nuance: this is a notification, not a request for permission — the Labour Office isn't approving your decision, just being told about it. Skip it and you're looking at an offence under section 63. [Still need to pin the exact fine — sources disagree between RM10,000 and RM50,000, and I'm not putting a number in front of a client until that's settled against the current Act.]
And then you have to pay
Where the employee qualifies, regulation 6 of the Employment (Termination and Lay-Off Benefits) Regulations 1980 sets the minimum: 10 days' wages per year of service under two years, 15 for two-to-five, 20 for five-plus — and it has to land within 7 days of the termination date.
If you're the one holding the letter
Ask yourself: was this actually a genuine redundancy, or did my performance issue just get a rebrand? Was there a real, documented reason I was picked over someone else? Did they file the PK Form? Was I paid on time and correctly? If the answer to any of that is "no" or "I don't know," that's worth a closer look.
Contributed by:
Amirul Syafiq
Associate
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