Article: Just Cause and Excuse: Compelling Evidence as the Basis of Judicial Reasoning in Retrenchment Claims Catalysed by COVID-19

Introduction 

This is an analysis of judicial reasoning of selected Industrial Court cases of dismissal where the centrifugal complaint, that of unfair dismissal, was catalysed by the COVID-19 pandemic. 

The sampling of cases for this paper is small, consisting of only six cases, which have been selected due to their richness in merit for qualitative discussion. 

This is a non-academic paper, but one which is intended to open possibilities for advanced case analysis. The objective of this paper is to generalise case law, making it available to human resources and industrial relations practitioners. 

The Law on Dismissals 

Under common law, employees may be dismissed by the mere giving of notice of termination of his contract of service; in Malaysia, however, statutory provisions prevail over that in dealing with employee dismissals, one must consider whether the dismissal was both substantively and procedurally fair under both the Employment Act 1955 and the Industrial Relations Act 1967. 1 

Substantive fairness means the employer must have a valid reason for terminating the employee, on the balance of probabilities, such as a serious breach of contract that damages the relationship of mutual trust and confidence between employer and employee; or, where the capacity of the worker has become a surplus based on the operational requirement of the business. 

Procedural fairness involves the application of the rules of natural justice in dealing with allegations of breach of contract against an employee. An employer must give the alleged employee the opportunity to be heard and to present his case before an impartial party, or an inquiry panel. If the employee is found to be guilty, on the balance of probabilities, the employer may impose a punishment in proportion to the severity of the breach which the employee was guilty of having committed. In the event of redundancy, provisions for compensation must be considered based on the length of service of the employee.

The COVID-19 Pandemic as a Catalyst of Employee Dismissal 

The Industrial Court was challenged with a novel reason for employee dismissals, with the declaration of the World Health Organisation (WHO) of the pandemic brought about by COVID-19. Workmen of various levels of the organisational hierarchy made a beeline for the Industrial Relations Department complaining of unfair dismissal during the pandemic, particularly vide retrenchment exercises allegedly tainted with mala fide, with employers deploying the unfortunate health crisis as a shield to defend their decisions to downsize their business. Disputes were then escalated to the Industrial Court after having failed to reach a settlement vide conciliation at the Department stage. 

Judicial reasoning written in the grounds of in these unfair dismissal awards clearly shows that convincing evidence from both the workman and the employer plays a pivotal role in the outcome of the claims, as opposed to mere allegations based on emotions and impulse reactions. 

This paper seeks to discuss the different approaches of the Industrial Court on the theme of convincing evidence in unfair dismissal claims arising from retrenchment exercises conducted by companies during the pandemic. 

1. The Gambit of Strong Empirical Evidence 

The Company in Mohamad Zaini @ Zawawi bin Mustafa lwn. Hume Cement Sdn. Bhd 2 made a compelling case based on meticulous research and presentation of statistical data. In this case, the Claimant (together with eleven others) alleged that their retrenchment from the Company was an unfair labour practice because they were not consulted prior to the management’s decision to make them redundant. They also alleged that the management departed from the LIFO principle, and that there was no attempt by the management to take other cost-cutting measures prior to retrenchment including to transfer the claimants to other divisions. 

The Company, in its defence, provided irrebuttable statistics on how the pandemic has affected their business, cited by the Industrial Court in the following paragraphs of the grounds for judgement: 

“Since 2015, the cement market has recorded diminishing result due to an overall slowdown in economic growth in the relevant sectors. The construction and development industry were facing challenges, the property overhang led to a reduction in residential real and commercial estate activity. In parallel, we were experiencing a surge in the substitute products such as steel furnace slag and power plant fly ash which are available at a lower cost and complete directly with cement. This itself took away the demand for approximately 3 to 4 million tonnes of cement per year. In a survey conducted by the MDTCA (Ministry of Domestic Trade & Consumer Affairs), the data indicates that the demand for cement had declined by approximately 30% from 2015 to 2019. All these factors had serious impact on demand of the cement which had impacted the Company. 

However, since 2015 the cement market has recorded diminishing demand as a result of an overall slowdown in economic growth to below five per cent per annum, reduced residential real estate activity due to prior overbuild and significant political uncertainty. The declining demands trends since 2015 were met by rising industry capacity as major cement players like YTL, Hume Cement and CIMA added new production lines between 2010-15. Consequently, utilisation declined and led to a price war among cement manufacturers. Price declined from over MYR280/t (US$65/t) in 2015 to MYR190/t in 2019. At these prices, most producers are barely breaking even, and some are losing money.” 

The sole Company witness in this case went on to testify: 

“Based on a market review conducted by the Malaysia Competition Commission, the capacity utilisation recorded a low of 59% in 2016 from 67% to 72% in the past few years. So even before the Pandemic the industry was already facing significantly challenges.” 

 The Company’s solid case succeeded in compelling the Industrial Court to hold that despite the fact that there were only twelve personnel who were retrenched, their retrenchment was deemed justified: 

“Faktor bahawa pengurangan pekerja yang melibatkan kelompok pekerja yang sedikit bukanlah suatu halangan untuk penamatan perkhidmatan Yang Menuntut serta 11 orang yang lain. Selagi kelompok yang kecil ini menjadi lebihan dan tidak seimbang dengan kadar kerja yang ada, maka pihak Syarikat mempunyai peruntukan untuk menamatkan perkhidmatan mereka.” 

In contrast, the Industrial Court in the case of Zakiah Mohtar lwn. Ajt Geosynthetics Sdn Bhd3 held that the Company’s failure to substantiate their defence led to the decision that the Claimant’s retrenchment was without just cause and excuse. The Court’s judicial reasoning for this can be found as follows: 

“Pihak Syarikat bukan sahaja telah gagal membuktikan atas imbangan kebarangkalian di manakah relevannya faktor lebihan tenaga kerja jika fungsi perkhidmatan PYM dikekalkan, malah telah gagal membuktikan senarai siapakah pekerja-pekerja lain yang telah meletakkan jawatan atau ditamatkan perkhidmatannya oleh pihak Syarikat atas alasan yang sama, melainkan hanya PYM seorang sahaja ditamatkan perkhidmatannya atas alasan lebihan tenaga kerja dialami oleh pihak Syarikat. Dengan demikian, pihak Syarikat telah gagal menunjukkan bagaimanakah kedudukan dan fungsi perjawatan PYM pada masa material telah diambil kira dan disifatkan sebagai lebihan tenaga pekerjaan jika PYM seorang sahaja ditamatkan perkhidmatan tetapi dalam masa yang sama pihak Syarikat masih mampu mengekalkan dan membayar gaji pekerja-pekerja yang lain dalam tempoh yang sama. 

Tindakan pihak Syarikat adalah dibuat secara tergesa-gesa, mengejut dan tanpa melalui apa-apa rundingan dan perbincangan terlebih dahulu di antara pihak Syarikat dan PYM sebelum keputusan menamatkan perkhidmatannya dengan langkah penghematan dilaksanakan oleh pihak Syarikat. Tiada sebarang notis awal dikeluarkan oleh pihak Syarikat kepada PYM sebelum dari tarikh tersebut bertujuan untuk memaklumkan dengan lebih awal kepada PYM akan hasrat dan tujuan pihak Syarikat untuk memulakan langkah penghematan dan memberikan masa kepada PYM untuk membuat persediaan.” 

2. Haste Makes Waste: The Abandonment of Procedural Fairness in Retrenchment Exercises 

Procedural justice is still very much a centrifugal concept in dismissals during the pandemic, as evidence by the case of Choong Wai Kit v Tropicana Shared Services Sdn Bhd 4. 

The Industrial Court held that companies must still comply with the tenets of procedural fairness when embarking on reorganisation exercises, and in the absence of convincing evidence of the same, the retrenchment or dismissal will be deemed unfair. The Industrial Court in Choong Wai Kit was cognizant of financial constraints arising from the pandemic that gave rise to genuine redundancy, it deems the abandonment of alternative measures to prevent retrenchment to be unacceptable. 

The Claimant was dismissed during Malaysia’s first Movement Control Order (“MCO”) which started on 18 March 2020. The Court opined that there was no proof that the Company tried to reduce its financial constraints or deployed other means to avoid retrenchment. A former employee was also reappointed for the same position as the Claimant two months later, and the Company had recruited local sales and marketing staff as well as appointed three new directors. 

The Industrial Court cited an earlier case, Mohamad Shahrul bin Kahulan v Lourdes Medical Services Sdn Bhd 5, where it was held that the Company acted hastily and that a mere reduction of revenue because of the MCO cannot be justification for retrenchment. 

“Clearly from the evidence of COW1, it can be seen that the alleged serious economic downturn had only purportedly reached a low point in the following months after the imposition of the MCO. But the claimants were all retrenched within 14 days from the date of the MCO even before the company could feel and experience the impact of the MCO. Even the transfers of the other staff that was undertaken by the company to allegedly organise its business affairs were done in the month of July 2020 and November 2020 which was sometime after the claimants were abruptly retrenched with no acceptable reasons. 

COW2’s testimony in court that the company had reduced revenue as a result of the MCO cannot be justification for the retrenchment of the claimant/claimants. Firstly, the company should have provided the complete picture of its revenue for the whole of year 2020 and not just for the months of January – May 2020. It is common knowledge that companies’ business and its revenue will fluctuate from time to time. It does not mean that the moment there is some reduction in the revenue of any company/companies, the company must quickly and immediately retrench its employees. There are many significant and meaningful ways in which a company can initiate financial austerity measures whenever the company experiences some business downturn and revenue dip without resorting to retrenching its employees as an immediate and first step in costs cutting measures..” 

In Leelavathi Ramen lwn. Secure Guards Sdn Bhd 6, however, the Claimant was retrenched due to the Company’s inability to continue operations at their Ipoh Branch due to the pandemic. The Claimant was offered another position in Kuala Lumpur, but she refused. At the time of her retrenchment, her salary for September to November 2020 as well as statutory contributions to her EPF and SOCSO accounts were in arrears. 

In dismissing the Claimant’s claim, the Industrial Court emphasised that the evidence presented by the Company in its defence had succeeded in convincing it that the retrenchment was fair and inevitable, in spite of the other contractual and statutory breaches which the Company had committed in respect of the employee’s salary and statutory contributions. 

The Chairperson of the Industrial Court had this to say: 

“Kegagalan pihak Syarikat melunaskan gaji dan caruman KWSP dan PERKESO bukanlah suatu alasan untuk menjadikan penamatan ini sebagai suatu tindakan yang tidak sah. Sebaliknya keterangan bahawa tindakan saman telah diambil oleh pihak berkenaan terhadap pihak Syarikat jelas menunjukkan bahawa pihak Syarikat sebenarnya sedang mengalami masalah kewangan yang berpunca daripada ketiadaan kemasukan kontrak pembekalan perkhidmatan keselamatan. 

Tidak ada sebab untuk pihak Syarikat mengabaikan kebajikan para pekerja dan mendedahkan dirinya kepada tindakan undang-undang yang boleh mencemarkan nama baik pihak Syarikat. Pada hakikatnya sewaktu perbicaraan ini dijalankan, semua tunggakan termasuk gaji telah dilangsaikan oleh pihak Syarikat.” 

3. Hold your horses: The Failed Claim of a Disgruntled Workman 

An interesting scenario can be found in Sharon Lee Nim Chee v. The Edge Property Sdn Bhd 7 where the Industrial Court dismissed the Claimant’s claim for unfair dismissal which the latter made on the basis of a mere sentiment of dissatisfaction with her employer. 

During the first MCO, the Company had asked for a salary deduction of 5%-10% from its employees. The Claimant, who was a Senior Account Manager with the Company, had agreed to the 5% salary pay cut, to come into effect from 1 May 2020. On 3 June 2020, however, the Claimant was informed by the Company that her stipulated 6 months’ probation would not be honoured and the Claimant was asked to resign instead. On 4 June 2020, a Letter of Retrenchment dated 3 June 2020 was issued to the Claimant informing the termination of her service effectively on 5 June 2020, and the Claimant had acknowledged the receipt of the same. At the time of the termination, the Claimant was still a probationer. 

Despite this, it is the Claimant’s assertion that her position was never made redundant as a job advertisement for the same position for the role of a Sale Expert was posted on an online job site. The Company testified that the job advertised was intended for a contract position in their real estate agency sales team and it is a different role and that the job advertisement was published prior to the implementation of the MCO. The Company never hired anyone during the period. In any case, subsequent to the Claimant’s retrenchment, no one else was hired to fill up her vacated position.   

The Court held that the allegation of the Claimant was merely due to her dissatisfaction in the outset that the Company was advertising for the same post as hers. The Court went on to hold: 

“The retrenchment exercise undertaken by the Company was carried out in a bona fide manner and sufficient notice was given to the Claimant. The Claimant was also retrenched in line with the LIFO principle. The Claimant was terminated due to the financial difficulties faced by the Company as a result of the COVID-19 pandemic and the implementation of the MCO by the Government started on 18 March 2020. Due to the genuine need for a reorganization exercise, the Company exercised its managerial prerogative to optimize their manpower resources and retrenched the Claimant who was most recent hired in the Company.”

Conclusion 

The key takeaways from this paper are as follows: 

1. Convincing evidence backed by empirical data is imperative for both Claimant and Company if they expect their case to succeed where the allegation of unfair termination or unfair retrenchment is catalysed by unique and unprecedented situations, such as the COVID-19 pandemic, or the MCO that ensued.  
2. Employers cannot simply hit their employees on the head with economic factors which surround their business. There must be a clear causal nexus between the dismissal or retrenchment of the employee, and the mitigating circumstances. 
3. Substantive and procedural fairness must be observed in all dismissal cases. 
4. Claimants in pursuing a claim for unfair dismissal based on retrenchment should not base their complaints on sheer emotions, but rather, a careful evaluation of the facts and circumstances leading to the retrenchment exercise, as otherwise it may lead to a waste of judicial time as well as the Claimant’s resources. 

Tahirah Manesah Abu Bakar is the Founder of Nasara Consult. She is also a Research Fellow with the National Human Resource Centre (NHRC) of HRD Corp. She has more than 24 years of experience in Industrial Relations and HR Professionals across the spectrum of industries.

The views expressed here are entirely the writer’s own.