Restructuring Without Regret: Managing Employment Risk in a Reorganisation

Economic pressure, technology and changes in strategy all lead businesses to reorganise. Sometimes the result is that roles disappear. In Malaysia, an employee who believes they were dismissed without just cause or excuse may make a representation under the Industrial Relations Act 1967, and a claim may in due course be referred to the Industrial Court. In a retrenchment case, the employer will need to show that there was a genuine redundancy and that the process was carried out fairly.

Most restructuring disputes are not lost on the business decision itself. Courts and tribunals generally accept that it is for management to decide how a business should be organised. Disputes are lost on the evidence: the absence of a documented reason, an unexplained choice of who was affected, or a process that looks as though the outcome was decided first and justified later.

Start with the reason, in writing

The first question will be whether there was a genuine redundancy situation. The employer should be able to show, with documents written at the time, why the reorganisation was necessary and why particular roles were affected. Board papers, financial analysis and a clear description of the new structure are far more persuasive than reasons assembled after a claim is filed.

It helps to think of the restructuring as a decision the business may need to explain, in detail, to a stranger, a year or more from now. What was the problem? What options were considered? Why was this one chosen? If the answers live only in the memory of the people who made the decision, they will be difficult to prove.

Consider the alternatives

The Code of Conduct for Industrial Harmony, long referred to in Malaysian employment practice, encourages employers to consider measures short of retrenchment: limiting recruitment, restricting overtime, reducing working hours, or redeploying employees to other roles. Not every measure will be practical for every business. What matters is that alternatives were genuinely considered and that the reasons for rejecting them are recorded.

Redeployment deserves particular attention. Where a suitable vacancy exists elsewhere in the business, or in the group, offering it to an affected employee is often both the fair course and the safest one.

Selection: objective, consistent, recorded

Where only some employees in a group performing similar work are affected, the criteria used to choose between them should be objective and applied consistently. The Code refers to the familiar principle that, other things being equal, those who joined most recently are selected first. Employers may use other criteria where there are good reasons, but those reasons should be explained, and the way the criteria were applied to each person should be documented.

• Define the pool of employees performing the work that is no longer needed.
• Choose criteria that can be measured and explained, and avoid criteria that could be discriminatory.
• Apply the criteria consistently, ideally with more than one person involved in the assessment.
• Keep a record of how each person was assessed and why.

Communication and consultation

How a restructuring is communicated affects both legal risk and the employees who remain. Employees who learn of decisions from rumour, or who feel they were treated without dignity, are more likely to bring claims. A clear, respectful process — individual meetings, written explanations and a genuine opportunity to ask questions or suggest alternatives — is good practice and good risk management.

Where employees are represented by a trade union, or covered by a collective agreement, any consultation obligations in that agreement must be observed. Where they are not, early engagement is still worth the time it takes.

Benefits, notices and paperwork

Termination benefits depend on the employee’s contract and, for employees within the relevant scope of the Employment Act 1955, on the statutory minimum set out in regulations. Employers should calculate entitlements carefully, including notice, accrued leave and any contractual or discretionary payments, and should comply with the requirement to notify the labour authorities of retrenchment in the prescribed form and within the prescribed time.

Retrenched employees may also be entitled to support under the Employment Insurance System, and employers have reporting obligations of their own. These steps are administrative, but missing them creates avoidable problems for both sides.

After the announcement

The period after a restructuring is often where risk returns. Re-hiring into a role described as redundant, soon after the exercise, invites the question of whether the redundancy was genuine. So does an increase in contractors performing the same work. If business conditions change, take advice before refilling affected roles.

Restructuring is never comfortable. Carried out with a clear reason, a fair process and honest communication, it can be defensible — and it can leave the business, and the people who stay, in a better position than before.