Retrenchment done right: LIFO, Borang PK and the paper trail

No Industrial Court chairman doubts that a company may reorganise itself. The awards employers lose are almost never about the right to retrench — they are about proof: that the redundancy was genuine, the selection fair, and the process done in the right order. This is the order.

1. The business case, before the names

Document why the roles are surplus — falling orders, a closed line, an automated process — before anyone discusses who goes. A board paper or management minute dated before the selection meeting is worth more than any affidavit reconstructed eighteen months later. If the reason would embarrass you read aloud in court, it is not the reason to write down; it is the signal to rethink the exercise.

2. Selection that survives scrutiny

Within each affected category, Malaysian industrial practice expects foreign employees to be released first, and then LIFO — last in, first out — among local employees, unless the employer can justify departing from it on objective, recorded criteria (skills matrices, disciplinary records, documented performance ratings). Departures from LIFO are lawful; undocumented departures are how companies lose. Keep the matrix, the scores and the moderation notes.

3. Borang PK, thirty days before

The Employment (Retrenchment) Notification Regulations require notification to the nearest Labour Department office on Borang PK at least thirty days before the retrenchment takes effect, with further parts filed at and after separation. It is an offence to skip it, and — worse, in practical terms — the missing form is the first thing a claimant's lawyer asks for. The thirty days also force the timeline discipline that rushed exercises lack.

4. The money, computed properly

For employees within the Employment Act's First Schedule with at least twelve months' service, the Employment (Termination and Lay-Off Benefits) Regulations 1980 set the floor: ten days' wages per year of service under two years, fifteen from two to five, twenty at five or more, pro-rated for incomplete years at the ordinary rate of pay (monthly wages ÷ 26). Notice under section 12 — or salary in lieu — is separate and additional. Many employers pay a single enhanced rate above the floor across all grades; whatever the scheme, publish the formula and apply it uniformly.

5. After separation day

Two habits protect the exercise after it closes. First, do not refill the released roles in substance for a respectable interval — the re-advertised "redundant" position is the single most damaging exhibit in retrenchment litigation. Second, answer JTK queries promptly and consistently with the record you built in steps one to four. An exercise documented in this order rarely reaches a hearing; one documented in reverse order rarely survives it.

General information, not legal advice. Exercises differ by workforce profile, union presence and contract terms — scope yours before the first announcement, not after.

Loke Wei Sheng

Partner, Faiza Loke & Sivam