THE UPDATE SCOOP (#11/2024)
Improper Retrenchment based on High Salary │ Employment
By TAY & HELEN WONG – August 26, 2024
A retrenchment exercise based solely on high salary was struck down by the Industrial Court (the IC) in Tam Sheh May v Taylor’s University Sdn Bhd [2024] 3 ILR 71 as discriminatory or biased against employees who had served an employer for a long period of time. The company, a private educational institution, claimed that its financial performance had been deteriorating with net sales revenue stagnant whilst costs were increasing and profit was decreasing. It decided to carry out retrenchment in its Biotechnology department which had a surplus of manpower. The 1st and 2nd claimant who were employees with the highest salaries were identified as surpluses. They were informed accordingly and the main reason cited by the company was to reorganize its operations for sustainability and cost efficiency in view of the economic landscape in the education industry. They filed complaints of unlawful dismissal. The IC ruled in their favour.
Whilst the Code of Conduct for Industrial Harmony (the Code) is not statute law but a set of guidelines to be followed on the practice of industrial relation, the employer must provide good reasons for not applying the procedures provided therein as the Code is the gold standard by which a company’s action may be measured. The common practice in redundancy exercises is the principle of “Last In, First Out” (LIFO). However, the company in Tam Sheh May had used high salaries as the selection criteria. It had failed to give sound and valid reasons for departing from the LIFO principle. The procedures set out in the Code were also not followed. The claimants were not given any early warnings that their position was to be made redundant; they were only made known on the same day the notice of termination was served on them.
In the view of the IC, retrenchment based solely on high salary was unfair and discriminatory against more experienced employees who had worked longer for the employer. The claimants had worked for the company for 7.85 and 8.84 years, respectively. The company’s action of targeting the claimants for retrenchment was held to be grossly unjust and inequitable because the high salaries were granted by the company’s own decision. It also disproportionately affected employees who had dedicated more time and efforts to the company. These individuals would have acquired valuable skills and experience over the years, contributing significantly to the employer’s success. Targeting them based solely on salary overlooked their contributions and may undervalue their loyalty and dedication. Furthermore, it could perpetuate age discrimination as older employees tend to have higher salaries due to their tenure and experience. The selection criteria adopted was thus unjust and inequitable. In short, the company’s decision to target the claimants for retrenchment, based on their higher salaries, lacked good faith and was improper and unfair. Their dismissals were without just cause or excuse.
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Tags: [employment] [redundancy] [retrenchment] [LIFO] [high salary]