Retrenchment is back in the headlines again. This time, the focus is on Panasonic employees facing retrenchment and KESUMA’s early intervention to assist affected workers.

For employers, this development is important because it shows how retrenchment exercises are now being viewed in Malaysia. Retrenchment is no longer treated as a purely internal company decision.

Once employees are affected, especially in sizable numbers, the issue may quickly involve the Labour Department, PERKESO, MYFutureJobs, state authorities, unions, job placement support, reskilling options and public scrutiny.

Businesses are allowed to reorganise, close certain operations, transfer production lines, automate work, reduce manpower, merge roles or restructure their workforce where there is genuine redundancy. However, the process must be handled properly. In today’s HR and IR environment, the question is no longer only whether the employer has a business reason.

The more important question is whether the employer can show that the retrenchment was genuine, fairly implemented, properly notified, and responsibly managed.

Retrenchment Starts Before the Announcement

A proper retrenchment exercise should begin with the business rationale on redundancy. Why is the retrenchment necessary? Is there a closure, relocation, reduction in production, loss of contract, automation, outsourcing, consolidation of roles, or real cost pressure?

The reason must be clear.

A general statement such as “business restructuring” or “operational requirement” may sound professional, but it may not be enough if the decision is later challenged. The employer must be able to explain what changed, why the role is no longer required, and why the affected employees were selected.

Genuine Redundancy: Are We Removing the Role or the Person?

This is the first question HR should ask. Is the company genuinely removing the position, or is the company trying to remove a particular person?

• If the issue is poor performance, the proper route is performance management.

• If the issue is misconduct, the proper route is disciplinary action.

• If the issue is genuine redundancy, then retrenchment may be appropriate.

The problem arises when employers use retrenchment as a shortcut to remove an employee who is difficult, expensive, underperforming, medically unwell, pregnant, or recently raised a complaint.

That is where retrenchment becomes risky. The Industrial Court will look beyond the wording of the retrenchment letter. It will examine the surrounding facts. Was the role truly abolished? Did the duties continue? Was someone else hired to perform the same work? Were other employees in the same category retained? Was the selection fair?

A retrenchment case is not won by using the right label. It is won by showing the real substance.

Authority Involvement Is Now Part of the Landscape

The Panasonic-KESUMA development is a useful reminder that retrenchment can attract authority attention, especially where many employees are affected.

Employers must remember that retrenchment is not only an internal HR exercise. There are statutory and practical authority-related steps.

For employers in Peninsular Malaysia and Labuan, JTKSM requires employers to submit Borang PK for retrenchment, separation schemes, lay-off or pay-cut exercises. This is not a “nice to have” document. It is part of the retrenchment compliance process.

Where employees are affected, PERKESO may also become involved through the Employment Insurance System, job matching and re-employment support. MYFutureJobs may be used to help affected employees find suitable opportunities. Where the retrenchment is sizable or sensitive, the Labour Department, state authorities and unions may also step in.

For HR, this means the retrenchment file must be ready before the employer goes public, not after.

Employer Responsibilities: The Basics Must Still Be Right

Even where KESUMA, PERKESO or JTK assists with intervention, the employer’s responsibilities do not disappear.

The employer must still ensure proper notice or payment in lieu of notice, final salary, accrued annual leave, contractual benefits, statutory contributions and retrenchment benefits where applicable.

For employees covered under the Employment (Termination and Lay-Off Benefits) Regulations 1980, the statutory minimum termination benefit is generally based on length of service:

The benefit should be pro-rated for an incomplete year of service.

If the contract, collective agreement or company policy provides better benefits, the employer should comply with the better entitlement.

The employer should also provide the calculation clearly. Many disputes arise not only because an employee disagrees with the retrenchment, but because the employee does not understand how the final payment was calculated.

Fair Selection: The Most Sensitive Part of Retrenchment

One of the most common weaknesses in retrenchment exercises is employee selection. If a whole department is closing, the selection may be more straightforward. But if only some employees are selected from a larger group, the employer must be able to explain the basis.

Common selection considerations may include role redundancy, skill relevance, operational needs, versatility, performance record, disciplinary record, critical skills and LIFO consideration.

LIFO, or Last In, First Out, is not always an automatic rule that must be applied blindly. An employer may have valid business reasons to retain a newer employee with critical technical skill, certification, customer knowledge, machine capability or multi-functional ability.

But if the company departs from LIFO, the reason must be documented. The worst position is when HR cannot explain why Employee A was selected but Employee B was retained. If HR cannot explain it internally, it will be even harder to explain it later before the authorities, union or Court.

Retrenchment Should Include a Transition Plan

This is where the Panasonic-KESUMA development is especially useful for employers.

Retrenchment should not end with the termination letter. Where possible, employers should prepare a transition support plan. This may include:

1. briefing employees on EIS benefits;

2. sharing MYFutureJobs information;

3. coordinating with PERKESO;

4. providing job placement support;

5. exploring internal redeployment;

6. offering reskilling or upskilling support;

7. engaging unions or employee representatives;

8. providing counselling or career transition assistance; and

9. ensuring final payments are explained clearly.

This does not mean the employer must guarantee another job for every affected employee. But it does show that the employer handled the exercise responsibly.

A retrenchment process that includes transition support will generally be viewed more favourably than one that simply ends with “your last day is…”

Common Pitfalls Employers Should Avoid

• The first pitfall is starting with names instead of roles.

  Retrenchment should begin with business need and role redundancy, not a list of people management wants to remove.
  

• The second pitfall is poor documentation.

  A genuine business reason may still fail if the employer cannot produce supporting documents such as organisation charts, management papers, financial indicators, production data, selection matrix or records of alternatives considered.
  

• The third pitfall is mixing messages.

  If the official reason is redundancy, managers should not casually tell employees that they were selected because of attitude, age, salary level, medical condition or performance unless those matters are properly documented as part of a lawful and objective selection process.
  

• The fourth pitfall is ignoring alternatives.

  Employers should at least consider redeployment, transfer, reskilling, reduced overtime, hiring freeze, VSS, MSS or reduction of contract manpower before proceeding with forced retrenchment.
  

• The fifth pitfall is forgetting the remaining employees.

  Retrenchment affects those who leave, but it also affects those who stay. Remaining employees may worry that they are next. They may lose trust. They may question management’s direction.
  

  HR should manage the post-retrenchment communication carefully. At E2, we have had the opportunity to explore and implement more than 20+ different methods of handling pre/post communication for retrenchment exercises.

Closing Thought

Retrenchment may sometimes be unavoidable. Business realities change. Markets shift. Costs rise. Operations move. Technology replaces certain roles. Companies reorganise to survive.However retrenchment must never be treated casually.

The Panasonic-KESUMA development is a reminder that retrenchment is not just about issuing notices and paying benefits. It is about managing business change with fairness, discipline and responsibility.

For employers, the message is simple. Do not start with the letter. Start with the reason. Build the evidence. Notify the authority. Prepare the benefits. Support the transition. Communicate with care.

In Industrial Relations, a retrenchment case is often won or lost before the employee receives the letter.

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Workplace wellbeing is vital, yet HR leaders often struggle to balance compassion with accountability. This webinar will explore how organizations can respond when mental health challenges and burnout overlap with misconduct.

Led by Cassandra Peter and Karmen Fung, the session provides practical strategies to spot warning signs, support employees, and know when empathy must shift to accountability — helping strengthen workplace culture while staying compliant.

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