Retrenchment and redundancy: the correct procedure

Search for the Form PK deadline and you will find “30 days” repeated across dozens of Malaysian HR pages as though it were the whole answer. It is roughly a third of the answer. The form itself — the actual PDF that JTKSM publishes — sets three separate deadlines, and two of them fall after the retrenchment has already happened.

Employers who file once and close the file have missed two filings and two offences.

The three Form PK deadlines

The reminder box printed on Borang PK is unambiguous:

Form PK	Deadline
Parts I to IV	At least 30 days before the retrenchment is carried out
Part V	Within 14 days after the retrenchment is carried out
Part VI	Within 30 days after the retrenchment is carried out

One qualifier appears on the form and almost nowhere else: Parts V and VI are only required where the action involves permanent retrenchment or a voluntary separation scheme. For a temporary lay-off or a salary reduction, Parts I to IV alone discharge the duty.

There is a genuine inconsistency you should know about before filing. Lampiran 1 — the spreadsheet listing the affected employees — is attached to different parts depending on which JTKSM page you read. The English page attaches it to Part VI; the Malay page attaches it to Parts I to IV and to Part V; the form’s own reminder box does not mention it at all. Ask the branch office you are filing with rather than guessing.

What triggers the duty, and under what law

Section 63(1) of the Employment Act 1955 empowers the Director General, by notification in the Gazette or notice in writing, to require employers to submit returns in a prescribed form. Form PK exists because he exercised that power: the Retrenchment Notification 2004, gazetted as P.U.(B) 430/2004 on 11 November 2004. The form cites paragraph 4(3)(a) of that Notification as its operative provision.

Four workforce actions trigger notification: retrenchment, a voluntary separation scheme, temporary lay-off, and salary reduction. The last two surprise people — cutting pay across a department is a reportable event even though nobody loses their job.

Section 63(2) closes the obvious loophole: the Director General’s powers under s.63(1) extend to every employee employed under a contract of service irrespective of the monthly wages of the employee. The RM4,000 First Schedule threshold that switches off overtime and termination-benefit provisions does not touch s.63. Retrenching six senior managers on RM15,000 is as reportable as retrenching six operators.

Failure is an offence. JTKSM states that an employer who fails to comply may be fined up to RM50,000 for each offence — the hook being s.99A, the general penalty provision, since s.63 prescribes none of its own.

Notification, not approval

This is the second thing the market gets wrong, usually in the anxious direction. Employers delay restructuring for months believing they need government sign-off.

They do not. Every official document uses reporting language throughout — melaporkan, pemberitahuan. The form is headed as the employer’s responsibility to report. There is no application, no approval, no consent, and no objection mechanism anywhere in the form or in JTKSM’s published guidance.

What the 30-day pre-notification does is give the labour authorities visibility and a window to engage. It does not give them a veto. The constraint on a retrenchment is not JTKSM’s permission — it is whether the redundancy is genuine and the selection defensible, which is tested later at the Industrial Court, not in advance at a labour office.

Foreign employees go first — and it is statute

Section 60N of the Employment Act 1955:

Where an employer is required to reduce his workforce by reason of redundancy necessitating the retrenchment of any number of employees, the employer shall not terminate the services of a local employee unless he has first terminated the services of all foreign employees employed by him in a capacity similar to that of the local employee.

Two limits matter. The rule bites only as to foreign employees in a capacity similar to the local employee — it does not require clearing out an unrelated department. And under s.60O, a permanent resident is not a foreign employee for this purpose.

Much published commentary attributes this rule to the Code of Conduct for Industrial Harmony and calls it a guideline. That understates it badly. It is hard law in the Act, breach is an offence under s.99A, and a retrenchment that keeps foreign workers while cutting locals in similar roles is exposed on both a prosecution and a s.20 claim.

A separate provision prohibits terminating a local employee for the purpose of employing a foreign one.

Selection criteria: what the Code actually says

Here is the correction that matters most, because it is repeated almost universally.

The Code of Conduct for Industrial Harmony does not mandate LIFO. Its retrenchment clause asks the employer to select employees “in accordance with an objective criteria” worked out in advance with employee representatives or the trade union, and lists factors that selection may include:

• the need for the efficient operation of the establishment;
• ability, experience, skill and occupational qualifications required for that efficient operation;
• consideration for length of service and status (non-citizens, casual, temporary, permanent);
• age;
• family situation;
• other criteria formulated in the context of national policies.

Length of service is one of six, listed co-equally, under a “may include”. There is no last-in-first-out mandate in the text, and there is no foreign-workers-first rule in the Code either — non-citizens appear only inside the length-of-service-and-status factor.

The Code’s own Foreword also states its status plainly: the commitment of the signatories is voluntary and its sanction is moral. It is a tripartite instrument, not gazetted subsidiary legislation.

So why does LIFO dominate the conversation? Because the Industrial Court has treated it as the expected default and required employers who depart from it to justify the departure. The Court has also treated non-compliance with the Code’s redundancy provisions as evidence of unfairness. That is a real and serious constraint — but it is jurisprudence, not a rule anyone can point to in an instrument.

The practical consequence is the same either way, and it is the discipline most employers skip: write the criteria down before you apply them, score every employee in the affected pool against them, and keep the scoring sheet. A LIFO departure defended by a manager’s recollection two years later is a losing position. The same departure defended by a contemporaneous skills matrix is usually a winning one.

Steps before you cut

The Code also sets out measures an employer should consider to avert or minimise reductions: limiting recruitment, restricting overtime, restricting rest-day work, reducing shifts or the number of days worked, reducing hours, and re-training or transferring to other departments.

It adds that the ultimate responsibility for deciding the size of the workforce rests with the employer, but that before any decision on reduction there should be consultation with the workers or their union representatives.

That sequencing is what the Industrial Court looks for as evidence that the redundancy was genuine. An employer still running heavy overtime and recruiting in the same quarter it retrenches has a difficult story to tell.

What has to be paid

Retrenchment is not one of the exclusions in reg 4(1) of the Employment (Termination and Lay-Off Benefits) Regulations 1980, so statutory termination benefits are payable to every affected employee with at least twelve months’ continuous service — 10, 15 or 20 days’ wages per year of service by band, due within seven days of the relevant date under reg 11(1), with a written calculation statement at the same time.

Notice under s.12(2) is payable on top, and s.12(3) is specifically relevant here: where the termination is attributable to cessation of business, a diminished requirement for work of a particular kind, or a change in ownership, the employee gets no less than the statutory notice regardless of anything to the contrary in the contract. See termination-benefits-malaysia for the calculation.

Common mistakes

Filing Form PK once and stopping. Two more filings fall due after the exercise. This is the single most common failure in this area.

Filing Parts V and VI for a temporary lay-off. They are required only for permanent retrenchment or a VSS.

Waiting for JTKSM approval. There is nothing to wait for. Notify and proceed.

Assuming senior staff are out of scope. Section 63(2) says irrespective of monthly wages.

Citing the Code as authority for LIFO or for foreign-workers-first. The Code says neither. The foreign-workers rule is s.60N; the LIFO expectation is judicial.

Applying selection criteria retrospectively. The Code asks for criteria worked out in advance. Criteria reverse-engineered to fit the chosen names read exactly as they are.

Forgetting Part XIIB when foreign workers remain. Section 60N is an offence provision, not a preference.

Treating a salary reduction as unreportable. It is one of the four notifiable actions.

What’s next

Work backwards from the effective date: Parts I to IV of Form PK land at least 30 days before it, the selection matrix has to exist before that, and consultation before that. After the exercise, diary Part V at 14 days and Part VI at 30 days on the day you execute, not later. Then run the exit filings in offboarding-statutory-checklist, and check the notice and final-pay clocks in termination-of-employment-malaysia.