In today’s challenging economic climate, navigating closures and layoffs has become increasingly complex. When a business shuts its doors permanently, what are the employers’ obligations towards their employees who lose their jobs?
Today, we look at a recent Industrial Court case concerning a complete business closure.
Case Study: Mohd Ismadi bin Mohd Isa & 72 Others v. Robinson & Co. (Malaya) Sdn. Bhd.
Robinson, a prominent departmental store in Kuala Lumpur, ceased operations in 2020, leaving hundreds of employees unemployed. Over a hundred former employees filed claims for unfair dismissal against the company.
Brief Facts:
- Robinson was wound up voluntarily in October 2020 due to a culmination of business challenges, COVID-19 lockdowns, and mounting debts.
- A Liquidator was appointed to manage the closure process, ensuring all outstanding dues such as salaries, claims, overtime pay, commissions, and unused leave were settled. Lastly, all employees were terminated after the store closures.
- Former employees claimed unfair dismissals, alleging the terminations were in bad faith and sudden. They also alleged Robinson’s failure to comply with retrenchment principles.
Outcome:
- The Court determined that Robinson’s winding-up and business closure were genuine, supported by evidence of liquidation, financial records, and store closures.
- The Liquidator was found to have communicated and acted fairly with employees regarding the terminations.
- It was established that a proper closure of business, unlike retrenchment, does not mandate payment of termination benefits.
- Terminations were found to be with just cause, absolving the employer from liability for termination benefits.
Key Takeaways:
- A complete and genuine business closure does not necessitate payment of retrenchment/termination benefits.
- In such cases, employers must demonstrate the authenticity of the closure.
- In contrast, retrenchment involves reducing the workforce while the business continues operations. Employers are required to pay retrenchment benefits in accordance with the law to the affected employees.
- On top of it, employers need to show actual redundancy (e.g. excess workforce, closure of departments, merging of units, duplicity of positions, etc) and comply with established retrenchment principles. The failure to do so may render the terminations unlawful.
- Therefore, employers must navigate layoffs, retrenchments & restructuring exercises very carefully.
