Worker challenges financial hardship claims after the company made major property purchases and luxury expenses
The Industrial Court of Malaysia recently dealt with a case involving an administration executive who was dismissed due to alleged financial hardship and organisational restructuring.
The worker argued that her retrenchment was not genuine and was carried out in bad faith, while the company maintained that it was undergoing tremendous cash flow pressure, requiring cost-cutting measures and manpower rationalisation.
The worker's case centred on challenging the company's stated reasons for retrenchment, arguing that the financial hardship claims were not genuine, given various business activities and expenditures made during the same period.
The company maintained that it had been undergoing cash flow pressure for two and a half years, necessitating restructuring, cost-cutting measures and manpower downsizing to ensure the company could sustain its operations.
Employment background and termination notice
The worker commenced employment as an administration executive with effect from 8 November 2011. The company is involved in the oil and gas industry. The worker was dismissed via a termination letter dated 23 September 2019, stating that her last day would be 22 October 2019.
The reasons given by the company in the termination letter stated: "The company has been undergoing tremendous cash flow pressure for the last 2 ½ years. Several initiatives have been undertaken to address this matter beginning 4th quarter of last year. We went through a restructuring of the organization, impose cost cutting measure and manpower rationalization/downsizing in the various departments to ensure the company can sustain its operation."
The letter further stated: "In the course of the said exercise, we have identified that the job function in the Corporate and Administration/Support Service Department can be streamlined and reduce the manning to cut cost."
The court noted its duty was to determine whether the company had proven the reasons given for the worker's termination on the standard of balance of probabilities.
The court referenced recent legal principles stating that "redundancy arises when there is a surplus of labour which is linked to legitimate business needs of the employees" and that "the Industrial Court is duty bound and determine to evaluate whether the retrenchment was both justified by the circumstances and was conducted in good faith."
Financial statements and tax obligations analysis
The company relied heavily on its financial audited statements to show that its economic situation was in dire straits, warranting restructuring and reorganisation, which led to the worker's retrenchment. However, the court found several inconsistencies in the company's financial claims.
The audited statements showed that revenue for the company had shown significant increases from 2017 to 2018, with revenue for 2017 being RM33,323,678 and for 2018 being RM40,801,465.
The company claimed in its submission that its financial situation worsened due to its inability to settle outstanding taxes owed to the Inland Revenue Department, which, according to the company, amounted to RM5,828,692.11. The court found this claim problematic, stating: "To the Court's mind, taxes are imposed on profits made by the Company.
As such, it is rather mindboggling for the Company to state that its financial situation is worsened due to the outstanding taxes of more than RM5 million, when logic and common sense would dictate that the basis of tax itself is due to the profitability of the Company."
The court found that "the financial hardship reasons given by the Company to justify the [worker]'s retrenchment to be shallow." The court noted that, while claiming its financial situation was dire, the company could not provide any reasonable explanation as to why it continued to give salary increases and bonuses to employees for the years 2017 to 2018.
Expenditures and business activities during retrenchment
The court identified several significant expenditures and business activities that contradicted the company's claims of financial hardship. The company had purchased two buildings in Cyberjaya through loans amounting to RM18 million, which the court noted "would be hardly possible to obtain bank loan, if the Company's financial position is in dire straits." Additionally, in 2018, the company purchased a Mercedes Benz vehicle for the sum of RM262,000.
The company's witness agreed during testimony that the company continued to participate in tender exercises by Petronas. The witness agreed that in order to get invitation from Petronas for "invitation to bid," the company's financial position must be healthy. He also decided that the company had from the year 2018 been successful in its bid to get contracts from Petronas.
The court stated: "The Court reiterates that whilst it respects the law that a company has the management prerogative to reorganize its business for any reasons, be it for economic reasons or convenience, nevertheless the reasons given must be genuine and the Company must come to Court with clean hands, in other words, the retrenchment exercise must be done bona fide."
The court emphasised that it "stands as the last bastion of protection for workmen who have been retrenched, in ensuring that the reasons given by the employer is genuine and the retrenchment was carried out bona fide."
Procedural failures and selection criteria
The court found several actions by the company demonstrated that the retrenchment exercise was not carried out in good faith. The company's witness agreed during cross-examination that the worker's job function was similar to another employee, yet no explanation was forthcoming from the company as to why this other employee was not retrenched, despite being more junior than the worker.
According to the case’s records (case no. 13(2)(12)/4-1081/20), the company did not give any plausible explanation as to why it retained foreign workers, despite claiming it was suffering from a serious financial situation.
The company did not submit the required PK form to the Labour Department, despite there being a statutory obligation to notify the Labour Department 30 days before any impending termination due to retrenchment. There was also no early warning or prior consultation with the worker in respect of her retrenchment.
The court noted: "Whilst the above actions, taken individually, may not prove fatal to the Company's case, but the Court having found that the reasons given by the Company, which is solely based on its dire financial positions to be doubtful, the above actions further lend supports to the Court's finding that the decision to retrench was not carried out properly."
The court concluded that, having scrutinised all the documents and evidence, it could not agree with the company's "blanket excuse of using the audited financial statements as a ground for the [worker]'s retrenchment."
Court findings and compensation determination
The court concluded: "All this leads to the conclusion that the Company did not come to Court with clean hands and that the reasons given by the Company to justify the [worker]'s retrenchment are not genuine." The court stated: "In the circumstances, the Court has no hesitation but to come to a finding that the dismissal of the [worker] is without just cause and excuse."
Regarding remedy, the court found that reinstatement would not be suitable "in light with the passage of time taken to resolve this matter, wherein the [worker] was dismissed in 2019 and it has already taken six (6) years for the case to be resolved." The worker's last drawn basic salary was RM5,700, which was never disputed by the company.
The court noted that no post-dismissal earnings were disclosed and that the company's counsel did not question the worker about post-dismissal earnings.
Nevertheless, the court stated: "in this day and age, it is fair for the Court to presume that the [worker] would have found another job" and exercised its judicial discretion to make a 20% deduction from the backwages awarded.
The worker was awarded 24 months' backwages of RM136,800 less 20%, totalling RM109,440. With seven completed years of service, compensation in lieu of reinstatement was RM39,900.
The final order stated: "The Court herein orders the Company to pay the [worker] the sum of RM149,340.00 within 30 days of this award" together with interest at 8% per annum.
