INDUSTRIAL COURT OF MALAYSIA

CASE NO: 26(3)/4-643/16

BETWEEN

NORZAIFIZY BIN KHALID NORDIN

AND

MURPHY SARAWAK OIL CO. LTD.

AWARD NO : 1866 OF 2019

Before : Y.A. Tuan Yong Soon Ching – Chairman.

(Sitting alone)

Venue : Industrial Court Malaysia, Kuala Lumpur.

Date Of Reference : 14.04.2016

Dates Of Mention : 20.06.2016; 05.09.2016; 05.10.2016; 25.10.2016;

19.06.2017; 10.07.2017; 20.04.2018; 25.04.2018;
30.04.2018; 07.08.2018; 25.03.2019; 15.04.2019.

Dates Of Hearing : 21.05.2018; 22.05.2018; 23.07.2018; 20.09.2018;

17.10.2018; 19.10.2018; 26.11.2018; 29.11.2018;
28.01.2019.

Representation : Mr Muhendaran Suppiah and Ms Chong Wan Loo

From Messrs Muhendaran Sri
Counsels for the Claimant

Ms Sonia Abraham & Mr Michael Koh

From Messrs Azman Davidson & Co.
Counsels for the Company

Reference:

This is a reference dated 14 April 2016 by the Honourable Minister of Human

Resources under Section 20(3) of the Industrial Relations Act 1967 (Act 177) arising

out of the dismissal of Norzaifizy bin Khalid Nordin (hereinafter called “the
 CASE NO: 26(3)/4-643/16

Claimant”) by Murphy Sarawak Oil Co. Ltd. (hereinafter called “the Company”)

on 31.08.2015.

AWARD

[1] This is a Ministerial reference to the Industrial Court under section 20 (3) of

the Industrial Relations Act 1967 (Act 177) for an award in respect of the dismissal

of Norzaifizy bin Khalid Nordin (“the Claimant”) by Murphy Sarawak Oil Co.

Ltd. on 31.08.2015.

[2] The hearing of the case commenced on 21 May 2018 and was duly completed

on 28 January 2019. The Company’s solicitors filed their Written Submissions on 19

March 2019, while the Claimant’s solicitors filed their Submissions on 11 March 2019.

Both the Company’s solicitors and the Claimant’s solicitors filed their Submissions-in-

Reply on 24 April 2019. The Company’s solicitors filed their Further Written

Submissions on 10 May 2019.

DOCUMENTS AND WITNESSES

[3] The following documents were filed:

3.1 Documents for the Company:

Company’s Bundle of Documents, COBD-1

Company’s Bundle of Documents, COBD-2

Company’s Bundle of Documents, COBD-3

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Company’s Bundle of Documents, COBD-4

3.2 Documents for the Claimant:

Claimant’s Bundle of Documents, CLBD-1

3.3 Witnesses for the Company:

Thomas Stensgaard, COW-1

Siti Nafisah Jamaludin, COW-2

Hd Md Ezamudin Bin Hj Mohd Said, COW-3

3.4 The Claimant was his own sole witness

BRIEF FACTS

[4] The Claimant commenced employment as a Senior Rotating Engineer, with the

Company on 1 May 2008, on a fixed-term contract for two years. The contract was

extended for a year from 1 May 2010 and then for two years from 1 May 2011.

[5] The Claimant was promoted to the position of Lead Facilities Specialist (LFS)

from 1 June 2011 and he was made a permanent employee effective on 1 May

2012.

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[6] The Company issued a Notice of Retrenchment dated 14 August 2015 and

informed the Claimant that his last day of employment shall be 31 August 2015. The

letter states as follows:

Our Ref: MOC/HR/SS/0457 – 2015

August 14, 2015

Norzaifizy Bin Khalid Nordin

Lead Facilities Specialist
Development – Project Development

Dear Norzaifizy,

NOTICE OF RETRENCHMENT

Murphy Sarawak Oil Co. Ltd (“Murphy”) has been suffering a severe decline in
profits and reduction in business since Q4 2014 due to the significant drop in the
oil price worldwide.

As you are aware, Murphy has undertaken several cost cutting measures in the
past 7 months. However, this has proven to be insufficient.

After much consideration, Murphy has decided to scale down its operations in
Malaysia and recognize its business and resources to sustain through the current
market conditions.

Therefore, Murphy has no alternative but to embark on a restructuring exercise to

reduce its manpower costs and eliminate surplus capacity, in an attempt to be
more productive, profitable and to sustain business growth.

It is with much regret that we have to implement the decision to release you from
our employment. We hereby give you 2 months’ salary in-lieu of notice effective
from September 1, 2015. Therefore, your last day of employment shall be on
August 31, 2015. Your insurance coverage (Hospitalization & Surgical) will be
extended up to 30th October 2015. In the event of hospitalization, please state
below details during admission:

AIA Policy Number : 0000056339

Patient’s IC No
AIA Toll Free No : 1 300 88 1899

Should you need assistance, please contact Azila at 03-74907317 /

(Azila_Shamsudin@murphyoilcorp.com) or Shaliza at 03-74907326 /
(Shaliza_Shafie@murphyoilcorp.com)

We understand that this decision may cause you difficulties. Therefore, to help
alleviate these difficulties, Murphy will be paying you retrenchment benefits as
particularized in the attached statement.

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Should you need further clarification of the above, please do not hesitate to
contact Siti Nafisah Jamaludin, Senior Manager, Human Resource &
Administration.

Your final payment will be paid to you on or by 28th August 2015.

You are to surrender all Murphy’s property of whatever kind and whether tangible
or intangible (including, without limitation, all correspondence, documents,
specifications, paper, USB sticks or other software median and any confidential
information and intellectual property) in your possession and under your control
on your last working day on August 14, 2015. You also agree you have not kept
and will not keep copies or extracts of such property in any form whatsoever.

The Company will be happy to provide a reference letter to you and give you any
assistance you require in preparing your curriculum vitae. In addition, the
Company has appointed a career transition consultant that will help and support
you as you make the transition from Murphy. In the event that you require their
services or need counselling, please let us know and we will make the necessary
arrangements.

The Company would like to take this opportunity to thank you for your
contributions and dedication shown throughout your employment with us and we
wish you the very best in your future endeavours.

Yours sincerely,
MURPHY SARAWAK OIL CO. LTD.

HARRY J HOWARD
Vice President, Malaysia

[7] The Claimant wrote a letter dated 24 November 2015 to seek an explanation for

his retrenchment, as follows:

Attention to: Harry J Howard, Vice President, Malaysia

Dear Sir,

Dismissal: Norzaifizy Bin Unfair Khalid Nordin, Lead Facilities Specialist

With reference to the matter above, I would like to state that my dismissal on 1st
September on the grounds of economic retrenchment was unfair and
unwarranted and the manner the company treated me during my dismissal has
caused me severe emotional distress and embarrassment.

While the company claimed my dismissal under a “Mutual Separation Scheme”,

there were nothing mutual about it from my point of view. The company did not
engage in any consultation at all with me beforehand and the entire process was

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done in bad faith.

Ever since my unfair dismissal, I have been asking the following questions:

1. Basis of selection for this retrenchment?

At the point of where the company unfairly decided to dismiss me, there
were altogether 8 project engineers including myself involved in Sarawak
Projects (for both Green Field and Brown Field Project). Yet, I alone was
selected for the company arbitrary “Mutual Separation Scheme”.

Since I joined the company in 2008, I have been involved either directly or
indirectly with most of the projects in Sarawak Development (GOPA,
GOPB, MEPA, SEPA, BORF, Patricia, Serendah, South Acis, BORF
Compressors Replacement) and my work performance has been excellent
as demonstrated by the annual performance reviews and performance
bonuses that the company had awarded to me. The company even asked
me to assume more responsibilities in 2012 by promoting me to Lead
Facilities Specialist in 2012 in recognition of my good performances.

Despite my contributions to the company and my good work

performances, why has the company selected me for the “Mutual
Separation Scheme” over the other project engineers who had contributed
far less to the company?

2. Why the company has ignored local labour laws?

Out of the 8 project engineers in the Sarawak Project Department

including myself, I have serve the company

1) For the longest duration.

2) As a permanent staff as opposed to contract staff.

3) As a local staff as opposed to foreign staff.

To my knowledge, Malaysian employers are bound to follow the Code of

Conduct for Industrial Harmony 1975, whereby any retrenchment
exercises begins with an offer of voluntary separation, followed by a
mandate of foreign before local, permanent staff before contract staff and
last in and first out principle.

It appears to me the company has unfairly selected me for retrenchment

despite my employment status and record.

Even with any reduction in work volume in the Project Department, the
company did not make any engagement or have any discussion with me at
all to distribute the work still available in the Project department.

If economic downturn was the reason for the retrenchment, the company
at the onset of the oil price decline (2 – 3 months prior to dismissing me),
instead of reducing the head count, see fit to even extend the contract of
a few other project engineers who were on contract basis despite the
foreseeable reduction in work volume.

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In fact, in the week prior to the company dismissing me, there was even a
reshuffle of project engineers due to an internal vacancy and the company
blatantly ignored to offer me to fill up the vacancy despite of me being
more than qualified for it and instead the internal vacancy involved project
engineers who is a contract staff/foreigner and has served the company
for less duration.

With my seniority in terms of numbers of years of service with the

company, being a permanent staff as opposed to contract staff and being
a local staff as opposed to foreign staff. If there was a reduction in work
volume for the project department, why didn’t the company redistribute
the work according to seniority? If there is a need to reduce head count,
why the principle mandated by the Code of Conduct for Industrial
Harmony 1975 was not followed in my case.

3. What other profiling criteria has the company employed for the “Mutual
Retrenchment Scheme”

Aside from work performance and seniority considerations, was there

other considerations that the company employed to dismiss me? Did I
commit any disciplinary problem or conducted any crime against the
company requiring me to be dismissed and to warrant an immediate
escort off the company premises to my great distress and embarrassment?
Oil and Gas industry is a very tight and small community in Malaysia, and
with the widespread knowledge of the act of the company escorting me
off the premises it has caused me public embarrassment and distress and
has severely affected my chances of finding new employment if any.

After all my hard work, devotion and loyalty I am shocked and

disappointed on the company’s reason and basis of selection in unfairly
dismissing me from its employment. It is almost impossible for me to find
another job now with other employer when they are told me the reason
for leaving Murphy was due to retrenchment.

While the company in all likelihood will not be bankrupt in the foreseeable
future. The company unfair action will caused me and my family utter
financial destruction.

It is self-evident that the company has acted unfairly and did not follow
proper procedure in retrenching me under the pretext of economic
downturn. As such I am asking for my unfair dismissal to be reversed and
for my immediate reinstatement to my previous work position with no loss
in benefits whatsoever.

Thank you,

Norzaifizy Khalid Nordin

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[8] At all material time, the Claimant was working in the Sarawak Development

Department as an LFS. His last-drawn salary was RM 33,537.00 plus a cost of living

allowance of RM 1,700.00 per month.

[9] The Company paid a total sum of RM 266,766.03 to the Claimant, which

comprised the following:

9.1 RM 70, 474.00 for two months in lieu of his contractual notice;

9.2 RM 22, 358.00 for pro-rated contractual bonus;

9.3 RM 3, 869.65 being for unutilised annual leave; and

9.4 RM 170, 064.38 for retrenchment benefits

(COBD-1, p. 167)

THE COMPANY’S CASE

[10] The Company is involved in the upstream oil and gas sector in Malaysia and is

a subsidiary of Murphy Oil Corporation. Murphy Oil Corporation commenced

operations in Malaysia in May 1999 to oversee its exploration and production

activities in Malaysia and to identify new opportunities in this region.

[11] The company avers that oil prices worldwide dropped significantly from

November 2014 and this had affected the Company’s business.

[12] The company avers that on or around April 2015, the Company decided to

implement a restructuring and retrenchment exercise to reduce its headcount in an

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attempt to ensure its survival and sustainability. Line Managers and Heads of

Departments were told by the Company’s management to select roles that had

become redundant by applying standard selection criteria.

[13] The Company contends that via email communications from 9 July 2014 the

Company had informed all employees about organizational changes being made due

to the reduction in business activities and profitability. The Company avers that there

was a need to reduce staffing levels both in North America as well as in South East

Asia, including Malaysia.

[14] The Company contends that it had to carry out the retrenchment exercise in

order to dispense with its excess manpower and reduce its manpower costs.

[15] The company avers that the Claimant could not be redeployed to any other

position in the Company because:

15.1 The other ongoing and future projects did not require a Rotating Equipment

Specialist; and/or

15.2 There were no vacancies in the Company which required an employee with

the Claimant’s skills, especially since the Company had frozen recruitment.

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THE CLAIMANT’S CASE

[16] The Claimant contends that the Company’s action is tainted with mala fide and

that there was no actual redundancy in the Company

[17] The Company avers that the alleged re-organisation or restructuring exercise

was an act to remove the Claimant from his employment and it was not a genuine

exercise.

[18] The Claimant contends that the Company failed to adhere to the principle of

Last in and First Out (LIFO) in retrenching the Claimant. Further, the Company has

failed to follow the provision of the Code of Conduct of Industrial Harmony.

[19] The Claimant avers that at the time of the retrenchment, there were eight

persons carrying our project engineering work in the Company, including the

Claimant. Of the eight persons, the Claimant was the longest-serving and was a

permanent staff.

[20] The Company avers that some fixed term employees were still carrying out

project engineering work and were not terminated while the Claimant, a permanent

staff, was retrenched.

[21] The Claimant avers that the Company did not or failed to take into account the

length of service, the status of the Claimant as a permanent staff and being a local,

when the selection process for retrenchment was considered.

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[22] The Claimant contends that he has more skills and capabilities than other

persons carrying out project engineering works. The Claimant contends that the

retrenchment was without just cause or excuse and is in breach of the principles of

natural justice and is an act of victimization.

EVALUATIONS AND FINDINGS

[23] As a matter of general requirements, the retrenchment exercise must fulfil the

following requirements:

1) There was a legal basis and justification in carrying out the reorganisation
or restructuring;

2) The position of the employee affected must be redundant as a result of

the reorganisation; and

3) It was carried out in accordance with the principle of Last-In-First-Out

(LIFO).

Selection Criteria

[24] According to the Company’s Amended Rejoinder, the Company selected the

Claimant as one of the employees to be retrenched, based on the following grounds:

24.1 The Claimant’s job scope as a Lead Facility specialist (LFS) was reduced

significantly due the decline in business since year 2014. As a result, the

Claimant did not have much work to attend to and his position became

redundant;

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24.2 The Claimant was the only person holding the position of LFS whose area of

speciality was Rotating Equipment;

24.3 At the Claimant’s level, there was no other vacancy in other departments in

the Company where the Claimant could be redeployed.

Phases in the Retrenchment Exercise

[25] The Company contends that there were four phases in the retrenchment

exercise. The Claimant was retrenched during the first phase, where a total of 12

employees were retrenched due to redundancy. The Company has also admitted

that there was no other reason other than redundancy in removing the Claimant

from his employment. The Claimant was not retrenched due to poor performance or

disciplinary issues.

Evaluation of the Company’s Justification for the retrenchment

[26] The Company summarised its reasons for the retrenchment as follows:

26.1 It has a legal basis to carry out the retrenchment as there has been a severe

decline in their profitability since 2014;

26.2 It has satisfied all the legal requirements to carry out the retrenchment

exercise and has sufficiently complied with the guidelines set out in the Code

of Conduct for Industrial Harmony 1975;

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26.3 It had exercise a fair and proper selection criteria and was fully justified in

selecting the Claimant to be retrenched;

26.4 The Company had paid the Claimant retrenchment benefits in accordance

with the terms of employment;

26.5 The LIFO principle was not applicable in this matter;

26.6 There was no victimization as there were 11 other employees who were

retrenched during the first phase of the retrenchment exercise, together with

the Claimant.

Decline in Profitability

[27] There was an admission by the Claimant [see Amended Rejoinder para 20 (i)]

that there was indeed a decline in profitability. From the evidence adduced, this

Court is satisfied that there was a decline in profitability. However, the decline is not

sufficient to render the Company being unable to continue with its operations and to

continue to pay the wages of its employees who are employed locally. In fact, this

Court finds that there is a dearth of evidence to show that the decline in profitability

would have rendered the Company to be in such dire financial straits as to affect its

core business. It may be true that the retrenchments may have helped the Company

to stem its financial woes and to reduce costs, but there is no evidence to suggest

that the retrenchments actually save the Company from going belly-up.

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Code of Conduct for Industrial Harmony (“Code”)

[28] The Code provides that prior to a retrenchment exercise, the employer should

take positive steps to avert or minimise reductions of work force by the adoption of

appropriate measures, including limitation on recruitment or transfer to other

departments. Should retrenchment become necessary, the measures to take include

giving an early warning to the employees concerned; introducing schemes for

voluntary retrenchment and retirement and for payment of redundancy and

retirement benefits.

This Court shall take cognizance of the Code of Conduct but recognises that the

Code has no legal force, see Equant Integration Services Sdn Bhd (In

Liquidation) v Wong Wai Hung [2012] 1 LNS 1296.

The Company has adequately explained that it has complied with the Code since it

has given notice to all the employees and it has indeed paid the Claimant

retrenchment benefits. The Company has not shown that it has fully complied with

both the spirit and text of the Code but since the Code has no legal effect, this Court

is of the opinion that the Company has adequately complied with the Code, although

not entirely.

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Fair and Proper Selection Criteria?

[29] It is the Company’s case that the Company had carried out the retrenchment

selection process by adopting its own standard selection criteria in selecting the

employees to be retrenched. COW-2 and COW-3 had given evidence in this regard.

COW-2 gave the following evidence:

8Q : How was the retrenchment exercise first implemented?

A : In or around April 2015, the Line Managers received
instructions from the Senior Vice President that the Company
would undergo a restructuring exercise, followed by a
retrenchment exercise. Discussions were held with the Line
Managers on the future organizational structure for their
department and identification of the Employees to be
retrenched. The Managers were told to carefully select roles
that had become redundant and to apply standard selection
process, the future organizational structure and final
retrenchment list was prepared.

The Company took a few months to implement the

retrenchment exercise as the Managers needed to carefully
select the Employees to be retrenched and ensure that the
Company complied with the law in doing so.

19. Q : How was the retrenchment exercise carried out?

A : During the first phase of the retrenchment exercise, the
respective Line Managers including me were informed by the
then Senior Vice President of the Company’s need to further
reduce the headcount of the workforce. We were asked to
carry out a retrenchment selection process by adopting an
objective, detailed, transparent and fair selection criteria. We
took into account the seniority, knowledge, qualifications,
skills, work experience, efficiency, adaptability and agility of
the employees in the department. We were also told to
evaluate whether the individual job roles or functions were
still required within the restructured organization. Upon
completion of this selection process, the Senior Vice
President’s approval was obtained before the retrenchment
exercise was implemented. Subsequently it was determined
that the Company needed to retrench more employees and
hence the second, third and fourth phase of the
retrenchment exercise was carried out.

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[30] It is unfortunate that the instruction from the Senior Vice President to the Line

Managers was not in writing. COW-2 admitted that the instruction was verbal in

nature.

[31] The lack of documentation goes against the Company’s assertion about the

retrenchment exercise and the selection criteria applied. A proper metric or detailed

evaluation document and process would have helped the Company to justify the

respective retrenchments, and the retrenchment of the Claimant, in particular.

[32] The selection criteria as applied to the Claimant should have been

documented and a report generated as to conformity with the selection criteria. As

COW-2 was not personally involved in the selection process, the witness was not

able to provide proof in writing that the Claimant’s job scope and functions were no

longer required or were surplus to the re-structured organisation.

[33] Parts of COW-3’s evidence during cross-examination are as follows:

Q : During the selection process, did you use any comparison data
comprises the other staff in the same Department?
A : No.

Q : So I put it to you that you have no supporting document to justify

that other staff in the Claimant’s department are more qualified to
be retained over the Claimant?
A : In principle there is none, as I said there is no document.

YA : You don’t have the data in writing or you did some comparison?
A : Yes, I did.

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YA : Did you make any comparison? Which you may not have reduced in
writing.
A : I did, but I don’t have the data in writing.

[34] While being cross-examined on what the criteria were in selecting the

Claimant to be retrenched, COW-1 testified as follows: -

Q : Do you know what are the criteria that were used or employed by
the Company to select the Claimant to retrench?
A : Yes.

Q : Can you tell us what were the criteria?

A : We look at our business and its future activities to first establish
what work would be conducted in the new term. We then look at
our employees, their skill set, to try to match the best skill set to the
work that we have injected.

Q : So the only criterion that the Company used to select the Claimant
is the skill set? Am I right based on your answer.
A : I would say no.

Q : What are the other criteria that were used?

A : A number of things we were looking at. Those include people’s
leadership, capabilities, be able to manage team, a number of
general management criteria that we assess to match out future
workload to the workforce that is the best to execute work. The
technical skill, people in a team have various technical skills, for
example our electrical engineer, structural engineer, all with
different skill set.

Q : So these are the selection criteria that were used by the Company
whereby the Claimant was selected to be retrenched, am I right?
A : Yes.

Q : Are all these in writing? That these are the selection criteria that we
used?
A : I don’t believe all are in writing.

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[35] COW-1 gave evidence on how the Claimant was selected for retrenchment as

follows:

Q : Why was the Claimant selected to be retrenched?

A : In May 2015, the Company carried out a restructuring exercise
whereby the development groups for Sabah and Sarawak were
combined into one department namely the Project Development
Department in order to reduce costs and improve operating
efficiency. At this juncture, the Company was carrying out only
about 50% of the capital projects that it was carrying out in
previous years. Therefore, there was a severe reduction in the
Development Group workload. Following from this, there was a
need to reduce headcount due to an excess of manpower.

The Claimant was working on a project known as Patricia. He also assisted in a

Project known as Serendah. The Serendah and Patricia Projects were ending and

the Claimant’s role in these projects had ceased. Just prior to his retrenchment,

the Claimant was also working on a project known as the East Cluster

Development. However, the Company had made a decision to defer the project

until 2021 as it was not economically feasible for the Company to continue with

the project based on projected oil prices and the capital cost of the project.

[36] Had the selection criteria being more objective and transparent, and

applicable to all employees, at least within the same job scope, it would have been

easier to have an objective assessment of the criteria and how they were applied.

For a Company that has a large organisational structure and support, it was not

acceptable that there was no documentation generated. For this Court to make an

evaluation of the criteria applied, it would be helpful had the Company produced a

witness or decision maker who could have set out the criteria in an organised

manner and inform this Court as to their application, in respect of the Claimant here.

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[37] It is the opinion of this Court, that the Claimant was not consulted nor

informed on how he was selected to be retrenched. The selection criteria were not

documented, not transparent nor fair or easily understood by the Claimant. The

criteria were also not adequately communicated to the Claimant.

[38] It must also be noted that as a permanent staff member, the Claimant’s role

in the Company cannot and should not be dependent on any one project being

carried out by the Company.

Retrenchment Benefits paid as per terms of employment

[39] The Claimant was not able to rebut that the benefits that were paid to him

were either not according to the terms of his employment or inadequate as a matter

of law and practice. As such this Court shall take the view that the retrenchment

benefits were in line with the terms and conditions of the Claimant’s employment.

Application of LIFO Principle

[40] The Company argues that the LIFO principle was not applicable to the

Claimant. If this is so, the Company must be able to justify its own selection criteria

and the processes involved to show why their own selection criteria have been

applied and that the Claimant was selected based on those criteria.

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[41] In Firex Sdn Bhd v Cik Ng Shoo Wa [1990] 1 ILR 226, the Industrial Court

held: -

Mr Chandran, Learned Counsel for the Claimant had submitted vigorously that on
the evidence adduced in Court, the Company had obviously breached the principle
aforesaid. This issue was taken up by Mr Sivabalah, Learned Counsel for the
Company. Before I examine the evidence, it is perhaps appropriate to say
something about the principle in question. In Award No. 16/68: Sharikat Estern
Smelting Bhd v Kesatuan Kebangsaan Pekerja-pekerja Perusahaan
Peleboran Logam Sa-Malaya, the Court had said:

It is well-established and accepted in industrial law that in effecting

retrenchment, an employer should comply with the industrial principle of ‘last
come, first go’, unless there are some valid reasons for departure (Soon-vala p.
746). This court adopts that principle as indeed has the former Industrial
Arbitration Tribunal of Malaysia. This means that the employer is not entirely
denied the freedom to depart from that principle but the he can do so only for
sufficient and valid reason.

This principle was further exemplified in Award No. 27/28: National Union of
Cinema & Amusement Workers v Shaw Computer & Management
Services Sdn Bhd wherein the Court said inter alia:

It is a settled principle that in selecting employees for retrenchment, an employer

should resort to the ‘last in, first out’ rule unless he can shown sound reasons
why he had to depart from it. Where it is necessary for some employees to be
dismissed because of redundancy, the Court will require the employer to show
how, by whom and on what basis the selection was made. The burden of proof is
on the employer and he must discharge in to the satisfaction of the Court.

[42] In Dynacraft Industries Sdn Bhd v Kamaruddin bin Kana Mohd Sharif

& Ors [2012] 6 MLJ 453, the Federal Court held, at p.459:

It is well established and accepted in industrial law that in effecting retrenchment,

an employer should comply with the principle of last in first out unless there are
some valid reasons for departure (see Firex Sdn Bhd v Cik Ng Shoo Waa
[1990] 1 ILR 226). In Om Oil and Oil Seeds Exchange Ltd Delhi v Their
Workmen 1966 AIR SC 1657, the Supreme Court said:

It is an accepted principle of industrial law that in ordering retrenchment

ordinarily the management should commence with the latest recruit, and
progressively retrench employees higher up in the list of seniority. But the rule is
not immutable, and for valid reasons may be departed from. It was observed by
this court in Swadesamitran Ltd Madras v Their Workmen 1960-1 Lab LJ
504: (AIR 1960 SC 762), that if a case for retrenchment is made out, it would
normally be for the employer to decide which of the employees should be

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retrenched; but there can be no doubt that the ordinary industrial rule of
retrenchment is ‘first come, last go’ and where other things are equal, this rule
has to be followed by the employer in effecting retrenchment.

The Federal Court continues, at p 461:

Continuing his submission, learned counsel said the LIFO principle mandated that
in a retrenchment exercise, the employer has to take into account the duration of
service of the employee in the category within the establishment which was
undergoing a retrenchment exercise. In essence it required the employer to select
the more junior employee in a particular category to be retrenched first. Learned
counsel contended that in applying the LIFO principle, for the purpose of giving
consideration to length of service, it was only the actual service with the employer
and not service with another entity which was relevant. In support he quoted OP
Malhotra in The Law of Industrial Disputes, Vol 2, (6th Ed), where the learned
author said:

The words ‘last person to be employed in that category’, point to the actual
date of employment of the retrenched workman. This is illustrated by the
decision of a Division Bench of the Kerala High Court in Assn of Planters v
Industrial Tribunal. A workman, John, who was working as a head-clerk in
an industrial establishment resigned from his job and his resignation was
accepted by the employer. After a period of about four months, John was again
re-employed and the period of break in his service was condoned under the
terms of agreement. During the period of John’s break in service, another clerk,
George, was employed. Subsequently, on a question arising regarding the
relative seniority in service of John and George, for the purpose of applying the
principle of ‘last come, first go’, it was held that John’s service as against
George’s must be counted as from the date of his re-appointment.

[43] It is pertinent to see how the Industrial Court adopts and explains the LIFO

principle. In Malaysia Shipyard & Engineering Sdn Bhd v Mukhtiar Singh &

16 Ors., Johor Bharu [1991] ILR 626, the Court held, at p 629: -

This principle is of course well established in industrial law. It has been said that
in effecting retrenchment, an employer should comply with the LIFO principle
unless there are sound and valid reasons for departure: see Kesatuan
Kakitangan Ladang-ladang Seluruh Tanah Malaya v Kumpulan Guthrie
Sdn Bhd (Award No. 5/70); Sharikat Obsorne and Chapel Sdn Bhd v
Kesatuan Kakitangan Perusahaan Lombong (Award No. 9/71). Now the
evidence clearly shows that the company had principle. The question is whether
or not there were sound and valid reasons for such a departure in this case.

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[44] The Industrial Court concludes, at p 634:

From the evidence as a whole, the company’s position is abundantly clear namely
that it had opted to apply a selection criteria devised by itself. I find that this
selection criteria in exhibit C5 reasonable in all the circumstances. In my view, the
company had adduced sufficiently sound and valid reasons for departing from
complying with the LIFO principle.

[45] In our present case, the Company had also abandoned the principle of LIFO

and adopted its own criteria.

In the case of Sarawak Shell Bhd v Ismail Sahat & Ors [2002] 2 ILR 371, Mr

Lim Heng Seng, of the Labour Office, Miri, held that where the Company is to

depart from LIFO and to adopt is own selection process instead, the employer has to

show sound and valid reasons for doing so. The Labour Office held at pp 382 and

383: -

Learned counsel for the company submitted that the Industrial Relations Act,
1967 does not contain any provision requiring the employer to comply with LIFO
when undertaking a retrenchment exercise. He pointed out that LIFO is not a
principle that originated from Malaysia. It was a principle adopted from s. 25G of
the Industrial Disputes Act, 1947 of India. Learned counsel for the company
goes on to submit that the LIFO rule is not the only selection criterion that can
be adopted when effecting retrenchment. He next contends that the LIFO
principle is not an immutable principle written in stone that cannot be departed
from the court is not expected to slavishly follow it. He further submits that the
code of conduct was followed in all material aspects and that the company was
entitled to adopt its own selection criteria in place of the LIFO rule. The
formulation of the selection criteria was made in full consultation with the unions
and employees’ representatives. Furthermore, almost all the other measures set
out in the code of conduct to be taken by the employer when a retrenchment
becomes necessary, such as early warnings, consultations and alternative
employment, were complied with by the company.

Notwithstanding the fact the explicit statutory expressions of the LIFO rule is to
be found in Indian industrial relations legislation, the principle has a long history
in Malaysian industrial jurisprudence. If its domestic provenance and relevance
needs to be justified, all that needs to be said is that the criteria in the agreed
practices to code pertaining to consideration for length of service set out in art.
22(b) must logically find its expression in the LIFO principle.

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The court is statutorily obliged to act according to broad concepts of equity and
good conscience and the substantial merits of the case without regard to legal
form. Additionally, the court is empowered to take into account codes of conduct
mutually arrived at bye employer and employer organisations approved by the
relevant minister. Left to determine retrenchment cases with the above general
principles, the court has translated the criteria pertaining to length of service
into the LIFO principle and applied the same in many cases that have come
before it. The many facets of the LIFO rule are indeed sourced from the
industrial jurisprudence of other jurisdictions contained in legislation and the
case law of India and other common law countries. The Malaysian cases are
replete with references to textbooks and case authorities from India and
England. That alone, however, is not reason to reject the rule.

Upon its reception into Malaysian industrial jurisprudence, it has become an

important principle often applied in retrenchment cases before the court, in
particular where the management had proceeded to retrench workmen in haste
without any serious attempt to give heed to the several selection criteria
stipulated in the agreed practices. Where employers do not attend to the
concern for objective criteria in the retrenchment exercise, the court will in most
cases hold employers to the LIFO principle.

[46] Mr Lim also considered the submissions concerning whether a Company may

adopt its own selection criteria in place of the LIFO rule, and held, at p 383: -

In support of his submission that the company may adopt its own selection
criteria in place of the LIFO rule, learned counsel referred inter alia, to the case of
Malaysian Shipyard & Engineering Sdn Bhd, Johor Bahru v. Mukhtiar
Singh and Ors [1991] 1 ILR 626. The employer had adopted its own selection
criteria based on age, performance, medical records and disciplinary records in
place of LIFO when undertaking its retrenchment exercise. In that case, the
Industrial Court examined the various criteria and found them to be reasonable
having regard to the objective inter alia of achieving efficiency of operations. The
Court held thus:

From the evidence as a whole the Company’s position is abundantly clear namely
that it had adopted a selection criteria devised by itself. I find the selection
criteria in exh. C5 was reasonable in all the circumstances. In my view the
Company had adduced sufficiently sound and valid reasons for departing from
complying with the LIFO principle. Having regard therefore to the evidence, facts
and the law, the Company has established on a balance of probabilities that the
dismissals of the claimants by way of retrenchment were made with just cause or
excuse.

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[47] Mr Lim Heng Seng held, at p 384: -

The court agrees with the submission of learned counsel for the company on the
non-rigidity of the LIFO principle. There are ample authorities that decide that an
employer may for sound and valid reason depart from strictly applying the LIFO
principle. Apart from the Malaysian Shipyard & Engineering (supra), the
cases of departure from the LIFO principle appear to occur in the context of the
retention of one or few particular employees by way of an exception to the
general application of the LIFO principle in a retrenchment exercise conducted by
an employer. Such departures are justified on the basis of the ability,
compatibility, suitability and efficiency of junior officers who were retained in
preference to other senior officers due to the specific need or interests of the
employer. The onus is cast of the employer to justify the same preferably,
because of the considerations of reliability and the issue of proof, by reference to
the recorded history of the said officers. Unlike the Malaysian Shipyard &
Engineering case, they do not involve retrenchment exercises where the LIFO
principle is cast aside as it is considered to be wholly inappropriate and in lieu
thereof a specially structured selection criteria is adopted.

The employer discharges the onus of justifying his departure from the LIFO
principle by adducing substantive and reliable evidence of the grounds or reasons
justifying a departure from the LIFO principle. The approach in this type of case,
which for the sake of brevity will be referred to as “the usual case”, is seen in the
case of Syarikat Osborne & Chappel Sdn Bhd. v Kesatuan Kakitangan
Perusahaan Lombong [1970-1972] MLLR, the court held:

It was submitted on behalf of the Management Company that the selection of

Lopez and Pereira for retrenchment had been based on considerations of
efficiency and in the absence of any bad faith or discrimination the employer
must be free to decide who among the employees concerned were the least
efficient and therefore of least value to him. While it is agreed that the
employer in selecting employees for retrenchment may take into account the
efficiency and the trustworthiness of the employees, and if he is satisfied that a
person with long service is inefficient or unreliable in the discharge of his
duties, it would be open to the employer to retrench him, while retaining in his
employment another who may be junior to him in service, whenever the
industrial rule of “last-in, first-out” is thus departed from, there should be
substantive and reliable evidence showing the inefficiency or unreliability of the
employee so as to satisfy the Court that the departure was justified by sound
and valid reasons. This means, in the view of the Court, that retrenchment
should not be carried out on the basis merely of comparative value of the
employees to the employer. To accept such a basis without anything more is to
destroy the general principles enunciated in paras. 10.1 and 10.2 hereinbefore
and embodied in the Collective Agreement.

On the facts of that case the court went on to conclude as follows:

After an examination of all the facts before it, the Court is of the view that the
Management Company has failed to adduce substantive and reliable evidence
showing the inefficiency and the unreliability of Lopez and Pereira and,

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therefore, in retrenching them over other Assistant Storekeepers, junior in

service to them, had departed from the principle of “first-in, last-out” without
sufficient and valid reasons. The Court accordingly concludes that the order of
retrenchment as served on Lopez and Pereira should be set aside and the two
said employees should be reinstated in the service of the Management
Company.

The usual type of cases where the employer justifies a departure from the LIFO
principle as an exception rather than as a general policy decision in the
formulation of its selection criteria will have the effect that the senior employer
who had been performing satisfactorily and without taint of misconduct will be
assured against redundancy short of specific, sound and valid reasons justifying
the retention of a particular junior employee. This legitimate expectation to
security of tenure in the context of retrenchments arising from redundancies has
long been recognised in the industrial jurisprudence of Malaysia.

Having said that the court reiterates that the court will have to be satisfied that
the employer had not only a sound and valid reason for the said departure but
also, following the general approach taken by the court in Malaysian Shipyard &
Engineering, that the selection criteria is reasonable and that the implementation
of the selection process in accordance with the selection criteria adopted is fair. In
this regard and in the context of the Agreed Practices annexed to the code, the
issue of reasonableness is not one that is left to be decided on undefined
parameters. Employers ought to take into account the various matters specified in
the Agreed Practices and in particular to be anxious to give heed to the emphasis
expressed in art. 22(b) on the necessity for the adoption and application of
objective criteria in the said procedure and the concern the there should be a
consultative approach when the selection criteria is being formulated. As has been
observed previously by this court, the specification of the need to apply objective
criteria for selection is a disavowal of subjectivity in the selection process.
Selection of employees for retrenchment by management based on the latter’s
subjective views of an employee is fraught with the dangers of arbitrariness,
victimisation and unfair labour practice which are wholly unacceptable in good
industrial relations practice (see Mamut Copper Mining v Chau Fook Kong @
Leonard and Ors [1997] 2 ILR 625).

[48] In our present case, this Court is of the opinion that the Company’s selection

criteria were not transparent nor codified for the Claimant to understand and

appreciate and were unreasonable, considering that the Claimant was already a

permanent employee at the material time and was a local employee.

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[49] In trying to depart from the LIFO rule, it was for the Company to discharge

the onus of justifying the departure by adducing substantive and reliable evidence of

the grounds or reasons justifying a departure.

[50] The ability, compatibility, suitability and efficiency of the Claimant were not

dealt with in detail except for the fact that the Company insisted that the Claimant

did not possess a degree and thus could not be considered as an “engineer”. From

the documents presented to this Court, it was amply shown that the Claimant had

been employed in a capacity that the Company thought he was capable of. The fact

that his initial contracts were extended and that he was made a permanent

employee (from as far back as 1 May 2012) showed that the Claimant was

performing an important technical function and that he was adjudged to be both

able and proficient in what he did. Whether he could be considered a “Project

Engineer” or a mere “Lead Facilities Specialist” and whether he was an expert in

“rotation equipment” and not project engineering, are not factors that would

determine whether his role was a surplus role and he should be selected for

retrenchment. At the end of the day, the selection criteria should not judge him in

how the Company should interpret his role but whether the selection criteria were

reasonable and transparent.

Victimization

[51] The Claimant had submitted that he was victimised. In contrast, the

Company, through its witness, COW-2 had testified:

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The Claimant is not entitled to punitive compensation and/or aggravated

compensation as the Company was not in breach of Article 5 (Liberty of Person)
and Article 8 (Equality) of the Federal Constitution of Malaysia. The retrenchment
exercise was genuine and there was no element of victimization or oppression or
discrimination whatsoever involved in the selection process. The Company had
acted fairly and objectively in retrenching the Claimant after taking into account
the seniority and capabilities of the employees in the department

[52] The Claimant considered himself to be a Project Engineer and had worked in

the Patricia Project and East Cluster Project in such a position. In his testimony, the

Claimant testified that there were eight Project Engineers, including himself, at the

time of his retrenchment.

Q : Were any of these seven (7) staff performing the duties and
responsibilities of a Project Engineer senior to you?
A : The local staff are all my junior. However, the Expat staff, Steve
Spencer, could have been employed at the same time as me in year
2008, but at the time of my retrenchment, he was still a contract
employee whereas I was a permanent staff.

[53] Although the Company had strenuously tried to show that the Claimant, being

a diploma holder, was not considered an “engineer”, there was little doubt that the

Claimant had considered himself as one of the Project Engineers and he was

performing the functions of a Project Engineer.

Q : The Company’s witnesses had testified that you were given the
duties and responsibilities of a Project Engineer as an exposure.
What is your response to this?

A : It’s not true because I had been performing the duties from June
2011 until I was retrenched, which is about four (4) years,
therefore, the Company’s evidence that I was just performing it as
an exposure does not make sense.

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[54] The Claimant had testified that of the eight persons performing project

engineering functions in the Company, he had served the longest period. This was

not rebutted by the Company. The Claimant had also testified that he was a

permanent employee, and a local, and these facts were also unrebutted.

Q : Why do you say that the Company’s act of retrenching you is not
justified?

A : This is because I am not redundant and among the eight persons

performing project engineering functions, I had served the
Company for the longest period. Am a permanent employee as
opposed to a contractual staff. Am a local as opposed to expatriate
staff. Yet, the Company still chose to retrench me. For the reasons
given above, I should be the last to be chosen among the Project
Engineers as I am the most senior and most qualified and should be
the most suitable Project Engineer to be retained by the Company.

[55] The Company on the other hand did not show any evidence that the other

Project Engineers were more qualified than the Claimant to be retained or that

the Claimant could not perform the roles that they were performing. The

Company did not show that as a non-degree holder, the Claimant was less

qualified or less able to carry out his duties. In fact, throughout his career with

the Company, the Company had never made his lack of a degree as an issue.

[56] Admittedly the Claimant is outside the purview of the Employment Act 1955

(Act 265), but this Court is also guided by the spirit behind s 60N, which states:

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.

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BURDEN OF PROOF

[57] The burden lies on the Company to show that a case for retrenchment has

been made out and if so, whether the retrenchment was made bona fide.

[58] It is the Company’s burden to prove on a balance of probability that the

Claimant’s retrenchment which is akin to a dismissal was with just cause and excuse,

see Telekom Malaysia Kawasan Utara v Krishnan Kutty Sanguni Nair &

Anor [2002] 3 CLJ 314. The Court of appeal held at p 327: -

In our view the passage quoted from Administrative Lawby H.W.R. Wade &
C.F. Forsyth offers the clearest statement on the standard of proof required,
that is the civil standard based on the balance of probabilities, which is flexible,
so that the degree of probability required is proportionate to the nature of
gravity of the issue. But, again, if we may add, these are not “passwords” that
the failure to use them or if some other words are used, the decision is
automatically rendered bad in law. The Industrial Court should be allowed to
discharge its functions as it was intended to be by statute. The Industrial Court
should be more flexible to enable it to regulate the relations between
employers and workmen and to prevent and settle differences and disputes
arising from their relationship. That is what it is meant to be.

[59] In deciding whether the dismissal was without just cause this Court merely had

to consider whether on the evidence produced before it, there were reasonable

grounds to dismiss the Claimant. This court recognises that a retrenchment exercise

is the prerogative of the Company and in determining whether the exercise of the

management prerogative was bona fide, this Court will examine the reasons put

forth by the Company.

[60] The burden of proof, as in all dismissal cases, lies with the Company, see

Food Specialities (M) Sdn Bhd v Esa bin Haji Mohamad [1989] 1 ILR 502.

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[61] This Court shall also act according to equity, good conscience and the

substantial merits of the case without regard to technicalities and legal form, as per

s 30 (5) Industrial Relations Act 1967 (Act 177).

THE FUNCTION OF THE COURT

[62] In the Federal Court case of Milan Auto Sdn Bhd v Wong Seh Yen [1995]

4 CLJ 449, the Federal Court held that the function of the Industrial Court in

dismissal cases on a reference under s 20 Industrial Relations Act 1967 is two-fold:

1) To determine whether the misconduct complained of by the employer has

been established; and

2) Whether the proven misconduct constitutes just cause or excuse for the
dismissal.

[63] Similarly, in the case of Wong Yuen Hock v Syarikat Hong Leong

Assurance Sdn Bhd and another appeal [1995] 2 MLJ 753, the Federal Court

held, at p 762, as follows:

On the authorities, we were of the view that the main and only function of the
Industrial Court in dealing with a reference under s 20 of the Act (unless
otherwise lawfully provided by the terms of the reference) is to determine
whether the misconduct or irregularities complained of by the management as
grounds of dismissal were in fact committed by the workman, and if so,
whether such grounds constitute just cause or excuse for the dismissal.

[64] In this case, there was no question about any misconduct or any under-

performance issues.

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[65] Accordingly, this Court holds that the dismissal was without just cause and

excuse.

REMEDY

[66] This is not a suitable case for a reinstatement. The rightful remedy in this

case is to award the claimant with compensation in lieu of reinstatement.

[67] The Claimant was unable to obtain permanent employment after his

retrenchment and was only able to receive income for two months.

[68] The Claimant’s joined the Company on 1 May 2008 and his last-drawn salary

was RM 33, 537.00 plus RM 1,700 in cost of living allowance.

[69] The Claimant’s claim for punitive and/or exemplary and/or aggravated

damages cannot be considered as there is no evidence that the retrenchment

exercise, in four phases, was with an ulterior motive, targeted specifically at the

Claimant or a small section of the Company’s employees. Further, it is also this

Court’s opinion that the Industrial Court has very limited discretion in awarding such

damages.

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[70] Taking into account the Claimant’s current situation and also taking into

account that he received income for only two months, this Court makes the following

order:

BACKWAGES RM 35,237.00 x 23 = RM 810,451.00

COMPENSATION IN LIEU OF
RM 35,237.00 x 11 = RM 387,607.00
REINSTATEMENT

GRAND TOTAL = RM 1,198,058.00

DEDUCT

Total Retrenchment benefits previously paid = RM 266,766.03

NETT SUM PAYABLE TO CLAIMANT = RM 931,291.97

[71] The total nett sum payable of RM 931,291.97, less any statutory deductions, is

to be paid to the Claimant, through his solicitors within 30 days from the date of

service of this award.

HANDED DOWN AND DATED 27 JUNE 2019

-signed-

(YONG SOON CHING)

CHAIRMAN
INDUSTRIAL COURT OF MALAYSIA
KUALA LUMPUR

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