Company uses financial loss as a tool to do retrenchment

There are cases whereby the company will use the argument that the company is making losses and want to do retrenchment exercise.  Can there do so?

The company can do so but it must be done in bona fide and not in bad faith.  If the company is relying that it is suffering financial hardship and wants to retrench its employees the company must show to the court its audited accounts of business and its operational expenses and not due to increased emoluments or increase in assests.

One must take note that the court will not accept audited accounts showing losses on face value even if over a period of time.

In one decided case called Syarikat E-Rate (M) Sdn Bhd v Kesatuan Sekerja Pembuatan Barangan Galian Bahan Logam & Anor [1990] 1 ILR 106 , the court refused to accept the argument put forward by the company stating that they have suffered losses for 

the year 1986 and 1987.  But there are evidence to show that the directors had been paid directors' salaries in excess RM100,000 a year plus directors' fees, bonus and "ang pow" to the employees during the difficult times.  The court favoured and accepted the Union's argument that tax paid and depreciation cannot be described as trading losses. The matter went to the High Court and the High Court upheld the Industrial Court award.

Not easy to retrench employees on financial grounds.

Ramu