Redundancy and Separation of Employees

Redundancy arises when there are surplus employees to a company’s manpower requirements.  Contrary to the common understanding that redundancy arises due to losses or dire financial difficulties faced by a company, redundancy can take place due to automation, change in processes, restructuring and reorganisation for efficiency and productivity.

It is well established that the management has the inherent right to reorganise and restructure its business and to determine the appropriate manpower requirements.  The process to separate surplus employees is challenging and can be very problematic that have dire financial consequences and impact on morale of remaining employees.  It is of equal importance that the company must also focus on insulating potential negative impact to the remaining employees as these employees will help drive the business.


Arising from surplus employees, hence redundancy, the company will need to decide on separating these surplus employees in an amicable way as far as possible.  Among the methods to separate the redundant employees are (1) retrenchment; (2) voluntary separation; and (3) mutual separation.  It is trite law that an employee who has been separated/terminated can make representation to the Director General of Industrial Relations for reinstatement.  If the representation is not resolved amicably, it will be submitted to the Minister of Human Resources for a decision whether to refer the representation to the Industrial Court to determine whether the retrenchment exercise is mala fide and the termination of the employees are justified.


Below are key work steps for a comprehensive approach to redundancy and separation of employees:


  • Develop a complete work plan


  • Review business direction, organization structure and functions


  • Establish rationale for reorganisation and restructuring of manpower


  • Determine manpower requirements and redundant positions


  • Establish rationale and selection criteria


  • Profile employees (macro) and establish demography to support exercise


  • Extract pertinent employees’ data


  • Establish profiles of key employees


  • Establish process and procedures for different separation processes, if necessary, based on profile of employees


  • Selection of employees for separation/retrenchment


  • Applying the LIFO test


  • Identify cases of non-compliance with LIFO and the rationale to depart from it


  • Determine separation compensation package


  • Income tax compliance


  • Identify potential litigation and contingent liabilities


  • Determine industrial relations impact and potential risks and liability


  • Develop strategic implementation plan


  • Internal communication, briefs, letters and communication package


  • Identify Management Staff (Task Force) who are required to handle separations of employees


  • Train Task Force on how to engage and manage separation of employees


  • Compliance with provisions of collective agreement, if any


  • Meeting the union on proposed separation / retrenchment


  • Managing potential disputes


  • Managing risks and industrial harmony


  • Managing ‘difficult’ employees


  • Monitor progress and employee emotion


  • Help Desk to assist the process and employees


  • Determine functions of Help Desk


  • Dedicated staff to man Help Desk


  • Addressing employees’ issues


  • Outplacement and Employees Assistance Programme


  • Separation of employees and payment of compensation.




Principal Consultant

Thomas Chow Consulting Sdn. Bhd.


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