TERMINATION AND LAYOFF BENEFITS
1. What are the Termination And Lay-Off Benefits Regulations all about?
Termination And Lay-Off Benefits are provided under the "EMPLOYMENT (TERMINATION AND LAY-OFF BENEFITS) REGULATIONS 1980," which is a part of Employment Act, 1955. This set of regulations, among other things, is intended to : -
i) set the rate of compensation to be paid to employees who lose their jobs (generally where it is due to no fault of theirs)
ii) define those who are not entitled and those who are not.
iii) define the circumstances under which those who are entitled may lose that entitlement
iv) set out the responsibility of employers to pay.
The regulations, being a part of the Employment Act, 1955 apply only to those employees who come within the definition of employee and the First Schedule of the Act.
2. When does an employer become liable to pay these benefits?
An employer becomes liable to pay these benefits when he terminates the services of any employee, or he lays-off any employee who has served him continuously for not less than 12 months.
One point to highlight here is that there is a specific provision that the 12 months service mention may include two or more periods of employment, if the period of break between each period of service does not exceed 12 months.
What does this mean? Simply this - if you employ say, a part-time worker, and he works from 1 January until end of March.
When he rejoins you again in the middle of April, whether to continue as a part-time worker or as a regular employee and works until 31st January the next year. For the purpose of defining liability to pay termination benefit, this employee would qualify because the intervening period between the two service contract has been less than 30 days.
3. Does this mean that when an employee is dismissed after serving more than a year, he must be paid Termination Benefits?
No! No! No! Not for dismissals. Termination benefit is only meant generally for those employees who lost their jobs through no fault of theirs in serving their employers. An employee who is dismissed means that he has done something wrong. Anyway, just to make it clear under (#2) above, it is explained when an employer becomes liable. But Regulation 4 has four parts which sets out the employees who are excluded from receiving termination and lay-off benefits.
1. Regulation 4(1) excludes the following types of employees...
- those who are terminated by the employer on grounds of retirement upon attaining the retirement age, provided that this retirement age is stipulated in the contract of service.
- Those who are terminated "by the employer on grounds of misconduct inconsistent with the fulfillment of the express or implied conditions of his service, after due inquiry (remember Section 14(1) ??)
- Those who have terminated their services voluntarily (i.e. those who resigned of their own accord). It does not however include those employees who terminated their own services due to a breach of condition of service by their employer, or those who do so because they are made to face violence or danger which is outside of their contract to face.
2. Regulation 4(2) makes this exclusion....
An employee who is terminated but the contract is renewed, or he is re-engaged by the same employer under a new contract of service where the terms and conditions of employment are not less favorable than before, provided that the renewal or re-engagement takes effect as soon as the previous contract ends.
3. Regulation 4(3) sets the following conditions
An employee is not entitled to receive the payment if he unreasonably refuses to accept an offer to re-employ him or to renew his contract of service, provided that the offer is made more than 7 days before the effective date set for the termination.
The new terms of employment, the capacity of his position, the place of employment are not less favorable than that of the previous contract.
The re-employment or renewal takes effect on or before the date of termination.
4. Regulation 4(4) bars the following employee from receiving the payment -
Any employee who leaves the job before the expiry of the notice period given by the employer in accordance to the notice period set under Section 12 of the Employment Act, if -
- He has not obtained the prior consent of the employer.
- He leaves without paying wages in lieu of notice.
3a. What is a Lay-Off?
In a general sense, it means any period where work is not provided when the employer is obliged to do so, and the employee is not paid during such idle period. For the purpose of determining the eligibility to receive the payment of termination benefit, it means:-
A total of 12 normal working days without work; in any consecutive period of 4 weeks, and during which the employee is not paid.
So once an employer exceeds the prescribed limit, then he becomes liable to pay termination benefits to the affected employees.
4. What is the rate of Termination Benefits set by the Regulations?
The rate of compensation is to be found Under Regulation 6, which says that the amount should not be less than:-
i) 10 days wages for each year of service which is not less than 2 years.
ii) 15 days wages for each of service which is 2 years or more, but less
than 5 years.
iii) 20 days wages for each year of service which is 5 years or more.
In addition, take note also that -
The daily rate is based "wages" as defined in Section 2(1) computed against the the earnings of the preceding 12 months.
Computation is to be pro-rated for incomplete year and calculated to the nearest month. The benefit prescribed above is in addition to wages in lieu of notice period, if any, annual leave balance, etc which may be due to the employee.
5. What happens if ownership of the business changes hands?
Please note that a change in ownership of the business may or may not mean a change of employer to the employee. As far as an employee is concerned, his contract of service is with the company, and not necessarily with a particular person(s); or owner(s).
i) Let's look at it this way. Joe works for Suregain Bhd, which is in turn controlled by Datuk Dahkaya personally and a few of his companies. As far as Joe is concerned, his employer is Suregain Bhd., not the Datuk. So if the Datuk sells all his shares in Suregain to Tan Sri Adawang, the ownership may have changed, but Suregain Bhd as a company continues to exist and as an employer, remains unchanged.
ii) However, let say the Tan Sri takes over the company and merges it his own company Profit Banyak Sdn Bhd to form a new company called SureProfitBanyak. He then deregisters the name of SureGain, but keep all the employees of Suregain under the new company SureProfitBanyak. This means that not only has the ownership changed, but Joes employer has also changed.
It is my view that 1st situation #5.i, the Tan Sri and his management need not make any re-offer of employment. Things continue as usual for all employees unless as individuals, they are being moved to new companies under the Tan Sri.
In 2nd situation under #5.ii, the provisions are as follows -
i) if within 7 days of the change of ownership, the new owners offer continued employment without less favorable terms, and the employee refuses, then the employee is not entitled to termination benefit payment.
ii) if the new owner does not offer continued employment, then both the old owners and the new owners of the business are jointly and severally liable to pay the termination benefits to the affected employees.
iii) continued employment under the new employer also means that the past service of the employee is to be absorbed by the new employer, and there is no break in the continuity of his employment.
6. If a company is affected by recession and needs to reduce the work force, can the company ask the newer employees to resign?
Sure you can, if your employees are nice enough to obey you. My advice is - don't do it. If you need to retrench - then retrench and follow the rules to do it. Asking employees to resign opens the employer to charges of unfair labor practice and unlawful dismissal and the consequences can be pretty bad for the employer.
Try also not to hide a retrenchment action under the guise of terminating a probationer under the probationary clause. Termination of a probationer should only be done on the grounds that the probationer is not suitable for the job.
7. Is it true that probationers are not entitled to termination benefits?
As far as the law is concerned, it does not distinguish between probationers and confirmed staff. As long as the employee has served at least 12 months, the employer becomes liable to pay if the employee does not fall into any of the exclusion provisions.
8. Is the notice period for retrenchment the same thing as the notice period in the contract of service?
Take the notice period in your contract of service and compare it with the notice period provided under Section 12. If what you find in your contract of service is not less than what is set by the law, you have to apply accordingly; but if your provision is less than that of Section 12, throw yours out and follow Section 12.
To give an illustration, say Ahmad is under 6 months probation and this is his 5th month in service. He is being retrenched. Under your terms and conditions, the notice period for termination under probation is 24 hours. However, since he is being retrenched (and not being terminated for being incompatible with the job), you have to provide him with a minimum of 4 weeks notice instead, or pay him 4 weeks' wages in lieu.
9. What are the rules to follow in a retrenchment?
There are not many, but all are important -
(a) The first rule is "Use retrenchment as the last option". Try out cost saving methods. Talk to employees and seek their cooperation and consent if you are thinking of work day reduction, pay-cut. Retrain and transfer excess employees to more productive jobs.
(b) If there is no other option, under the new orders from the Minister of HR, you have to provide 1 month notice to the Labor Office.
(c) Ever heard of "outplacement?" Help employees find alternative jobs, if possible even before they are retrenched, if they are willing, else, after they are retrenched.
(d) Always give employees sufficient forewarning - so that they can prepare themselves mentally to face the trauma. Many managers do not seem able to feel the sense of trauma and despair that a retrenchee goes through. By giving sufficient notice, some may be able to use the opportunity to get alternative employment.
(e) The normal rule to adopt in selection of retrenchee is "LIFO - Last In First Out" - by job categories, usually. But there can be exceptions to this, provided you have good grounds to support
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