ADAM ABDULLAH v. MALAYSIAN OXYGEN BHD

353 ADAM ABDULLAH v. MALAYSIAN OXYGEN BHD Industrial Court, Kuala Lumpur Mary Shakila G Azariah Award No: 521 of 2012 [Case No: 24/4-906/10] 24 April 2012 Dismissal: Retrenchment - Redundancy - Company reorganisation - Whether retrenchment mala fide - Whether Last In First Out principle violated - Whether retrenchment not genuine The claimant, who at the time of dismissal was the Information Management ( IM ) Operations Manager, was made redundant by the company after it implemented a new SAP System which caused the old AS400 System to be shut down and the IM Operations redundant. The claimant claimed that he was not redundant as his subordinates were not retrenched, and he was also asked to report to one Chong Kah Min, who joined the company very much later than the claimant. The issue for the court to consider was whether there was a genuine retrenchment of the claimant by the company. Held (for the claimant): (1) To justify retrenchment there must first be redundancy. To prove this the company must show that there was a surplus of labour or that the requirement of the job functions of the employee had ceased or had greatly diminished to the extent that the job no longer existed, or that the business required fewer employees of whatever kind resulting from a reorganisation exercise or due to other legitimate reasons for operations. (para 10) (2) In redundancy it is the services of the employee which must be redundant and not his position or title. Evidence showed that the claimant s principal functions as the IM Operations Manager of the company were wide-ranging and continued to exist even with the implementation of the SAP System. (para 24) (3) The company s retrenchment of the claimant on grounds of redundancy was not genuine. There was no evidence adduced by the company that the claimant was not qualified or lacked the necessary skills and expertise to run the restructured department. There was also no evidence adduced why the claimant could not be trained for the post. Someone was obviously needed to run the SAP system and unless the claimant was not suited for the role or could not fit into the new restructured system, he could not be said to be redundant. The job functions still existed and no evidence was tendered to show otherwise or why the company said it had diminished or ceased to exist. Chong Kah Min was simply preferred over the claimant by the company. (paras 20, 22 & 24)

354 [2012] 2 MELR (4) By preferring Chong Kah Min and failing to prove that the claimant was made redundant due to his lack of skill or expertise, the retrenchment of the claimant was made in bad faith and in violation of the Last In First Out (LIFO) principle. (para 23) (5) Given the claimant s unblemished work record of 25 years, the company at the very least should have given the claimant a notice of the retrenchment exercise so that he may find alternative employment elsewhere. (para 26) [Reinstatement not ordered. Backwages less the retrenchment benefits and compensation in lieu of reinstatement awarded to the Claimant. No deduction for post dismissal earnings]. Case Commentaries It is now common practice that Industrial Court awards are heard by one Chairman and handed down by another. This practice is the result of the high turnover of Chairmen in the Industrial Court. The Chairman who hands down the award uses the notes prepared by the Chairman who heard the evidence, as well as documentary evidence and submissions prepared by the parties. Although one party to a dispute may object to this practice and demand a de novo or fresh hearing, the objection is usually overruled by the court. The principles relating to redundancy have been repeated many times by the Industrial Court which recognises the right of an employer to decide upon the appropriate size of his workforce and, if he finds that he has surplus workers, he may retrench them. A retrenchment exercise needs to follow certain well-accepted principles in order for it to be accepted by the Industrial Court as genuine and not an attempt to victimise certain individuals. When necessary, the court will examine the evidence relating to the retrenchment exercise and decide whether it was a bona fide or genuine exercise by the employer. Retrenchment is an example of a managerial prerogative. However, action taken under the pretext of redundancy, if proven to be a form of victimisation of the employee, may be struck down by the Industrial Court as this is an unfair labour practice. One of the key principles in determining whether a retrenchment exercise has been fairly conducted is Last in, First out (LIFO). Where this rule is violated, it is likely that the Industrial Court will decide that a retrenchment exercise is without just cause or excuse. If an employee has been retrenched and paid retrenchment benefits and subsequently challenges his or her dismissal; and if the Industrial Court decides that the dismissal was without just cause or excuse and that the employee should be paid compensation by the employer for the loss of

355 his employment, the court will deduct from the compensation package an amount equivalent to benefits already paid out to the employee. Case(s) referred to: Carrier International Sdn Bhd v. Rahim Kassim & Ors [2006] 2 ILR 879 (refd) Dr James Alfred v. Koperasi Sanya Bhd & Anor [2001] 3 MLJ 529 (refd) Hariprasad v. Divelkar AIR [1957] SC 121 (refd) Harris Solid State (M) Sdn Bhd & Anor v. Bruno Gentil Pereira & Ors [1996] 4 CLJ 747 (refd) Hong Leong Equipment Sdn Bhd v. Liew Fook Chuan & Other Appeals [1997] 1 CLJ 665 (refd) R Rama Chandran v. Industrial Court of Malaysia & Anor [1997] 1 CLJ 147 (refd) Tuan Syed Hashim bin Tuan Long v. Esso Production Malaysia Inc [1997] 1 LNS 99 (refd) Legislation referred to: Industrial Relations Act 1967, ss 23(6), 30(5) Counsel: For the claimant: S Shanker (Lim Siew Ann with him); M/s S Shanker & Arjunan For the company: V Vijayan; M/s Shearn Delamore & Co AWARD Mary Shakila G Azariah: [1] This reference stems from the dismissal of Encik Adam bin Abdullah @ Peter Lum ( the claimant ) by Malaysian Oxygen Bhd ( the company ) on 19 May 2000. [2] This reference has been transferred from court 14 to court 27 for the writing of the Award as the former Chairman of court 14 has gone on transfer. This Award is now penned by the learned Chairman court 27. The learned Chairman has been directed by the president to hand down this Award in the interest of justice. The last submission was filed on 5 June 2008 and the matter has been pending since. The court relies on the authority of Bax Global (Malaysia) Sdn Bhd (now known as Schenker Logistic [Malaysia] Sdn Bhd ) v. Sukhdev Singh s/o Pritam Singh and Anor, (R3-25-162-09) where reference was made, inter alia to s 23(6) of the Industrial Relations Act 1967 by the learned Judicial Commissioner. It was held in the said case that in order to obviate grave hardship being caused the case need not be heard de novo. Brief Facts [3] The claimant joined the company on 8 September 1975 as a Systems Assistant. At the time of his dismissal he held the post of IM Operations

356 [2012] 2 MELR Manager. The claimant was made redundant by the company on 17 May 2000. The company implemented the SAP System in the company sometime in 2000, April. With this implementation of the new SAP System the company s old AS 400 system was permanently shutdown and consequently as the company has pleaded the IM Operations became redundant. The claimant avers that the claimant had recruited Chong Kah Min on or about January 1991 and had designated him as System Accountant in the company and later made him assume the position of it development activist. The claimant avers that on or about July 1994 the company attempted Chong Kah Min as IM Manager to head the IM Department and proposed to re-designate the claimant as Data Processing Controller. The claimant avers that he objected to this for several reasons. The claimant pleads that vide the letter dated 17 May 2000 he was informed by the company that he had become redundant and that the company was unable to find any alternative position in the company for the claimant. The claimant contends that he was not redundant as his subordinates were not retrenched and were asked to report to Chong Kah Min. He claims that he had been victimised by the company and that his dismissal was done in bad faith. Redundancy Principles [4] In the case of Harris Solid State (M) Sdn Bhd & Anor v. Bruno Gentil Pereira & Ors [1996] 4 CLJ 747 it was held that: An employer may reorganise his commercial undertaking for any legitimate reasons such as promoting better economic viability. But he must not do so for a collateral purpose, for example, to victimise his workmen for their legitimate participation in union activities. Whether the particular exercise of the managerial power was exercised bona fide or for a collateral reasons is a question of fact that necessarily falls to be decided upon the peculiar circumstances of each case. [5] In other words if the facts when viewed objectively shows that the exercise of the managerial powers by the employer even for a closure of business was for a collateral purpose that is aimed at putting a workman out of job the termination consequent upon such an exercise of power may be struck down by the court as constituting unfair labour practice. In the case of Tuan Syed Hashim bin Tuan Long v. Esso Production Malaysia Inc [1997] 1 LNS 99 where it was stated that the right to reorganise the company is the prerogative of the management to achieve maximum efficiency and effectiveness. This prerogative belongs to the company provided it is done bona fide. If in the process of doing that some workmen had to be laid off, there is ample provisions in the law to provide them with retrenchment benefits. [6] The concept of managerial prerogative is well known by the Industrial Relations Act 1967 and the Employment Act 1955. The Industrial Relations Act 1967 as well as case law acknowledges the employer s managerial prerogatives but these managerial prerogatives are not absolute. Where it is shown that the exercise of these prerogatives is not bona fide or amounts to

357 unfair labour practice or indicates victimisation, the Industrial Court will not hesitate to strike down such exercise as bad. [7] The courts have held that the managerial prerogatives of the employer are qualified rights and there are important principles to be taken into consideration. To the court it is important that the employer acts fairly and conducts the retrenchment bona fide and untainted by any unfair labour practice. (see Cycle and Carriage Bintang Bhd v. Cheah Hian Lim where the retrenchment was held by the court as genuine and did not constitute dismissal without just cause or excuse). [8] At the other end of the scale is the case of Hong Leong Equipment Sdn Bhd v. Liew Fook Chuan & Other Appeals [1997] 1 CLJ 665 and that of R Rama Chandran v. Industrial Court of Malaysia & Anor [1997] 1 CLJ 147 which recognises that an employee has a right to work and earn a living and apart from this being a fundamental right, it is also akin to property. [9] The issue before the court bearing in mind the afore stated principles of law is whether there was a genuine retrenchment vis-a-vis the claimant. Retrenchment means the discharge of surplus labour or staff by the employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action. This is as per SK Das J in Hariprasad v. Divelkar AIR [1957] SC 121 at p 132: It has been held that whether the retrenchment exercise in a particular case is bona fide or otherwise is a question of fact and of degree depending for its resolution upon the peculiar facts and circumstances of each case. It is settled that an employer is entitled to organise his business in the manner he considers best. However his managerial powers must be exercised bona fide. If not, the decision will not be immune from examination by the Industrial Court. The Industrial Court is empowered and indeed duty bound to investigate the facts and circumstances of a particular case to determine whether that exercise of power was in fact bona fide. [10] To sum up to justify retrenchment there must first be redundancy. To prove this the company must show that there was a surplus of labour or that the requirement of the job functions of the employee has ceased or has greatly diminished to the extent that the job no longer exists or that the business requires fewer employees of whatever kind resulting from a reorganisation exercise or due to whatever other legitimate reasons operations. The Company s Evidence [11] The company s sole witness was CW, the current manager of the company. She testified that she joined the company in October 1996. Her testimony in court was based on the documents that was kept in the company s file on the claimant. CW testified that she could confirm that the claimant was terminated by the company vide the company s letter dated 17 May 2000. It was her testimony that sometime in mid 1994 the parent company began upgrading

358 [2012] 2 MELR the operations in respect of all the its group of companies worldwide. She said that the area identified was in respect of the conversion of the systems from what was in place at the material time and that is the AS400 computer system to the SAP system. [12] According to CW the SAP Project in the company started began in October 1998. She testified that Chong Kah Min was appointed as the Project Manager as he was then the IM Systems Development Manager whereas the claimant was the Information Management Operations Manager. It was her testimony that with the implementation of the new SAP systems the old AS400 System was shut down and was no longer utilised for the day-to-day operations of the company. She testified that the IM Operations team became redundant and the company terminated the services of the claimant. CW testified that there were 3 personnels in the IM Department. She said that the company retained the services of the computer operator for the purposes of supporting the non- SAP branches which were gradually phased out and the computer operator so retained retired on 24 April 2001. CW said that the company also retained the Data Processing Assistant and that she also retired a year later from the company. According to CW the other personnel who was the IM executive in the IM Department was absorbed into the new IM Organisation. It was her evidence that both the claimant and Chong Kah Min had different duties. The Claimant s Evidence [13] The claimant testified that Chong Kah Min joined the company in or about January 1991. He said that he was under the impression that Chong Kah Min would report to him as the previous systems analyst reported to him. He said that he learnt that the company had made Chong Kah Min the Systems Accountant and later assumed the IT System Development Manager whilst he (the claimant) would be responsible for the IT Operations of the company. He said that he was told by Stanley Wong the then Finance Manager that he need not worry about his own career advancement in the company and that Chong Kah Min was in a grade lower to him. According to his evidence he said that in July 1994 the company attempted to make Chong Kah Min the IM Manager to head the IM Department and to re-designate him as the Data Processing Controller to which he protested. He testified that he was much more senior to Chong Kah Min and was pioneer in introducing IT in the company. He said that the company did abandone the proposal. It was his testimony that the company vide its memo dated 27 January 1995 announced that Chong Kah Min had been appointed as the IM Systems Development Manager whilst he was re-designated IM Operations Manager. He said that Chong Kah Min received car benefits which he did not. [14] He further testified that he wrote several letters to the company seeking clarifications concerning his job and car entitlement. He said that he had directed his solicitors to write to the company regarding his situation and the company s reply was unsatisfactory. He said that the company had earlier

359 through the Human Resource Manager informed him on 23 June 1998 that he would receive his car benefits but failed to implement it. He said that vide their reply dated 28 August 1998 the company said that he was in Grade M4 and was not entitled to car benefits. The claimant said that the company had graded him wrongly as he was in Grade 8 which was the highest grade for Middle Management Grouping. [15] The claimant testified that the SAP was a new integrated system and was implemented in the company late 1998. He said that he had to be trained to understand the system but was not given any training by the company despite his request for it. He said that Chong Kah Min was appointed Project Manager for the new system and had a team under him and they were sent periodically to Hong Kong for training. The claimant said that he was told to concentrate on the AS400 systems. He testified that he had implemented four systems in the company before this and was sent for training locally and overseas. [16] The claimant had written to the company on 30 August 1999 inquiring as to when he and his team in the IM Department would be involved in the SAP and receive training for it. He said that the system had entered phase 3 by then. The claimant testified that vide its memo dated 8 September 1999 the company had responded to him saying that the training of the staff will start in October 1999 with the Finance Module. He said that vide another memo the company through Mr Fuller had said that the company was very close to letting the staff know where they will fit into the organisation post SAP and that this will be communicated to him and his staff in the near future. It was his testimony that vide its letter dated 17 May 2000 the company informed him that the AS400 was permanently shut down and his position as Manager of IM Operations was affected. He was made redundant and was dismissed with immediate effect by the company. The claimant said that he was not redundant as support work had to be done locally for the SAP systems. He said that there were works to be done like handling user security and other matters relating to user security, managing the system to ensure that the equipment was in working order and that the telecommunication lines were up all the time to ensure linkage to United Kingdom and the local branches. The claimant testified that his three staffs in his department were directed to report to Chong Kah Min. Referring to the company s memo dated 22 September 2000 the company referred to Chong Kah Min as the IM Manager. It was his evidence that the IM Operations Department in the company was not redundant notwithstanding the information system had changed from AS400 to SAP. He said that there was still information system for him to manage. [17] The claimant testified that he was senior in comparison to Chong Kah Min. He said that he had been with the company for 16 years. He testified that when he was hired AS400 was not in the company. It was introduced in 1991. It was his testimony that when he left the company there were still 10 staff remaining including Chong Kah Min.

360 [2012] 2 MELR Evaluation [18] The court agrees that the company had the right to reorganise its business and to replace the AS400 with the SAP system. The company s evidence was that the company was not the only entity within the BOC group to undergo restructuring as a result of the introduction of the SAP system. I do not think on the evidence before me that the company acted mala fide in introducing the SAP system into the company and the ensuing restructuring exercise that followed was to cater for the same. But was the claimant s position redundant as a result of the restructuring that was carried out? [19] The company s evidence was given by CW who was the manager of the company having joined the company in October 1996. None from the Human Resource or the higher officials came to testify on the restructuring exercise that was carried out by the company that resulted in the claimant being made redundant. Through CW the company has established that the SAP system that was introduced in 2000 had largely affected the IM Department that was headed by the claimant as it brought about the shutting down of the AS400 system managed by the claimant and his team. It however left Chong Kah Min the newly appointed IM Systems Development Manager heading the SAP system. The question is could the claimant who had been the head of the IM Department before Chong Kah Min s entry into the company be retained to head the IM Department and be in charge of the SAP system that took over from AS400? Was the claimant not qualified to manage the SAP system? [20] Gleaning the evidence adduced by the company the claimant was not needed by the company because Chong Kah Min was there and preferred over the claimant by the company. The company did not adduce evidence to show that the claimant was not qualified or lacked the necessary skills and expertise that Chong Kah Min to run the restructured department. There was nothing in the company s case to show why the claimant could not be trained for the post. In fact the company through the David Fuller had indicated that the claimant and his team will receive the requisite training once the SAP was fully functional in the company. There is nothing to say or show why the claimant was not suitable for the new role and that no amount of training could equip him to function within the new department. It seems on the evidence that Chong Kah Min was preferred over the claimant for reasons bests known to the company and that the company had no use for the claimant because Chong Kah Min was and preferred over him. The company had failed to show that the claimant s services were no longer needed by the company. To put it rather bluntly it seems to be that the company did not require the claimant s services because they had Chong Kah Min. [21] The company attempts to justify retaining Chong Kah Min by relying on the job descriptions handled by the claimant and Chong Kah Min. These were job descriptions written in 1996 when the company divided the IM Department into two factions relegating the claimant who was previous to the

361 said division in overall charge of the IM Department. The evidence of the company is scanty and does not disclose the full picture much less for the court to work on in determining whether the retrenchment exercise carried on by the company was genuine and in good faith. It does not assist the court in determining whether the claimant was in fact rendered redundant with the implementation of the SAP system. [22] Reorganisation is the prerogative of the employer. It is trite that reorganisation may result in the services of some employees being excess and if so the employer is entitled to discharge such excess. It is incumbent however on the company to show that the services of the claimant were no longer needed or had diminished or expected to cease or diminish. However the evidence before the court does not bear this out. Someone was obviously needed to run the the SAP system and unless the claimant was not suited for the role or could not fit into the new restructured system he cannot be said to be redundant. The claimant testified that he pioneered the IT Department in the company and had introduced four systems in the company prior to this for which he was trained. His evidence was not challenged and remains incontrovertible. [23] Preferring Chong Kah Min barring any insinuations about the claimant lack of skill or expertise to work in the company, is a violation of the Last In First Out principle ( LIFO ). There seems to be some malice or bad faith on the part of the company in the action it has taken towards the claimant. The other staff in his department were retained in the company. In fact two of the staff Agnes Ho and Amy Yau according to the company s evidence were retained in the new IM Organisation as a support staff for the non-sap branches as the same was only gradually phased out. LIFO would require Chong Kah Min being phased unless he was found to be more suitable and qualified for the job. But as I have said this is not what CW had said in court. Her evidence was that Chong Kah Min was appointed as Project Manager as he was then the IM Systems Manager a post he held since 1995. It should not be forgotten that prior to him coming into the company the claimant was overall in charge of the IM Department and would have continued to work on the new SAP system if Chong Kah Min was not in the company. In the absence of any evidence that shows that the claimant was not suitable to be trained or to operate the SAP system the court would necessarily have to find that the retrenchment of the claimant was in bad faith and in violation of the LIFO. Having said that the court finds that the claimant s dismissal by the company was without just cause or excuse. The claimant had served the company for nearly 25 years. [24] The claimant had been writing to the company seeking clarifications from his superior as to his position and future in the company. The claimant must have felt something was brewing and that his position was not secured. The company had not been quite forthright with him giving him a false sense of security. From the evidence it is clear that the company had not notified him at all of the impending retrenchment of himself. Under these circumstances and bearing in mind that the claimant had begun questioning the company on the

362 [2012] 2 MELR car benefits that Chong Kah Min inter alia enjoyed which was not extended to him it is perceived that the company s retrenchment of the claimant on grounds of redundancy was not genuine. The court agrees with the claimant s solicitor s submission that the reason for his dismissal is highly misconceived. On the evidence his job functions still existed and there was no evidence tendered by the company to show otherwise or why they say it diminished or ceased to exist. All that the company s evidence show is that the AS400 was replaced by a new information system SAP. How incompetent was the claimant in handling this system was not established by the company. It is trite that in redundancy it is the services of the employee which must be redundant and not his position or title. Judging from his principal functions as the IM Operations Manager of the company, as evidenced by the documents adduced in this proceedings it is wide ranging and continued to exist even with the implementation of the SAP system. [25] By not adhering to the principle of LIFO the company had disregarded the Code of Conduct for Industrial Harmony which suggests the steps that an employer ought to take prior to retrenching its workman. In Carrier International Sdn Bhd v. Rahim Kassim & Ors [2006] 2 ILR 879 it was postulated that:... though the Code has no legal force (Penang Seberang Prai Textiles & Government Industry Employees Union v. Dragon & Phoenix [1989] 1 MLJ 48) it is a relevant factor for the purpose of considering the overall reasonableness of the employer s action in dismissal cases. In this regard the learned chairman is correct when he took into consideration the fact that there was no consultation held with the 1st respondent before his dismissal as one of the grounds that the dismissal was without just cause or excuse.... [26] Fair industrial practice would require the company to have given early warning to the claimant that he was going to be retrenched. The claimant had 25 years of unblemished record with the company. The very least the company could have done was to put him on notice of the retrenchment exercise early so that he could find alternative employment elsewhere. [27] Reiterating its earlier findings premised on the evidence before it and taking into consideration s 30(5) of the Industrial Relations Act 1967 the court finds that the claimant had been dismissed without any just cause or excuse. [28] The retrenchment of the claimant by the company was bad in law an exercise that was capricious and tainted with mala fide. Accordingly the court shall now make the remedial orders based on the facts of the case. Remedy [29] The court has evaluated the evidence adduced by both sides at the Hearing and thus makes a finding that the claimant succeeds in his claim on the facts and merits of the case. His claim against the company is thus allowed and the following consequential orders following the court s findings in his favour is made:

363 (1) Reinstatement Though the claimant had pleaded for reinstatement to his former position with backwages, inter alia the court on the facts that he has past the age of retirement the court finds that it may not be conducive for the court to order reinstatement and hence makes no order that the claimant be reinstated to his former position in the company. (2) Backwages The court deems it that backwages that should be paid to the claimant be limited to 24 months of his last drawn salary. RM7,102.00 x 24 months = RM170,448.00 The court orders that the backwages should be reduced taking into account the retrenchment benefits that the claimant was paid at the time of his dismissal. Having considered the facts of the case and Dr James Alfred v. Koperasi Sanya Bhd & Anor [2001] 3 MLJ 529, the court makes no deduction for post dismissal earnings as the evidence do not show any gainful employment in so far as the claimant is concerned. (3) Compensation Final Relief The court further orders that the company pays the claimant one month salary for each year of service as compensation in lieu of reinstatement to the claimant. RM7,102.00 x 24 = RM170,448.00 [30] Having found that the claimant had been dismissed by the company without just cause or excuse the company is ordered to pay the claimant through his solicitors backwages in the sum of RM170,448.00 less the retrenchment benefits received by the claimant plus the sum of RM170,448.00 as compensation within 30 days from the date hereof. The company shall make the statutory deductions, if any, to the final sum of RM137,491.80.