Code of Conduct for Industrial Harmony : A Guideline on Retrenchment


Paravathy Devi Raja Moorthy 

Submitted by Firm:
Shearn Delamore & Co.
Firm Contacts:
Sivabalah Nadarajah, Suganthi Singam, Vijayan Venugopal
Article Type:
Legal Article




The Code of Conduct for Industrial Harmony (“the Code”) was agreed upon between the then Ministry of Labour and Manpower[1], the Malaysian Council of Employers’ Organisation[2] and the Malaysian Trades Union Congress to lay down principles and guidelines to employers and workers on the practice of industrial relations for achieving greater industrial harmony.

The Code provides that prior to a retrenchment exercise, the employer should, in consultation with employees’ representative, trade union and in consultation with the Ministry of Labour, take positive steps to avert or minimise reductions of work force by the adoption of appropriate measures, such as limitation on recruitment, restriction of overtime work, restriction of work on weekly day of rest, reduction in the number of shifts or days worked in a week, reduction in the number of hours of work or retraining or transfer to other department. The Code also provides that if retrenchment becomes necessary, the employer should take the following measures:

  1. giving as early a warning, as practicable, to the workers concerned;
  2. introducing schemes for voluntary retrenchment and retirement and for payment of redundancy and retirement benefits;
  3. retiring workers who are beyond their normal retirement age;
  4. assisting in cooperation with the Ministry of Human Resources, the workers to find work outside the undertaking;
  5. spreading termination of employment over a longer period;
  6. ensuring that no such announcement is made before the employees and their representatives or trade union have been informed.

The perennial issue that has been litigated in court for many years is whether compliance with the Code is mandatory and whether a failure to comply with the Code would result in an otherwise fair retrenchment being considered as unfair.

In 1989, the High Court ruled in Penang & S Prai Textile & Garment Industry Employees’ Union v Dragon & Phoenix Bhd Penang & Anor[3] (“S Prai Textile”) that the Code had no legal force or sanction[4].

However, despite the aforesaid decision, the Industrial Courts in several decisions that were decided after S Prai Textile, have ruled that a blatant failure to comply with the Code would result in the retrenchment of an employee being viewed as unfair[5]. The Industrial Courts have reasoned that even though the Code has no legal force, it would still be within the purview of the courts to examine an employer’s compliance with the Code in considering whether the retrenchment of an employee was carried out in a fair manner. The basis to do so is premised on section 30(5A) of the Industrial Relations Act 1967, which stipulates as follows:

In making its award, the [Industrial] Court may take into consideration any agreement or code relating to employment practices between organisations representative of employers and workmen respectively where such agreement or code has been approved by the Minister.”

The recent decision of the Court of Appeal in Equant Integration Services Sdn Bhd v Wong Wai Hung[6] (“Equant”) provides more clarity on the degree of compliance that is expected from an employer in a retrenchment exercise.


Equant’s case - The brief background

Wong Wai Hung (“Wong”) in Equant claimed that his retrenchment had not been carried out in a bona fide manner. Conversely, Equant Integration Services Sdn Bhd (“EIS” or “the employer”) contended that the retrenchment had been carried out fairly and in accordance with good industrial practice.


The decision of the Industrial Court

Although the Industrial Court found that the restructuring exercise undertaken by EIS was genuine and that the selection of Wong for retrenchment was made upon a fair and proper selection, the Industrial Court held that Wong’s retrenchment cannot be considered fair since the company had failed to consult or inform Wong prior to the retrenchment, as required by clause 21 and 22(a)(I) of the Code.

In reaching its decision, the Industrial Court found that EIS’s contention that there was no legal obligation for it to comply with the Code was not quite correct. It held that the obligation is imposed by section 30(5) of the Industrial Relations Act 1967 which provided that the Industrial Court has the discretion to take into consideration the Code.

In the circumstances, the Industrial Court also found the dismissal to be unfair on the basis that the severance payment was not made in accordance with clause 22(a)(ii) of the Code of Conduct and inadequate.


The decision of the High Court

The High Court upheld the decision of the Industrial Court on the basis that there was a plethora of cases[7] in Malaysia that have taken the position that even after the employer has established that a genuine redundancy situation has arisen at the time of the retrenchment exercise, the Court will still inquire whether the employer had engaged in prior consultation with the affected employees.


The decision of the Court of Appeal

The Court of Appeal set aside the decisions of the Industrial Court and High Court, and agreed with the employer that the Code is a mere guideline and held that the failure to comply with the Code per se cannot be fatal in a proper retrenchment exercise. The Code cannot be enforced as if it is a binding statute. It does not have the force of law.

Accordingly, the Court of Appeal held that although the Code is to be given due consideration by the Industrial Court when exercising its discretionary power under section 30(5A) of the Industrial Relations Act 1967, the Code cannot be applied technically and mechanically. Instead it should be taken as mere guidance in a proper retrenchment and the proper question for the Industrial Court to ask is, “how would the breach of the Code affect a redundant position in the company?”.

On the facts, the Court of Appeal considered that the employee was given circulars and notification by the parent company about the restructuring (merger) a month before his retrenchment. He also attended an interview for a position in the reorganised company, post-merger and that a payment of three months’ salary in lieu of notice was given to him. The Court of Appeal therefore held that the retrenchment was carried out in a proper manner and with sufficient justification.



In the light of the decision in Equant, it is clear now that a mere non-compliance with the Code will not result in an otherwise fair and bona fide retrenchment being considered unfair. Be that as it may, as a precaution, employers should still, where practicable, adhere to the Code as it not only reflects good industry practice but will put employers in a better position to defend an unfair dismissal suit.

For further information regarding Employment Law matters, please contact

  • N. Sivabalah :
  • Vijayan Venugopal :

[1] Ministry of Human Resources.

[2] Malaysian Employers’ Federation.

[3] [1989] 1 MLJ 481.

[4] This decision has been upheld by the Supreme Court.

[5] Mamut Copper Mining Sdn Bhd v Chau Fook Kong @ Leonard & Ors [1997] 2 ILR 625; Agilent Technologies Malaysia Sdn Bhd v Tan Wee Khoon (Award No 1606 of 2008).

[6] [2012] 1 LNS 1296; Decided on 10th October 2012.

[7] Trident Malaysia Sdn Bhd, Penang v National Union of Commercial Workers [1987] 2 ILR 190; Lily Industries (M) Sdn Bhd v Billy Wayne Selsor [2006] 3 ILR 1507; Said Dharmalingam Abdullah v Malayan Breweries (Malaysia) Sdn Bhd [1997] 1 CLJ 646; Looi Tuck Keong v New-Ell Stationary.