The Industrial Court recently upheld an employer’s decision to retrench its employees in the middle of the pandemic, as the employer had suffered commercial setbacks. The cases of Lim Eng Hua v Coliseum Café & Hotel (KL) Sdn Bhd [Award No. 1541 of 2021] and Baanushrri a/p Mohan v Coliseum Café & Hotel (KL) Sdn Bhd [Award No. 1542 of 2021] involve the iconic Coliseum Café located in Jalan Tunku Abdul Rahman Kuala Lumpur which, if not for the commercial impact of the pandemic, would have celebrated its 100th year anniversary this year.

Brief Facts

  1. Coliseum Café Jalan Tunku Abdul Rahman (the “Café”) was an iconic colonial era restaurant that opened in 1921. It was a popular outlet amongst patrons during its heydays and was operated by Coliseum Café & Hotel (KL) Sdn Bhd (the “Company”);
  1. The Café unfortunately fell victim to the commercial effects of the COVID-19 pandemic. The Café had to retrench its employees and eventually closed down its outlet in KL due to the slowdown in business, dilapidated conditions of the building outlet and overall expenses of the Company.
  1. 2 former employees (“Claimants”) filed an unfair dismissal claim against the Company arguing that the retrenchment was done in bad faith without due process. They argued that after the business closure of its outlet in KL, the Company set up a new branch in IOI Mall Putrajaya and they were not offered an alternative employment in other branches.
  1. The Company maintained that the Claimants were terminated in accordance with proper procedures including Last In First Out (LIFO). Although some employees had been redeployed to other outlets, the Claimants holding the position as waitress and bartender were not, due to the lack of vacancies in other outlets.

Court’s Findings

The Court upheld the dismissal and found that the retrenchment exercise conducted by the Company was fair and in good faith. The Court held:

  1. The Company was making losses which was explained by the Company’s witness who tendered the Company’s Statement of Accounts to support this. Also, the Company’s business was not allowed to operate during the Movement Control Order (“MCO”) caused by the pandemic.
  1. The Company successfully established that the retrenchment exercise was within its prerogative as it was a financial-rescue plan to ensure the sustainability of the Company in the long run.
  1. The opening of the new outlet in IOI Putrajaya was with the capital injected by a new shareholder in order to revive the Company’s iconic business. The requirement to open this new branch was set as a condition by the new shareholder when he decided to invest and become a director in the Company.
  1. The Company tried its best to sustain the employees by not retrenching them earlier. There were other cost cutting measures such as a VSS scheme, the closure of another outlet in Sunway, cessation of director’s fee/allowance, and loan advances by the Company’s directors.
  1. There was genuine redundancy in the Claimants’ position because the Company’s KL outlet had to close. The retrenchment exercise was also to ensure that the Company would survive and to preserve the employment of the remaining employees. Although it is not mandatory to secure an alternative position for the Claimants’, the Company did not have such vacancies available in its other outlets.

Key Takeaways

It is unfortunate to see a century-old, iconic eatery close its doors in such a fashion. The Covid-19 pandemic is unprecedented and beyond the control of all parties. The Court took into account the fact that the Company was in the food and beverage industry, and was unable to open during the various iterations of the MCO, yet it still had to pay overhead costs. The Company was “struggling with minimum customers and maximum costs, following the guided standard operating procedure by the Government”.

That being said, the mere fact that a retrenchment occurs in the middle of the pandemic does not guarantee that the dismissal will be upheld.  Companies must still demonstrate a genuine redundancy before retrenching employees. In this case, due to the closure of the KL outlet where the Claimants were working, coupled with the lack of vacancy in other of the Company’s outlets, the Company was able to establish this requirement.

Documents to prove the financial state of the Company, such as profit and loss statements or accounting records are crucial. These documents can demonstrate to the Court the commercial reasons behind the decision to retrench.  In Suganthi A/P Thyazaraj v. TCI Manufacturing Sdn Bhd [2010] ILJU 299 it was held that by tendering in Court its profit and loss account, the Company had discharged its burden to show that it retrenched its employees due to financial incapability.

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Zi-Han Lim is an associate in the dispute resolution practice group at Donovan & Ho. He is experienced in dispute resolution, focusing on employment and industrial relations, administrative law and commercial litigation. 

Donovan & Ho is a law firm in Kuala Lumpur, Malaysia. Our practice areas include employment law, dispute resolution (litigation and arbitration), corporate and tax advisory, and real estate/conveyancing. Have a query? Contact us.

 

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