Retrenchment rights Malaysia — this guide covers what every employer and employee needs to know. Since 2023, we’ve been flooded with news about retrenchment and layoffs from multiple companies, and there seem to be no signs of this stopping anytime soon. Whether you’re an employer or an employee in Malaysia, having a basic understanding of how retrenchment should be carried out and the benefits retrenched workers are entitled to under Malaysia’s Employment Act 1955 will help ensure both parties are treated fairly. This guide covers your retrenchment rights in Malaysia — from statutory entitlements to where to seek help.
So, who’s covered under the Employment Act 1955?
“All employees — local and foreign — working under a contract of service with an employer in Malaysia are covered under the Employment Act 1955.”
This includes full-time, part-time, temporary and contract workers. Certain categories such as domestic servants and those in managerial or executive roles earning above RM4,000/month may have different protections under the Industrial Relations Act 1967. If the Employment Act 1955 does not cover you, you are bound to the terms and conditions of your employment contract and may seek recourse under the Industrial Relations Act 1967.
Under the Employment Act 1955 and the Termination, Lay-Off and Retirement Benefits Regulations 1980, an employer who terminates employment on grounds of redundancy or reorganisation of the business is deemed to have retrenched the employee. Employers must notify the Department of Labour (Jabatan Tenaga Kerja, JTK) if the retrenchment exercise involves one or more employees.
How do I submit Retrenchment Notifications?
“Employers must submit retrenchment notifications to the Department of Labour (JTK) at least 30 days before the retrenchment takes effect.”
You’ll need to provide JTK with the following information when submitting the notification:
- Company name and registration number
- Company contact person’s details
- Reason for retrenchment (redundancy, restructuring, or closure)
- Number of employees to be retrenched
- Details of affected employees (name, IC number, job title, effective date)
- Payment of termination/lay-off benefits and quantum
- Whether SOCSO (Perkeso) Employment Insurance System (EIS) has been notified
Should you fail to notify JTK in advance, your company may be subject to investigation and penalties under the Employment Act 1955. Employees who are members of a union should also ensure that the union is consulted as part of the retrenchment process under the Industrial Relations Act 1967.
How are retrenched employees compensated under the Employment Act 1955?
“Employees who have served the company for at least 12 months are entitled to termination benefits under the Termination, Lay-Off and Retirement Benefits Regulations 1980.”
The termination benefit rates are:
- Less than 2 years of service: 10 days’ wages per year of service
- 2 years to less than 5 years of service: 15 days’ wages per year of service
- 5 years and above: 20 days’ wages per year of service
Employees who have been contributing to SOCSO’s Employment Insurance System (EIS) are also entitled to job search allowance, career counselling, and job placement assistance through EIS, providing a financial safety net during the period of unemployment.
How can I get help if I think I’ve been unfairly retrenched?
Try speaking to your employer first before escalating. If you believe your retrenchment was carried out unfairly — for example, without proper notice, without payment of statutory termination benefits, or as a form of victimisation — you can:
- Lodge a complaint with the Department of Labour (JTK) under the Employment Act 1955
- File a representation for reinstatement or compensation with the Department of Industrial Relations (Jabatan Perhubungan Perusahaan, JPP) under the Industrial Relations Act 1967
- Apply for Employment Insurance System (EIS) benefits through SOCSO (Perkeso) if you have been contributing
The Industrial Court may ultimately adjudicate disputes over unfair dismissal and may order reinstatement or compensation. If you are a union member, consult your union for support during negotiations.
Most of your retrenchment rights are ultimately shaped by what is in your employment contract. Ensure your retrenchment entitlements are clearly documented in writing before signing. If you’ve been retrenched and are looking for your next opportunity, our experienced consultants at People Profilers Malaysia are ready to help you find a role that matches your skills and experience.
