Understanding Code Of Conduct For Industrial Harmony in a Retrenchment Exercise

Understanding Code Of Conduct For Industrial Harmony in a Retrenchment Exercise in Malaysia

Before we dive in into the topic of retrenchment, let us understand a little bit on the definition of “The Code of Conduct for Industrial Harmony 1975.


  • In short is known as CCIH
  • Was endorsed in February 1975
  • An agreement enacted between:
    • Ministry of Labour and Manpower (Now known as Ministry of Human Resources)
    • Malaysian Council of Employers’ Organizatons (Now known as Malaysian Employers Federation)
    • Malaysian Trades Union Congress (commonly known as MTUC)
  • Its Intention? – “To maintain a healthy practice in the employment industry”
  • Its Aim? – “To lay down principles and guidelines to employers and workers on the practice of industrial relations for achieving greater industrial harmony”

CCIH serves as useful industrial relations guidelines in employer’s responsibilities, employment policy, collective bargaining, communication and consultation which covers every aspect of employment particularly in the area of retrenchment and redundancy.

In regards to retrenchment and redundancy, CCIH demands that where redundancy is inevitable, an employer should initiate the discussion with his employees’ representatives or even their trade union accordingly and with the Ministry of Human Resources on best measures to minimize reduction of workforce by adopting the best and appropriate such as:

(a) Plan and give early notice or warning to the affected employees humanly possible

(b) Freeze or restriction on recruitment activities

(c) Overtime work restriction

(d) Work on weekly day of rest restriction

(e) Number of shifts or days worked a week reduction

(f) Number of hours or work reduction

(G) More on re-training and transfer to other department or work

Say now, what happens if an employer fails to undertake all the measures that we spoke of earlier? Can the employer be punished at the Industrial Court with unfair dismissal claims against their favour should they refuse to comply to the CCIH

understanding-code-of-conduct-for-industrial-harmony-in-a-retrenchment-exercise_1Legal duty to comply to CCIH?

Alright, let us understand one thing here. CCIH is an agreement and is not part of a statute law thus there is no legal compliance that an employer should comply to CCIH.

To make this clear, let’s look at this case on Equant Integration Services Sdn Bhd (In Liquidation) v. Wong Wai Hung [2012] MLRAU 591 (‘Equant’), the Court took notice of this fact and held that CCIH is merely a guideline and cannot be enforced as though it is a binding statute. So in other words, employer who failed to consult and do not give out early warning as required by CCIH cannot impair the fact of a genuine redundancy in a company.

Now, the Court of Appeal has considered the fact that the employer has served notification about the restructuring about a month before his retrenchment via circular. Aside from that, the employee was interviewed for a position in the said reorganized company together with a payment of three month’s salary in lieu of notice was given to him. Therefore, the Court of Appeal held that the retrenchment was carried out properly and without any element of malice (or unfair practice) on the employer’s part.

However, there are other cases including the recent one in 2016 taken from the Industrial Court which raised the importance of CCIH of which failure to comply with the code itself and resulted in the retrenchment of an employee would be viewed as unfair.

Let’s look at the case of Chan Shy Yean vs. Marcus Evans (M) Sdn Bhd; Award No: 34 of 2016 particularly in dealing with a retrenchment issue. In this case, the Industrial Court ruled that the employer has failed to comply with CCIH when the employer did not seek nor consult with the Claimant and also the Ministry of Human Resource before carrying out the retrenchment exercise. The Court held that the employer was required to provide early warning to its employees together with other guidelines set within CCIH. The Court insisted that guidelines stated in CCIH should have been considered for fair employment practice.

In many of the decisions held by the Industrial Court which are similar to Chan Shy Yean, there has been a consistency in its dependency on CCIH in retrenchment cases where failure to adhere to the CCIH can result in one’s retrenchment being pronounced as an unfair dismissal. It is as though CCIH has been ‘legalised’ by the Industrial Court of its dependence on section  30(5A) of the Industrial Relations Act 1967 which says “In making its award, the 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”, notwithstanding the fact that the Superior Court (i.e. Court of Appeal) has read out that CCIH is meant for guidelines and not binding statute.

This has caused predicaments for many employers whether to follow or not to follow the CCIH accordingly in their retrenchment exercise.

Now, let’s come back to the Court of Appeal decision on Equant.

The answer to this predicament can be found within the Court of Appeal judgement in Equant. Here, even though the Court admitted that CCIH can be considered by the Industrial Court, CCIH ought not to be applied technically and mechanically.

CCIH should be undertake as a mere form of guidelines in one’s retrenchment exercise and the rightful question for the Industrial Court to ask is, “how would the breach of the Code affect a redundant position”

As for the employers, this would mean whether the employers themselves when not following or applying the guidelines in CCIH, would that create injustice to their employees?

infographic-companies_retrenching_their_workers-daniel-26122015-malaysia-01From Equant, even though the employer failed to provide formal warning or notice to the employee as per CCIH requirement, the employee has been notified on the coming restructuring in the company one month before his retrenchment. In this case, the employer could be said to have acted unjustly when failed to formally warn the employee on his retrenchment.


At the end of the day, what we have seen in Equant’s decision is clear of which a mere non adherence to the Code would not inevitably result in an unfair retrenchment. What will be judged is the manner in which the retrenchment was carried out, and whether there was a genuine need for the retrenchment in the first place. Having said that, it is still advisable for employers to take the Code as a reliable guideline, which will go a long way to justify the retrenchment exercise and psychologically even assure the employee that the employer had his best interest at heart, unfortunately business exigencies demanded the retrenchment, which was exercised as a last resort. This puts the company is in a good stead with the employee, who will then think twice before taking up a claim against his employer, or even if he does, places the employer in a good position to defend his case.