His lordship Gopal Sri Ram in the case of William Jacks & Co(M) Sdn Bhd V S Balasingam stated that “Retrenchment means the discharge of surplus-labour of staff by the employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action”
The Employment(Termination and Lay-Off Benefits) Regulations 1980 is applicable to employees who come within the scope of the Employment Act 1955 when their services are terminated or laid- off.
An employee shall be entitled to termination or lay-off benefits provided that the employee was employed under a continuous contract of employment for at least 12 months before the termination. Hence, an employee with service less than a year is not entitled to termination and lay-off benefits as per regulation 3 (1).
Regulation 6 laid down that the amount of termination and lay-off benefits that an employee is entitled to be not less than that:
| Length of Service | Termination benefit for every year of service |
| 2 years and less | 10 days of wages |
| More than 2 years less than 5 years | 15 days of wages |
| 5 years and more | 20 days of wages |
One day wage is calculated by computing the employees’ wages over the previous 12 months period and dividing this by 365.
12 months’ wages/365 X No. of years of service X Eligibility (10/15/20)
It is important to keep in mind that when an employee is retrenched, he must be given a minimum notice period of four/six/eight depending upon his length of service. In the event his contract allows for a longer notice period, then this requirement must be followed. Alternatively, the employer may pay an indemnity in lieu of wages.
For a non-EA employee, the payment of any retrenchment benefits would be in accordance with their employment contract if applicable.
