Guide for coping with redundancy

Guide for coping with redundancy
JobStreet content teamupdated on 22 August, 2023

You may have encountered stories through friends or acquaintances where someone lost their job and the circumstances were unclear. You begin to wonder if the same thing might happen to you.

What if the position you occupy is suddenly no longer needed? What if the company relocates its operations where you are unable to move? Or what if the business shuts down altogether? This article helps you prepare for the possibility of redundancy.

"Last in, first out" is prevalent in layoffs. Before a dismissal, employers and stakeholders may meet. Since pay claims have deadlines, this helps everyone stay employed throughout the reorganisation. A company might reorganise due to an economic downturn, corporate mergers, excess staff, lowered profitability, business shrinking, or closure.

In Malaysia, every worker is safeguarded against unfair dismissal. Employers are obligated to conduct dismissals in a procedurally just manner. According to the Employment Act 1955, section 14(1)(a), a 'due inquiry' or 'domestic inquiry' must precede any justified misconduct dismissal, ensuring the employee's right to be heard.

Additionally, an employer can terminate an employee for substandard performance or low productivity. However, immediate firing for poor performance is not permissible. Thus, maintaining the principle of natural justice in employment dismissals is dominant.

Decoding redundancy: Legal, financial, and personal aspects explored

Office colleagues discussing legal, financial, and personal aspects of redundancy

Four Types of Redundancy

Voluntary Redundancy

Voluntary redundancy is where an employer gives an employee the option to terminate their contract, often in exchange for economic benefits or exemption from notice. This is the most amicable type of redundancy. The employer guarantees redundancy rights like a reasonable amount of time to seek a new job, and the payout often exceeds statutory redundancy, factoring in age, salary, and tenure.

The Code of Conduct for Industrial Harmony (CCIH) legally guides employers on genuine, justified retrenchment. Employers should take all measures to avert redundancy, such as limiting recruitment, reducing work hours, regulating overtime, and encouraging transfers.

Suppose a reduction of employees (also called retrenchment) is necessary. In that case, employers should give early warnings, do a phased termination, provide retirement benefits, utilize voluntary retrenchment schemes, and offer job search assistance. They must inform workers and their representatives before making any announcement and set clear selection criteria.

Regulation 6 of the Employment (Termination and Layoff Benefits) Regulations 1980 states employees earning RM2000 or less monthly, covered by the Employment Act 1955 ("EA 1955"), must receive tenure-dependent retrenchment benefits. Benefits are pro-rated monthly for incomplete years. Employees not under EA 1955 have contract-defined terms but are subject to laws and guidelines like CCIH.

Total Days Earned for Each Year

of employment

Tenure of Employment

10 Days

Within the first two years

15 Days

Two to five years

20 Days

Five years or more

Compulsory redundancy

Compulsory redundancy can take two forms: reducing staffing numbers or completely shutting down a department or organisation. In the latter case, there is no need for individual selection criteria as everyone is affected. However, if staff reduction and selection are necessary, the employers must establish clear standards to ensure fairness. Examples of selection criteria include disciplinary and performance records, as well as the last-in-first-out principle. It is crucial to maintain fairness when implementing these criteria.

An example of compulsory redundancy is when Employer A decides to end the employment of Employee M, who receives a monthly salary of RM10,000. According to the employment contract, a two-month notice period is required. However, if the employer requires the employee to depart immediately, they must compensate them with payment instead of notice amounting to RM20,000. The same principle applies if the employee desires to leave before completing the notice period.

Selective Redundancy

Selective redundancy happens when an employer selects specific employees for redundancy based on predetermined criteria such as performance, skills, or length of service.

Misconduct and poor performance are the main grounds for firing workers. Substantial and procedural fairness determine dismissal fairness; the employee's dismissal must be justified. This is subjective and depends on the circumstance.

Subpar performance—failure to fulfil the employer's job standard or poor productivity—may also result in dismissal. Poor performance doesn't justify swift dismissal. If an employee claims unfair dismissal, the company must prove compliance.

Collective Redundancy

Under the Malaysian labour code, collective redundancy refers to the termination of a significant number of employees by an employer within a specific timeframe. The same regulations govern mass or collective dismissals.

Additionally, it is mandatory to provide advance notice to the Labour Department at least 30 days before the termination date. If the affected employees are members of a trade union, the employer must consult with the union. Affected employees are entitled to retrenchment benefits, with the amount typically negotiated or determined by the Industrial Court. Specifics may vary; all parties should consult the Industrial Relations Act of 1967 for guidance.

Legal Aspects of Redundancy

What are the primary legal considerations for redundancy in Malaysia?

Redundancy pay

In the event of a layoff, and if your monthly wage is below RM2,000 or you're engaged in manual labour, irrespective of income (relevant in Peninsular Malaysia and Labuan), your eligibility for termination benefits is determined by your coverage under the Employment Act (EA). Employees under the EA with at least 12 months of service are entitled to benefits, while those not covered receive benefits only if explicitly mentioned in their contract.

Back pay is generally awarded in cases of reinstatement and compensation instead of reinstatement, following statutory restrictions in the Second Schedule of the IRA: 24 months for full-term employees and 12 months for probationary staff. This schedule also stipulates that future earnings losses are excluded from compensation considerations. As per the Employment Protection Legislation (EPL) indicators, the total calculated benefits amount to 26 months, combining six months of back pay and 20 months of compensation.

Upon termination, employers may make a lump-sum payment, classed as compensation, ex-gratia, or gratuity. The tax treatment of gratuity and "loss of employment" differs under the Malaysian tax system.

Consultation process

The employer should adhere to the guidelines provided by the Labour Department when making decisions regarding employee retrenchment. These guidelines regarding consultation are as follows:

Step 1:The employer should initiate discussions with the selected retrenchment staff. The retrenchment process should prioritise foreign workers (FWFO - Foreign Worker First Out) and follow the principle of FILO (First in, Last out) by the guidelines outlined by the Labour Office.

Step 2:The affected employees should be offered appropriate compensation following their working contracts or as stipulated by the Employment Act 1955, the Labour Ordinance of Sabah, or the Labour Ordinance of Sarawak.

Step 3:The affected employees should receive an official retrenchment letter. This letter should include the reason for the reduction, the effective period of retrenchment, and details regarding the compensation payment.

Discrimination and Redundancy

Employers are prohibited from discriminating based on protected characteristics, like age, gender, race, disability, or pregnancy, during the redundancy process. This includes situations where there is no genuine redundancy, unfair selection of employees for redundancy, insufficient consultation with employees, or the employer's failure to explore alternative work options.

Suppose an employer adopts an unfair selection process and the employee has worked continuously for at least two years. In that case, they can file a claim for unfair dismissal and seek additional compensation through the employment tribunal.

In certain circumstances, redundancy dismissal is automatically deemed unfair based on a "prohibited reason," such as pregnancy, maternity leave, health, and safety activities, trade union involvement, whistleblowing, or asserting a statutory right. In these cases, the usual requirement of completing two years of continuous employment does not apply.

Unfair dismissal

Section 20(1) states that an unjustified termination is considered unfair. The law doesn't explicitly define it but reviews cases based on the circumstances.

Constructive dismissals occur when employers create a hostile environment, leading employees to resign due to mistreatment or pressure. This includes demotions, unmanageable tasks, or discrimination based on age, race, or religion.

Immediate dismissals lacking cause or excuse, such as firing someone for pregnancy or refusing overtime, are also unfair. The Industrial Court considers the case's merits and procedural fairness when deciding. In direct and indirect dismissals, unfairness arises when employees are treated unjustly or forced to quit.

Signs of Redundancy

When there is a shift in the company's operational strategy, the company may decide to reorganise. Moving around staff, management, or processes may restructure a company. Introducing a new product or client preferences might affect reorganisation efforts.

Budget cutbacks may worsen business performance, resulting in layoffs of comparable staff. To boost profits, a company may cut payroll. These cutbacks may kill vital company jobs.

Team members can expect significant changes after a takeover or merger. A restructure often results in duplicate roles, such as having too many software developers, resulting in redundancies. If this occurs, quickly find other options. If you delay, you may compete with former colleagues for market positions.

Advancements in technology also impact the relevance or demand for certain positions. More recently, the rising popularity of applications relying on artificial intelligence (AI) has started conversations about human-rendered jobs becoming redundant, and not for baseless reasons. These technologies could replace certain jobs in the workplace, making way for others.

Preparing for Redundancy

Knowing your rights and expectations can give you a sense of control. It's worth familiarising yourself with potential redundancy pay, notice periods, and the possibility of leaving early to commence a new job. This knowledge assists you in regaining your equilibrium, allowing you to confidently transition to a new role.

Many job seekers, after securing a job, neglect their CVs. However, keeping your CV updated, such as continually noting accomplishments and career milestones, is beneficial in preparing for new opportunities post-redundancy.

If you sense potential job instability, utilise any training available through your current role. Amidst fierce competition for jobs, doing all you can to stand out to employers is essential. Simultaneously, networking and job searching make your contacts invaluable in the future.

Meanwhile, preparing for any income loss starts with understanding your financial position. Have an honest evaluation of your income and spending habits, and calculate essential costs like mortgage payments, bills, and food. Identify areas for potential savings: unnecessary insurance policies, dispensable subscription services, or a switch to cheaper energy suppliers. Implementing some changes immediately, like switching suppliers, is beneficial, while others could be reserved for future necessity. If changes are made, funnel the savings into an account to cushion any redundancy impact.

Coping with Redundancy

Redundancy may be an opportunity to start over and follow a new fulfilling route in life. It is normal, however, for a layoff to create fear that it will undermine your plans and ambitions.

Job insecurity is one of the leading causes of anxiety and other related mental health struggles. Deep breathing, meditation, awareness of stillness, regular exercise, and creating to-do lists and objectives are healthy coping practices that may help you handle difficult circumstances and reduce emotional distress. If you’re struggling more than you can handle, consider seeking therapy to help manage your anxieties.

Utilise your network during this uncertain time. Don't hide your emotions or refuse aid. Work your mindset towards treating your layoff as a chance to start again, professionally or personally. Try a new class, volunteer, or project to expand your horizons.

Redundancy and Finances

Invest your redundancy settlement in an online savings account to earn interest while planning. Online budgeting tools may aid till re-employment. Some utilise redundancy compensation to pay off high-interest loans but consider unemployment money. Contact your lender to postpone or extend mortgage payments. Ask your super fund about redundancy and insurance coverage.

What comprises redundancy compensation ?

  1. Paying for notice
  2. Service contract breach compensation
  3. Payments to release an employer's service contract obligation
  4. Redundancy compensation or severance pay for workers laid off without fault.
  5. Payment for a covenant, agreement, or similar arrangement restricting an employee's post-termination employment options.
  6. Mutual Separation Schemes (MSS) or Voluntary Separation Schemes (VSS)

Finally, get financial guidance to manage redundancy and meet financial objectives.

Life after redundancy- a guide to career change and skills enhancement

Office colleague talking about the life after redundancy in front of a laptop

Career Change Options

Once you're prepared to examine your options, maintain professionalism, particularly if challenging the redundancy terms. View this period as an opportunity to reassess career goals, understand desired roles, and recognise potential employers' expectations. Identify and address any skills gaps, and if new career objectives emerge, refocus your CV accordingly, emphasising relevant experiences.

Remember, redundancy often provides firsthand examples of resilience and adaptability, both valuable interpersonal skills in today's job market. Consider professional recruitment advice and take proactive steps like crafting a compelling cover letter. When communicating with potential employers, be transparent about your redundancy, highlighting how it fuelled positive career development.

Assessing Your Situation

Conduct a thorough self-assessment to identify your strengths, areas of expertise, and transferable skills. This will help you understand your value in the job market and identify potential career paths. Reflect on your values, aspirations, and priorities to help guide your career decisions. Consider what aspects of your previous job you enjoyed and what you hope to achieve in your next role.

You should preempt potential obstacles in your career transition, such as skill gaps, financial constraints, or limited opportunities in your desired field. Develop strategies to overcome these challenges and set yourself up for success.

Exploring New Career Paths

Research industries, jobs, and companies that match your skills, values, and interests. Industry trends, growth estimates, and job openings can inform your next steps. Communication, problem-solving, and project management skills are transferable and valuable in many contexts.

Showcase these skills on your CV and in interviews to exhibit versatility. Reach out to individuals in your profession to learn, network, and even get a job. Internet forums, networking events, and joining Jobstreet are wonderful methods to meet industry professionals.

Developing Your Career Change Strategy

Establish clear, attainable goals and objectives for your career transition. Break down large goals into smaller, manageable milestones to help you stay focused and motivated. Develop a detailed action plan outlining the steps you need to take to achieve your career goals.

Include measurable milestones to track your progress, such as completing specific training courses or submitting several job applications. Identify resources, such as educational programs, networking opportunities, or mentorship, to support your career transition. Lean on your support network of family, friends, and colleagues for encouragement and guidance.

Reskilling and Upskilling

Look for training, certification, or job experience to fill your weaknesses. Get the knowledge and training you need to further your career in your chosen field. Consider online or in-person courses and industry certifications. Webinars, tutorials, and e-learning platforms may help you learn new skills and stay current.

Skill gaps highlight strengths and areas for improvement, allowing strategic training budget deployment for personalised learning paths. Customised education packages boost workers' job prospects. Thus, assessing training gaps is essential for strategic planning and skill development.

Navigating the Job Market

In light of the economic downturn and inflation, many global companies are reducing recruitment, citing fiscal prudence. However, there may be a shift towards new job opportunities for Malaysian talent as businesses digitise, transform, and restructure. Despite tech redundancies, numerous firms maintain a cautious approach to tech recruitment.

In 2023, Malaysian job market trends point to demand in three sectors: Technology, Manufacturing, and Construction. Sought-after skills include cloud computing, cybersecurity, AI, IoT, VR, blockchain, automation, digitalisation, commercial insight, and technical expertise. However, a skills gap could limit opportunities in the construction sector.

Redundancy and its impact on age, disability, and maternity

A woman worrying about the outcome of redundancy

Redundancy and Age

Although Malaysia does not have dedicated legislation on age discrimination, other labour laws are in place to safeguard employees' job security. These laws stipulate that employees cannot be dismissed without valid cause or justification (as per the Industrial Relations Act 1967) and that termination based on age is prohibited until the employee reaches the minimum retirement age (under the Minimum Retirement Age Act 2012).

Redundancy and Disability

A study, "Enabling Employment for People with Disability (PWD): Readiness, Commitment, and Disposition of Malaysian Employers" by Muhd Khaizer Omar et al. (2022) reveals that employers' readiness and commitment significantly influence their likelihood of hiring PWDs, while their disposition towards PWDs is discouraging.

Factors such as the type of disability, industry, and ethnicity of OKU (Orang Kurang Upaya) play a significant role in employers' hiring decisions. Encouraging skill development programs and empowering OKU to join the workforce in suitable roles are essential. Continuous support from grassroots levels is crucial for the overall well-being and success of PWDs in the workforce.

Redundancy and Maternity Leave

What if I'm fired during maternity leave?

Before you despair, note that your employer has committed an offense under section 37 (4) of the Employment Act 1995 : "Any employer who terminates the service of a female employee during the period in which she is entitled to maternity leave commits an offense." Thus, you may sue your employer if this happens to you.

The Employment Act requires pregnant workers to notify their employers 60 days prior to their expected confinement period. To get maternity leave, a resigning employee must inform her employer of her pregnancy within the same period.

Noncompliance disqualifies the employee from maternity leave. She may notify her supervisor orally or in writing. One must know the company's leave policy. Many companies give maternity leave longer than 60 days.


Redundancy can be a challenging and life-changing experience. However, with the proper knowledge, support, and resources, it's possible to navigate this difficult time and emerge stronger.

Remember to understand your rights, seek professional advice when necessary, and focus on your mental well-being. It's also important to remain proactive in your job search, explore new career paths, and invest in reskilling or upskilling to enhance your employability. While redundancy is undoubtedly challenging, it can also be an opportunity for personal growth and positive change.


  1. What is redundancy?
    Redundancy is when an employer reduces its workforce because a job or jobs are no longer needed, often due to economic downturns, company restructuring, or technological advancements.
  2. What are my rights during redundancy?
    Employees have several rights during redundancy, including the right to redundancy pay, consultation, fair selection, and protection against discrimination.
  3. How do I cope with redundancy?
    Coping with redundancy involves focusing on your mental health, seeking professional help if needed, relying on the support of family and friends, and exploring new opportunities.
  4. How do I claim redundancy pay?
    Employees should contact their employer to claim redundancy pay and follow the company's established procedures for claiming such payments.
  5. What are my options after redundancy?
    Options after redundancy include searching for a new job, exploring new career paths, investing in reskilling or upskilling, and considering retirement if appropriate.
  6. Can I seek legal advice during redundancy?
    Yes, seeking legal advice during redundancy can be beneficial to ensure your rights are protected and help you navigate potential disputes.
  7. How do I prepare for redundancy?
    Preparing for redundancy involves understanding your rights, updating your CV and skills, networking, job searching, and seeking financial advice.
  8. How does redundancy affect mental health?
    Redundancy can significantly impact mental health, leading to feelings of stress, anxiety, and depression. It's essential to prioritise self-care and seek professional help if needed.
  9. How can I reskill and upskill for a new career?
    Reskilling and upskilling can be achieved by identifying skill gaps, investing in education and training, and leveraging technology and online resources to learn new skills.
  10. What are my retirement options during redundancy?
    Retirement options during redundancy may include early retirement, phased retirement, or seeking financial advice to determine the best course of action based on your circumstances.

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