52,607 Job Losses and Counting: When Retrenchment necessary?

As at 16 July 2026, 52,607 workers had applied for unemployment benefits under the Employment Insurance System (EIS) according to the latest loss of employment report by the Social Security Organisation (PERKESO).

The report further reveals that retrenchments are affecting a broad cross-section of the workforce. Professionals, managers, executives, and technicians represent 52% of all retrenchments recorded so far this year, highlighting that even skilled and managerial employees are increasingly vulnerable to workforce restructuring.

Behind these numbers lies an important question for employers:

If your business needs to reduce its workforce, are you prepared to carry out a retrenchment exercise that can withstand legal scrutiny?

Retrenchment is not simply about issuing a Retrenchment Notice. For an employer, the real challenge is ensuring that the retrenchment is genuine, properly structured, objectively implemented and legally defensible.

1. Is there a genuine redundancy?

An employer should be able to demonstrate the business reasons behind the workforce reduction. This may arise from:-

• restructuring or reorganisation;

• a reduction in business or production;

• closure of a department or business unit;

• technological changes;

• mergers or takeovers; or

• other legitimate business circumstances.

The employer should maintain contemporaneous documentation showing the connection between the business circumstances and the positions that have become redundant.

2. Was the process properly managed?

A genuine redundancy does not automatically make every termination lawful. Employers should consider whether reasonable alternatives and appropriate measures have been explored before implementing the retrenchment.

Depending on the circumstances, this may include:

• reducing overtime;

• implementing a hiring freeze;

• redeployment or transfer;

• voluntary separation or mutual separation;

• reduction of certain operating costs; and

• consultation with employees or their representatives where appropriate.

The employer should also ensure that the decision-making process is properly documented.

3. Why was this employee selected?

This is often where retrenchment exercises become vulnerable. Employers should establish objective and reasonable selection criteria and apply them consistently.

The question is not merely:

“Why are we retrenching this employee?”

It is also:

“Why are we retaining the other employees?”

Factors such as skills, qualifications, experience, performance, versatility, job functions and the future needs of the business may be relevant, depending on the circumstances.

4. Have the statutory requirements been complied with?

Employers should not overlook the requirement to notify the Department of Labour. For retrenchments covered by the applicable requirements, Borang PK must generally be submitted at least 30 days before the retrenchment is implemented.

Failure to comply with the notification requirement may expose the employer to penalties.

So is the employer prepared for an Industrial Court challenge?

This is perhaps the most important consideration.

An employee who believes that his or her dismissal was without just cause or excuse may bring a representation under Section 20 of the Industrial Relations Act 1967.

Therefore, an employer should approach every retrenchment exercise on the basis that its decision may eventually be examined before the Industrial Court.

That means the employer should be able to produce a coherent evidential trail demonstrating:

Business problem → Restructuring decision → Genuine redundancy → Objective selection → Proper process → Lawful termination

If any part of that chain is weak, the employer may face unnecessary legal risk.

Despite the Industrial Court recognised the employer's management prerogative to organize and restructure a business — but it must also be a legally defensible decision.

As Malaysia's employment landscape continues to evolve in 2026, employers should consider reviewing their workforce structure, employment contracts and retrenchment procedures before a restructuring exercise becomes necessary.

At Shang & Co, our Employment & Industrial Relations Practice team assists employers in navigating workplace restructuring, retrenchment, performance management, misconduct and employment disputes. If your company is considering restructuring or workforce reduction, early legal advice can help you identify the risks before Retrenchment Notices are issued.