THE year 2020 will be remembered as one of the most challenging periods for the airline industry.

Recall that the enforcement of travel and border restrictions in many countries to curb the spread of COVID-19 pandemic had drastically reduced flight demands, leading to financial adversity in airline companies.

To keep themselves afloat, airline companies had to make tough decisions to re-organise their business operations by retrenching their employees.

Retrenchment became a contentious issue amid the pandemic. Traditionally, the Last-In-First-Out (LIFO) principle guided these decisions, prioritising the retention of employees based on their length of service.

However, the unprecedented challenges have forced the companies to re-think this approach. Instead of LIFO, an airline company opted for a “best fit” selection criteria during its retrenchment exercise.

The LIFO principle is designed to afford a healthy safeguard against discrimination of the employees in retrenchment exercises by ensuring that the most junior employees are retrenched before the more senior ones in the same category.

While the principle has been endorsed in the Code of Conduct for Industrial Harmony (CCIH), it is not a strict law.

CCIH has also provided for other objective criteria such as ability, experience, skill and qualification. Thus, any departure from the principle must be justified with acceptable or valid reasoning.

Can the “best fit” policy be fair

In a recent Industrial Court case, a co-pilot with 16 years of service without accident alleged that an airline company had wrongfully dismissed him by adopting the “best fit” policy in its retrenchment exercise.

The pilot argued that adherence to LIFO would have preserved his job, questioning the fairness of his redundancy while foreign pilots remained employed.

The airline defended its position, citing financial difficulties due to the global economic changes in the Asia-Pacific region and the COVID-19 pandemic.

In fact, it underwent a business alignment exercise to retain only a core team of “best fit” employees by evaluating pilots’ performance ratings and disciplinary records since 2016. Despite the pilot’s tenure, his past performance evaluations of “Must Improve” and “Need Improvement” compelled the airline to proceed with the retrenchment.

The Industrial Court supported the airline’s deviation from LIFO, acknowledging its need to maintain an efficient team capable of weathering financial adversity.

It further noted that selecting employees for retrenchment based on work locations, special skills/qualifications, performance ratings and disciplinary records was justified as a departure from the LIFO principle to enable the airline to mitigate the financial crisis.

Moreover, retrenchment exercises should always be guided by objective performance and business needs - not nationality. Prioritising local workers over more competent foreign workers can harm the company’s overall performance and productivity.

Is the “best fit” policy a new trend?

Prominently used by the airline during the COVID-19 pandemic, the “best fit” policy had led to a series of legal cases brought by affected employees against it.

Nevertheless, the Industrial Court has consistently upheld the airline’s “best fit” policy as a fair and pragmatic approach given the unprecedented challenges posed by the pandemic.

This new trend reflects the flexibility within the industrial relations landscape in times of economic crisis while underscoring the importance of applying objective criteria in retrenchment exercises.

These recent cases also set as legal precedent allowing companies to prioritise experience, performance, skills and overall fit over tenure during retrenchment, potentially leading more companies to adopt similar approach in times of economic crisis.

This can enhance operational efficiency by retaining employees who are best suited to meet their current business needs.

However, the potential negative impact on employees who lose their jobs during times of uncertainties should not be overlooked. There must be a balance between the competing rights of the employers and employees.

While employers can choose to depart from LIFO by adopting their own criteria, it also means that the selection criteria are subject to further evaluation by the court.

Therefore, employers are advised to ensure that transparent and fair procedures are implemented and well-documented during retrenchment exercises.

Consequently, companies may need to revisit their retrenchment policies to ensure decisions are justified and balanced between operational needs and fair treatment of employees. - June 26, 2024

Leonard Yeoh is a partner and Chen Mei Yan an associate with law firm Tay & Partners. 

https://focusmalaysia.my/retrenchment-trend-in-malaysia-how-the-best-fit-policy-fits-in/