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Departure from the LIFO Principle
by Hew Soon Kiong
“LAST in, First Out” (LIFO) is the golden rule of procedural retrenchment law. It is a firmly entrenched principle. A justifiable retrenchment exercise could be struck down because of selection of employees for retrenchment was not in accordance with LIFO. The basic principle of LIFO is a well-established and accepted practice of industrial law in selecting employees for retrenchment. An employer should comply with the industrial principle of LIFO unless there are sound and valid reasons for departure from it

When applying the LIFO principle for retrenchment exercise, there must be several employees working in the same category of employment and doing similar job. In other words, the selection should be undertaken within the category to which the affected workers belong and not across the board. The principle of LIFO has no application when dealing with the only employee in a particular category was held by the Court of Appeal in the case of Kumpulan Perangsang Selangor versus Zaid Mohd Nor [997] 2 CLJ 11.

LIFO principle is applied within the establishment where the affected workers are employed and not in different branches or location of the company. However, this is not a cast-iron rule. If the employer has never treated the branches as separate but has and/or had a policy of an integral whole with staff being mixed up.

The LIFO principle is not an absolute mandatory rule and the employer can depart from the rule in retrenching staff. The departure from the LIFO principle was adopted by our Industrial Court. In the case of Supreme Corporation Bhd versus Puan Dorean Daniel a/p Victor Daniel and Ong Kheng Liat [Award No: 349 of 1987], the court held that:

“It must be noted, however, that LIFO is not an absolute rule (it is not a statutory provision) which cannot be departed from by an employer when retrenching staff. That the employer is not denied the freedom to depart from the LIFO principle is made obvious by clause 22(b) of the code of conduct.

“…if, however, in the light of other objective criteria and special circumstances, the employer has sound and valid reasons for the departure from the LIFO procedure, all authorities agree that he should be allowed to do so. This is the guiding principle adopted by this Court”.

The most difficult question is when can LIDO be departed from? Obviously in deciding to select a particular employee for retrenchment, the employer must be prepared to reveal to the court that he has taken relevant factors into account. Although the length of service will always be highly relevant factor in the selection of an employee to be retrenched, the employer may adopt other reasonable criteria for selection, but he must be able to show how those reasonable criteria are rationally and objectively applied. There is no limit to factors which may be relevant such as qualifications skills, experience, attendance records, age and other personal characteristics of the employees in the selection group for the departure from the LIFO principle. In National Union of Cinema & Places of Amusement Workers versus Shaw Computer & Management Service Sdn. Bhd (Award No: 22 of 1975) the court observed: “Where it is necessary for some employees to be discharged because of redundancy, the Court will ordinarily require the employer to show how, by whom, and on what basis that selection was made. The burden of proof is on the employer, and he must discharge it to the satisfaction of the Court”.

The court had held that marriage or any private or personal reason should not justify a departure from the principle of LIFO. In the case of Syarikat Eastern Smelting Bhd versus Kesatuan Kebangsaan Pekerja-Pemerja Perisahaan Logam Sa-Malaya (Award No: 16 of 1968). The company had retrenched certain workers, and the principle of LIFO was departed from when the company retrenched two senior married women rather than two junior unmarried woman (difference in seniority was three days), on the ground that a married women who is not a family’s sole support should go before a woman who has to support herself.The workers were reinstated.

In the case of Associated Tractors Sdn Bhd & Tractors Malaysia (1982) Sdn Bhd versus T. Vijayakone(Award No: 276 of 1986), the court ruled that retention of junior employees who are more qualified academically is not acceptable to justify a departure from the LIFO principle. The Industrial Court observed that because a worker holds a degree in science does not entitle him to gain priority over non-degree holders. The Industrial Court noted that id a worker is given sufficient opportunity and exposure, he would be able to carry out the job equally well.

Thus, the LIFO principle is not absolute mandatory rule and the employer can depart from the rule in retrenching employee. The LIFO principle is to be practiced with flexibility and common sense.

However, the employer must have sound and valid reasons for departure from the LIFO principle before he can be allowed to do so. The onus of justifying a departure from the LIFO principle for sound and valid reason is cast upon the employer.