Excess Workforce – Is it Time to Say Goodbye?

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The COVID-19 pandemic has somewhat shaped the way we manage our businesses and employees. The introduction of reliable online platforms to connect workers has significantly reduced mobility issues, the time taken to set up meetings and making decisions. The exploitation of systematic software to manage payrolls has reduced the process flows for managing employee entitlements. The digitalisation and automation of businesses has reduced the need for labour workers. The burning question: “Do we still need to maintain the existing number of workforce we have today?”

At this point when the economy is in turmoil, companies are exploring options to increase productivity and at the same time reducing business expenses to ensure financial stability in the long run. One of the main costs for most businesses is employee overhead expenses e.g. basic wages, statutory payments, benefits, and etc.

Therefore, many companies are faced with the following dilemmas:

1)         Is the existing workforce sustainable under this current economy?

2)         How do we reduce the number of the workforce? and  lastly

3)         What does the law say about reducing the number of the workforce?

Is the existing number of workforce sustainable under this economy? 

The advancement of technologies and automation of industries has taught us one thing: conventional business methods are behind time, for example, “more manpower; more productivity”. From a financial standpoint, your company will have to study and understand the relationship between the business requirements and the number of employees needed. The reduction of manpower will instantaneously reduce overhead business expenses.

How do we reduce the number of the workforce?

When your company has identified the ideal number of the required workforce, you have several options to release excess or redundant employees.

Companies can choose between a Voluntary Separation Scheme (VSS), Mutual Separation Scheme (MSS), or a retrenchment exercise. The best option for the company will be depending on the number of impacted employees, the selection process, the costs involved, and the desired timeline. The company will have to comply with existing clauses of the employment contracts, handbooks, and legislation.

What does the law say about reducing the workforce?

It is a principle of the industrial law that a company has every right to reorganise its business in any manner for the economy, provided that it must be done in bona fide (good faith) and the manner in which it was conducted – just and fair.

Bona fide situations within the context of a workforce reduction are construed to the justification of redundancy during a retrenchment exercise.

In the case of Stephen Bong v FCB (M) Sdn Bhd [1999] 1 LNS 131 the High court held that “…it is not the law that redundancy means the job or work no longer exists. Redundancy situations arise when the business requires fewer employees of whatever kind”.

Therefore, in a retrenchment exercise, the Company will have to justify a redundancy in the workforce and that they have complied with existing employment clauses and legislations.


Changes are never easy, but they are very crucial in a business. In light of the ongoing pandemic, certain measures have to be taken to ensure business sustainability. Be mindful to comply with the existing laws and regulations when reducing the excess within your company.