In a situation where one company sells its assets and business to another company, often the questions that will subsequently follow will be along these lines – What about the employees? What should we do with the exisiting workforce? Some companies that buy over the assets and business of another companies might decide to offer continuous employment to the existing employees in the companies whose assets and business are being bought over. Generally, this depends on individual arrangements and agreements between the companies involved.
Now, what happen if the new company offers continuous employment and an employee accepts the offer? Will the employee’s years of service in the older company (previous employer) be taken into account or will the years of service start from zero (0) again with the new company? Will this affect computation of monetary benefits that the employee might be entitled to in the future with the new employer?
In a recent judgment of the Federal Court dated 15 August 2012, between Dynacraft Industries Sdn Bhd v Kamaruddin Bin Kana Mohd Shariff & 6 Ors, the same questions were contemplated. In this case, the assets and business of Dynacraft Sdn Bhd (DSB) were sold to Malaysia Pacific Industries Berhad (MPI) but transferred to its subsidiary, Dynacraft Industries Sdn Bhd (DISB).
Employees of DSB ceased their employment with DSB on 19.1.1996. On the same day, DISB made offers of continuous employment to all employees of DSB. Some of them accepted the offer, including the 7 employees in this case. So, they continued to work with DISB.
However, because of the worldwide economic downturn in 1998, DISB was facing financial difficulties and had to undergo reorganisation and rationalisation exercise. This resulted in a number of positions becoming redundant. The 7 employees who used to work under DSB and had then accepted the offer of continuous employment with DISB were among the employees considered redundant. They were subsequently retrenched from their employment with DISB.
In the retrenchment process, DISB did not take into account the years of service the 7 employees spent with their old employer. The 7 employees filed a claim for reinstatement under section 20 of the Industrial Relations Act 1967.
The Industrial Court decided in favour of the 7 employees and ruled that DISB did not follow the LIFO (Last in First Out) principle. Among others, the Industrial Court states as follows:
The fact remains, as stated earlier, that the company took over an ongoing business with its infrastructure, and workforce already in place. In these circumstances the LIFO rule demands that the claimants’ years with Dynacraft Sdn Bhd be taken into account.
The Federal Court agrees with the decision of the Industrial Court. Besides that, the Federal Court also note that there is nothing in the letters or any documents to qualify or limit the extent of the offer of continuous employment made by the new employer (DISB). There was nothing to say or even hint that the offer was limited only for the purpose of computing benefits and entitlement such as leave entitlement. The offer was clear, unequivocal and unmistakeable. It literally means what it says – that the employees were offered continued employment with the new employer and that the period of their employment with the old employer shall be deemed to be continous employment with the new employer. In these circumstances, the period of service of those employees with the old employer (albeit an entirely separate legal entity) should be taken into account either in computation of monetary benefits that the employees are entitled to pursuant to the retrenchment of their employment with the new employer or in the selection process for retrenchment under the LIFO principle.
However, it is important to note that the position of law above only applies to matters with similar facts and circumstances. For others, it may vary depending on other circumstances affecting the matter. That is why it is important to obtain legal advice before making any decisions that may have adverse effects on companies and/or individuals.
Before I end this article, here are some scenarios that may affect the positions of law abovementioned:
What if retrenchment benefits have been paid to an employee before that employee accepts the offer for continuous employment with the new employer?
What if there was a brief period of absence; i.e. the employee worked elsewhere for a couple of months before joining the new employer. Will that affect the term of ‘continous employment’?
What if the new employer made the offer of continuous employment with certain limitations and the employee accepts the offer with those limitations?
I may deal with the scenarios above in my next article. In any event, feel free to leave any comments or to make any enquiries! Enjoy!
The Federal Court case mentioned in this article can be downloaded HERE.