Retrenchment requires evidence. Are group losses enough?

A company announces that its group is suffering heavy losses and that employees must go. Is that enough to justify retrenchment?

CASE UPDATE

How Zheng Hong v. Air Asia Bhd & Anor [2026] 7 CLJ 517

Court of Appeal — grounds dated 10 June 2026

In this case, the Court of Appeal examined both the evidence of the employer’s financial hardship and the way it selected the employee for retrenchment.

BRIEF FACTS

How Zheng Hong had worked for Air Asia Bhd for almost 11 years and was a Senior First Officer when he was retrenched in June 2020 during the COVID-19 pandemic.

When informed of the decision during a Zoom meeting, he proposed taking two years’ unpaid leave. The proposal was immediately rejected. He was later told that his selection was based on the company’s “best fit rule”.

The Industrial Court upheld the retrenchment. His application for judicial review was also dismissed by the High Court. He appealed.

DECISION

The Court of Appeal allowed the appeal, set aside the High Court’s decision and quashed the Industrial Court’s award. Its reasons included the following:

1. The parent company’s losses did not automatically establish the employer’s financial hardship. Air Asia Bhd and its parent, AirAsia Group Bhd, were separate legal entities. The employer had been profitable in 2019 but did not produce its own contemporaneous financial reports for the first and second quarters of 2020. Reliance on the parent’s consolidated accounts did not fill that evidential gap.

2. A “best fit” label did not establish fair selection. An employer may depart from the “last in, first out” principle for valid reasons, but those reasons require objective evidence. Here, the criteria were undisclosed, lawful medical leave was counted against the employee, and certain lower-ranked pilots remained employed without a satisfactory explanation.

3. Alternatives required genuine consideration. Although the Code of Conduct for Industrial Harmony 1975 is not statute law, it remained relevant to assessing whether retrenchment was carried out in good faith. The immediate rejection of the employee’s unpaid-leave proposal, together with the failure to genuinely explore alternatives, weighed against the employer.

The employee was awarded backwages and compensation in lieu of reinstatement.

WHAT’S NEXT?

For employees, a retrenchment letter citing “group losses” should prompt closer examination of the employing company, the financial evidence and the selection criteria. Keep your employment records, performance assessments and correspondence about alternatives to retrenchment. These may help explain why you were selected while others were retained.

For employers, the financial justification and the selection process must both withstand scrutiny. Records should show the actual basis for redundancy, why particular employees were selected and which alternatives were considered.

This decision does not mean that every profitable company is prohibited from retrenching employees. It shows why a retrenchment exercise justified by financial hardship must be supported by evidence relevant to the employer and the material period, and implemented fairly.

Share this article