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Covid-19 (16 April 2020)

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The Movement Control Order (MCO) which had been extended until 14 April (and may be extended further) had caused great concerns and difficulties for businesses. Most employees are now worried about their job security and livelihood, while employers are at their wit’s end trying to keep their businesses afloat.

 

The Ministry of Human Resources (MOHR) had issued several FAQs addressing issues regarding employment relationships during the MCO. In essence, employers are required to pay full salaries and allowances of their employees, excluding any attendance and/or travel allowances. Employers are also not allowed to force their employees to utilize their annual leave during MCO or compel their employees to take unpaid leave.

 

However, the FAQs issued by MOHR seemed to suggest that employers may offer their employees to take unpaid or half-paid leave throughout the MCO period, with the agreement of both parties. For companies that are left with no choice but to exercise retrenchment, several steps must be taken before employees can be made redundant, such as reducing work hours, freezing new recruitment and limiting overtime work. If retrenchment is inevitable, employers would be required to comply with the normal redundancy laws and the Code of Conduct for Industrial Harmony.

 

Requiring employers to pay full salaries may ensure that employees’ livelihood is protected, but this will cause further hardship for companies that would have seen a tremendous drop in their productivity due to this MCO. Companies providing essential services may not be as much affected by the MCO since they are allowed to operate and it is almost business as usual for them.

 

Certain non-essential businesses are still able to resume business as normal with their employees working from home. However, for employees of other non-essential services such as retail and manufacturing, staying at home would mean making zero sales and productivity. These businesses may find it difficult to keep paying their employees while generating zero income.

 

IS THE GOVERNMENT’S NEW STIMULUS PACKAGE ENOUGH?

 

On 6 April 2020, the government announced an additional stimulus package targeted towards SMEs. The Wage Subsidy Program (WSP) which was previously introduced for all employers as a measure to ease their cash flow, had been further extended to a maximum of 200 employees. The MOHR had published a FAQs list on 7 April 2020 providing explanation on the mechanism of the WSP. Under the WSP, subsidy will be given for employees earning less than RM 4000 for a period of 3 months, with smaller businesses receiving larger subsidy per employee.

 

The WSP however comes with a catch – employers are not allowed to exercise retrenchment or cut their employees’ pay for 3 months after the WSP. For example, if an employer applied for WSP from May 2020, the employer must keep paying the full salaries of its employees throughout the implementation of WSP from May to July, and also the subsequent three months from August to October. It is unclear if this ‘retrenchment moratorium’ is a blanket restriction on the employer against any retrenchment of employees, or only for employees for whom subsidies were given. It is our view that the latter would make more sense.

 

It is clear that the government intends to preserve as much jobs as possible through the WSP. Employers also have the option to defer EPF payments or restructure contribution schedules through the Employers Advisory Scheme (EAS). The government had further introduced additional funds for SMEs, abolished the interest rate for the Micro Credit Scheme, and implemented a 6-month moratorium on loan/financing repayments for SMEs and some corporations.

 

It is clear that the government intends to preserve as much jobs as possible through the WSP. Employers also have the option to defer EPF payments or restructure contribution schedules through the Employers Advisory Scheme (EAS). The government had further introduced additional funds for SMEs, abolished the interest rate for the Micro Credit Scheme, and implemented a 6-month moratorium on loan/financing repayments for SMEs and some corporations.

 

The additional measures introduced by the government on 6 April 2020 will be welcomed by businesses, which desperately need assistance to stay afloat while retaining their employees. However, it is hoped that the government will continuously review the appropriate measures as the situation changes, instead of giving out assistance as a one-off package. The global economic downturn caused by Covid-19 may take more than a year to recover. If companies have exhausted all available reliefs provided by the government, they may be left with no choice but to restructure their businesses.

 

While retrenchment should be the last resort, Malaysian laws generally allow wage reduction, unpaid leave and/or reduction in working hours, provided they are done in good faith to prevent retrenchment. These measures may only be implemented after consultation and perhaps, with the consent of employees. Having both employers and employees showing empathy towards one another may be the key for companies to brave through this unprecedented storm.

 

The government’s newly introduced measures should be applauded as the reliefs offered will incentivize businesses to retain their employees. Helping businesses may require substantial budget allocations, but there should be no skimping on spending if the government were to prevent the larger cost of high unemployment in the future

 

Leonard Yeoh is a partner and Nurul Qarirah is a legal associate with the legal firm, Tay & Partners. Should you have any queries or require more information, please do not hesitate to contact us.

 


LY
Leonard Yeoh
Partner
T: +603 2050 1973
M: 012-321 6893
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NQB
Nurul Qarirah
Associate
T: +603 2050 1971
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