Can AI adoption alone justify retrenchment in Malaysia?

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AI Adoption Alone Does Not Justify Retrenchment in Malaysia

No, the adoption of artificial intelligence (AI) alone does not automatically justify retrenchment in Malaysia. While AI implementation can provide a commercial rationale for restructuring, employers must still adhere to the established legal principles governing retrenchment. This includes demonstrating that a genuine redundancy has occurred and ensuring that any selection of affected employees is based on fair and objective criteria.
Genuine Redundancy and Fair Selection Criteria are Paramount

Employers seeking to retrench staff due to AI adoption must prove that the roles have become genuinely redundant as a result of the business restructuring. Crucially, the process of selecting which employees are affected must be conducted using fair and objective criteria. For instance, the introduction of AI systems in China led to a court awarding compensation to a quality assurance supervisor who was dismissed after refusing a demotion and salary cut, with the court ruling that AI replacement could not be used to bypass labour protections.
International Jurisprudence Underscores Employer Obligations

Decisions from other jurisdictions, while not legally binding in Malaysia, offer significant guidance on this matter. In Italy, a labour court found an AI-driven dismissal unlawful because the employer failed to first assess whether the employee could be redeployed to a suitable alternative role. This highlights a principle that AI adoption alone should not be considered a standalone justification for terminating employment.
Reskilling and Redeployment Should Be Prioritised

Before considering retrenchment, employers are expected to explore alternatives such as reskilling, upskilling, or redeploying affected employees. Retrenchment should only be a last resort, pursued when roles are demonstrably redundant even after reasonable efforts have been made to retain staff through development or internal transfers. The entire process must be conducted responsibly, transparently, and fairly.
Malaysian Employment Law Requires Adaptability

Malaysia's Code of Conduct for Industrial Harmony stipulates that employee selection for retrenchment must be clear, transparent, and objective. While traditional factors like length of service and age remain relevant, they should not be applied rigidly. There is an increasing need for courts to consider an employee's skills, adaptability, and capacity to work alongside technology, reflecting the evolving nature of the modern workplace.

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Can AI adoption alone justify retrenchment in Malaysia?

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