How should employers prove genuine redundancy after introducing AI systems?

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Employers must show genuine redundancy tied to restructuring, and use fair, objective selection criteria after introducing AI systems
Employers cannot rely on AI adoption alone to justify retrenchment. Instead, they must demonstrate that retrenchment is the result of genuine redundancy arising from business restructuring, and that the employees chosen for retrenchment are selected using fair and objective criteria.
Show the redundancy is real and linked to restructuring, not just AI replacement
The legal position is that AI adoption may explain a commercial rationale for restructuring, but the ordinary retrenchment principles still apply. Employers must be able to point to genuine redundancy that arises from restructuring decisions, rather than treating AI systems as a standalone reason to dismiss workers.
Select affected employees using clear, transparent, and objective criteria
Malaysia’s Code of Conduct for Industrial Harmony requires that employee selection for retrenchment be conducted in a clear, transparent, and objective manner. Traditional factors such as length of service, age, and family circumstances remain relevant, but they should not be applied rigidly when choosing who is affected.
Use skills, adaptability, and ability to work with technology as part of the selection approach
The Code of Conduct also calls for greater emphasis on employees’ skills, adaptability, and ability to work alongside technology. This aligns retrenchment selection with the realities of a modern workplace where work processes may involve AI tools and technology-driven tasks.
Courts abroad have rejected AI as a shortcut to bypass labour protections
In China, a court awarded compensation to an employee dismissed after refusing a demotion and salary reduction following the introduction of AI systems, holding that employers cannot rely on AI replacement as a shortcut to bypass labour protections. In Italy, a court reinstated an employee dismissed due to AI because the employer failed to consider redeployment to another suitable role before termination, reinforcing that lawful retrenchment requires more than pointing to AI-driven changes.

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How should employers prove genuine redundancy after introducing AI systems?

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