What criteria must employers meet before retrenching staff due to AI?

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Employers Must Meet Specific Criteria Before Retrenching Staff Due to AI Adoption

Employers cannot automatically justify retrenchment solely on the adoption of artificial intelligence (AI). Instead, they must demonstrate genuine redundancy stemming from business restructuring and ensure that the selection of affected employees is based on fair and objective criteria. This principle is underscored by foreign court decisions, such as one in China where a court awarded compensation to a supervisor dismissed after AI implementation, ruling that employers cannot use AI as a means to bypass labour protections. Similarly, an Italian court ordered the reinstatement of an employee dismissed due to AI, as the employer had not explored redeployment options.
Genuine Redundancy and Restructuring Must Be Demonstrated

The adoption of AI, while potentially a commercial rationale for restructuring, does not in itself create automatic redundancy. Employers are legally obligated to prove that the roles in question are genuinely redundant as a direct result of the business restructuring driven by AI implementation. This requires a clear articulation of how AI adoption has fundamentally altered the operational needs of the business, leading to the elimination of specific positions.
Fair and Objective Criteria for Employee Selection are Mandated

When retrenchment becomes necessary, employers must establish and apply fair and objective criteria for selecting which employees are affected. The Code of Conduct for Industrial Harmony in Malaysia provides guidance, stipulating that selection processes must be clear and transparent. While traditional factors like length of service, age, and family circumstances may still be considered, they should not be applied rigidly. Courts are increasingly emphasizing the importance of an employee's skills, adaptability, and their ability to work alongside new technologies when assessing the fairness of selection.
Efforts to Reskill, Upskill, or Redeploy Employees Are Required

Before resorting to retrenchment, employers are expected to make reasonable efforts to explore alternatives for affected employees. This includes assessing whether staff can be reskilled or upskilled to take on new roles created or modified by AI, or if they can be redeployed to other suitable positions within the organisation. Retrenchment should only be considered as a last resort, after all viable options for retaining employees through training and redeployment have been reasonably exhausted and roles are demonstrably redundant.

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What criteria must employers meet before retrenching staff due to AI?

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