True Fitness closure: Lessons for HR

by Kelvin Ong

True Fitness' handling of its exit from Malaysia raises a few legal (and moral) questions for other companies.

When True Fitness abruptly closed its doors for business in Malaysia earlier this month, not only were staff caught off guard, but some even claimed they were not compensated for their final months of work.

One Malaysia employee also told local media that the operations manager at their branch had not turned up at work in the month prior to closure.

The expansion of the fitness chain in China and Singapore reportedly further left a bad taste in the mouths of these workers.

HRM Asia reached out to the company for clarification on the claims, to which the company confirmed that wages were delayed because of payroll “issues”. A spokesperson added that outstanding salaries will be settled by the week of June 19.

But this entire sequence of events raises a few pertinent compliance (and moral) questions for HR and employers elsewhere.

When organisations shutter, under what legal circumstances are they obligated to inform employees of the move?

Also, in the event that a company has wound up due to insolvency, where do outstanding wages stand in the debt settlement queue?

Finally, can employees file a complaint against their company, in this case True Fitness, for unfair dismissal since they were not given a month’s notice nor duly paid their salaries?

Donovan Cheah, a partner at Malaysian law firm Donovan & Ho Advocates & Solicitors, says that in this instance, because True Fitness employees were not paid wages for several months, they may deem themselves “constructively dismissed”, and could file a complaint of unfair dismissal against the company.

With regards to notice of closure or retrenchments, Cheah says “companies are advised to give as early a warning or as much notice as possible to the affected employees”.

Employees subject to the Malaysian Employment Act are entitled to minimum notice or payment in lieu, which is determined by their length of service, he adds.

For example, under this rule, an employee who has been employed for less than two years is entitled to receive at least four weeks’ notice or payment in lieu of notice in the event the employer intends to cease carrying on business.

Some collective agreements may also specifically require employers to give advance notice of retrenchment or closure of business and a failure to comply may subject the employer to non-compliance proceedings under the Industrial Relations Act.

For HR professionals, whether in Malaysia or elsewhere, it is therefore important to note that local labour laws do require employers to provide a minimum notice period to employees.

But the real question for the management of True Fitness is even if it can avoid having to inform staff of the impending cessation, shouldn’t they have a moral obligation to give staff some form of warning at the very least?

The company appears to be more than capable of giving staff in Malaysia and Thailand a smoother and more structured exit. While its businesses in both markets had suffered in recent years, the group is still going strong in Singapore and China. Following the closures, CEO Patrick Wee had immediately issued a statement to members saying that operations in both countries will not be affected.

Nevertheless, up until this point, that’s as far as where True Fitness could be argued as being non-compliant.

Because the group has yet to legally wind up its operations, Cheah says it is still legally obligated to pay wages to its employees for the period in which they were employed.

Failure to pay wages may subject the company to proceedings before the Director General of Labour (for employees who were earning RM5,000 a month and below) and/or before the civil courts.

But True Fitness, as reported earlier, has stated that all outstanding wages will be resolved by this week.

Still, even in the event that True Fitness does wind up the business due to insolvency, the small ray of hope for ex-staff is that unpaid wages will be prioritised over other normal trade debts.

“In some cases, employees’ claims for unpaid wages would even have priority over a secured creditor – for example, where there is a sale of the employees’ place of employment,” says Cheah.

Original source: http://www.hrmasia.com/content/true-fitness-closure-lessons-hr