Important Note: This article is for general information and educational purposes only—not legal advice. It draws on the oral grounds of judgment delivered by the Court of Appeal on 14 April 2026, as reported by Bernama and Free Malaysia Today, and on the written judgment of the High Court (Judicial Review Application No. WA‑25‑244‑08/2023).
What a Pilot’s Unlawful Dismissal Case Means for Malaysian Employers
In June 2020, with Malaysia under a strict Movement Control Order and the aviation industry at a standstill, AirAsia Berhad retrenched co‑pilot How Zheng Hong. He had served the airline for nearly 11 years. Facing the loss of his livelihood during a global crisis, How offered to take two years of unpaid leave to help the company survive.
The airline said no. It retrenched him anyway. How became an e‑hailing driver to support himself while his case moved through the courts. On 14 April 2026, the Court of Appeal unanimously ruled that How was unlawfully dismissed and awarded him RM147,400 in compensation and back wages. The court’s reasoning was emphatic, and it contains urgent lessons for every Malaysian employer.
The Legal Journey
How’s case travelled through three tiers of the Malaysian court system:
- Industrial Court (15 May 2023): Dismissed How’s claim. Held that the retrenchment was carried out bona fide and with just cause.
- High Court (3 October 2024): Dismissed How’s application for judicial review. Found no error of law in the Industrial Court’s decision.
- Court of Appeal (14 April 2026): Allowed the appeal. A three‑member bench led by Justice Azmi Ariffin ruled that How had been unlawfully dismissed and reversed the lower courts’ decisions.
The case took six years to resolve. The legal errors it exposed were not obscure points of law but elementary failures in the retrenchment process, the kind that in‑house counsel and HR professionals are expected to catch before a termination letter is ever issued.
What the Employer Got Wrong
1. The wrong financials
The airline relied on the consolidated financial statements of its parent company, AirAsia Group Berhad, to prove it was in financial difficulty. The Industrial Court accepted this. The High Court agreed. But the employer was not the Group. It was a subsidiary.
The Court of Appeal drew a sharp distinction. Justice Azmi Ariffin stated that the separate legal entity principle requires a subsidiary’s financial position to be assessed on its own merits, not imputed from its parent. Air Asia Berhad’s CFO admitted that the only relevant period to prove financial hardship was Q1 and Q2 of 2020. However, the subsidiary’s own quarterly financial statements for the relevant period were never produced in court.
For in‑house counsel advising on a retrenchment exercise within a corporate group, the message is clear. The entity that employs the staff must produce its own financial evidence. Group‑level losses do not, on their own, justify retrenchments in a subsidiary.
2. Departing from LIFO without proper justification
The Last‑In, First‑Out principle is not absolute in Malaysian law. An employer may depart from it for valid reasons. But the burden of justifying that departure rests squarely on the employer.
The airline devised its own selection criteria, based on four years of end‑of‑year performance reviews and previous conduct. The Industrial Court and the High Court accepted this. The Court of Appeal did not. It found that the criteria were applied retroactively, and that departing from LIFO in this manner was not supported by adequate evidence. The High Court judgment itself records that the selection criteria included performance and previous conduct, and that the Industrial Court chairman accepted those criteria as valid reasons to depart from LIFO. The Court of Appeal’s conclusion that this departure was not properly justified is therefore a clear finding on a point that was fully argued.
If an employer intends to use a bespoke selection matrix instead of LIFO, it must document the rationale, tie it to verifiable data, and be prepared to defend it. A general claim that the company needed to retain “the best” is not, on its own, sufficient.
3. Medical leave as a negative criterion
The airline used How’s medical leave record as one of the reasons to select him for retrenchment. The Industrial Court’s chairman described his performance as “dismal” and noted that he habitually took medical leave.
Justice Azmi Ariffin was direct: “Taking medical leave when unwell is not a performance failure but a safety imperative for pilots, who are legally and professionally obligated to be fit before flying.” The poor ratings, he said, were “weaponised retroactively to justify his elimination.”
This is a significant statement. Medical leave is a statutory right. Using it as a factor in a retrenchment selection, especially in a safety‑sensitive role where fitness to work is regulated, invites a finding of unfairness. HR professionals should ensure that attendance records are not imported into retrenchment matrices without careful legal review.
4. Failing to follow the Code of Industrial Harmony
The Code of Industrial Harmony sets out progressive measures employers should adopt before resorting to retrenchment. Paragraph 20 of the Code requires an employer, where redundancy is likely, to consult with employees’ representatives or trade unions and to take positive steps to minimise reduction of the workforce. The measures listed include limiting recruitment, restricting overtime, reducing working hours, offering retraining, and considering transfers. The Court of Appeal found a “wholesale failure” by the airline to follow these steps.
This is a recurring theme in Malaysian retrenchment cases. The Industrial Court does not expect perfection, but it does expect evidence that those measures were explored.
Where the High Court Erred
The High Court had dismissed How’s judicial review application on the basis that the Industrial Court’s decision was not perverse and was one a reasonable tribunal could have reached. But that is not the correct standard. On judicial review, the High Court must ask whether the Industrial Court’s decision was perverse, irrational, or based on irrelevant materials, not merely whether it was reasonable.
Justice Azmi Ariffin stated: “In our view, the High Court simply deferred to the Industrial Court’s findings instead of asking whether the decision was perverse, irrational, or based on irrelevant materials.” That single sentence is a useful reference point for any practitioner bringing or defending a judicial review of an Industrial Court award. It confirms that deference is not the standard; scrutiny is.
What the Court of Appeal Awarded
The Court of Appeal awarded How RM147,400, comprising 24 months’ back wages and compensation in lieu of reinstatement, plus RM50,000 in costs. Deductions were made for retrenchment benefits already received (RM16,500) and RM23,100 from his post‑dismissal earnings. The amounts are not extraordinary, but the principle is. A pilot who was told he was surplus to requirements was vindicated, and the airline’s process was exposed as fundamentally flawed.
Practical Takeaways
The lessons from this case are simple. They are the kinds of things that, done properly at the outset, keep an employer out of court for six years.
- Produce subsidiary‑level financial evidence. If the employer is a subsidiary, the group’s financials are not a substitute. Have the relevant quarterly statements ready.
- Justify any departure from LIFO with evidence. If you are using a bespoke selection matrix, document the rationale clearly, tie it to objective data, and be prepared to explain why it is fair and objective.
- Do not use medical leave as a negative factor. It is a statutory right and, in safety‑sensitive roles, a professional obligation. Its presence in a retrenchment matrix is likely to be treated as evidence of unfairness.
- Follow the Code of Industrial Harmony, in particular Paragraph 20. Before retrenching, consult with employees’ representatives or trade unions. Take positive steps to minimise workforce reduction: limit recruitment, restrict overtime, reduce working hours, offer retraining or transfers. Document every step.
- Document everything. The Industrial Court looks for process. A well‑documented retrenchment exercise, even one that is ultimately challenged, is far harder to overturn than one that relies on post‑hoc justifications.
A Closing Thought
How Zheng Hong spent nearly six years waiting for justice. He became an e‑hailing driver to survive. He offered his employer two years of unpaid leave to help it through a crisis. He was turned down, retrenched, and told by two courts that his employer had done nothing wrong. The third court saw it differently.
The law, in the end, worked. But it should not take six years and three tiers of court to correct errors that can be avoided at the retrenchment planning stage. For in‑house counsel and HR professionals, that is the real value of this case: it is a clear, recent, and detailed reminder that process matters, evidence matters, and fairness, documented and demonstrable, is the cheapest insurance an employer can buy.