Introduction

Sometimes, employment relationships can end if both employer and employee come together to end it on agreed terms , as opposed to the traditional one-sided termination of dismissal or resignation.

When handled properly, this approach provides parties with an amicable and dignified alternative to end their employment relationship, reducing conflict and preserving the professional relationship between parties.

On the other hand, if mutual separation is not handled properly, it may give rise to various legal issues, including potential unfair dismissal claims.

This article explores the concept of mutual separation in the workplace, when it arises, its key principles and best practices for employers and employees alike.

What is mutual separation?

Mutual separation is essentially an arrangement between an employer and employee to mutually bring their relationship to an end. This arrangement is unique, in the sense that there is no dismissal per se as succinctly explained in the case of Thilagavathy SR Canagasingam v. Am Bank (M) Berhad [2007] 3 ILR 215:

[12] There is a third type of termination called “mutual termination” of the employment contract. In this type of termination, there is mutual consent by both the employer and employee to bring the contractual relationship to an end, in which case there is no dismissal. This type of termination normally arises in situations where a company invites its employees to take advantage of an early retirement scheme such as in the present case. Further, mutual termination is not akin to resignation. The collateral issue which arises from this type of termination is whether the worker had voluntarily agreed to the mutual termination. (see Birch & Another v. Liverpool University[1985] ICR 470 and Telekom Malaysia Bhd v. PG Morshide PG Omar [1998] 3 ILR 1105 (Award 675 of 1998).

Generally, mutual separation entails an employer offering a settlement sum to the employee as consideration for the mutual separation and to discharge them from any liabilities thereafter (including not lodging a complaint with the Industrial Relations Department) while the employee in return agrees to give up his security of tenure by voluntarily leaving his employment as per the case of Suresh K Velauthan v. Petronas ICT Sdn Bhd [2019] 2 IRemove term: MSA MSARemove term: MSS MSSRemove term: Mutual Separation Mutual SeparationRemove term: Mutual Termination Mutual TerminationRemLR 345 which helRemove term: MSA MSARemove term: MSS MSSRemove term: Mutual Separation Mutual SeparationRemove term: Mutual Termination Mutual TerminationRemd as follows:

[33] Mutual Separation Package or Mutual Separation Scheme belongs to the genus of mutual termination of the employer and employee relationship. It is distinguishable from a retrenchment or even a Voluntary Separation Scheme in the sense that there is no pre-requirement on the part of the employer to make a similar offer to other employees in the category of the employee in question. Neither is there a requirement that the position of redundancy must be proven to exist before such MSP is offered to an employee. The main feature of MSP is that there is mutuality of intention or consensus-ad-idem that the employer will commit itself to a financial pay-out scheme and the employee will in return agree to give up his security of tenure and consent to leave his employer voluntarily. MSP is availed by an employer to bring an employment relationship to an end vide mutual consensus. It is often used to secure the separation of senior level personnel in an organisation. In order to do so, the employer will be prepared to provide monetary consideration at a rate that could be well above the statutory rate as prescribed in the Employment Act 1955 or even the norms used in the Industrial Court to award an employee who is dismissed unjustly.

It is important to note, however, that an employee is not precluded from lodging an unfair dismissal claim if they have reason to believe that they were forced into a mutual separation agreement with their employer, notwithstanding any clause in the agreement purporting to waive their right to file a complaint with the Industrial Relations Department.

When it arises?

The decision to mutually separate may stem from various reasons – poor performance, misconduct, retrenchment or even a mutual recognition that the employee’s working style may not align with the company’s culture.

For instance, an employer may choose to dismiss their employee on grounds of redundancy and does not have to prove this redundancy to enter into a mutual separation agreement, but if this so-called redundancy is a web of lies spun to deceive the employee into signing the agreement, then this will negate the element of voluntariness by the employee.[1]

Ultimately, this arrangement provides a means for parties to mutually end their employment relationship for whatsoever reason.

Knowing the Difference between Mutual Separation Scheme (MSS), Voluntary Separation Scheme (VSS) and Mutual Termination Agreement (MTA)

Generally, there are three types of mutual separation agreements, and these agreements are known as Mutual Separation Scheme (MSS), Voluntary Separation Scheme (VSS) and Mutual Termination Agreement (MTA).

Each of these separation agreements are different in nature and used in specific circumstances.

The table below briefly explains the characteristics of MSS, VSS and MTA:

Key principles

In Murali Tharan Nair G Narayana Nair v. HLMG Management Co Sdn Bhd [2020] 2 LNS 0276, the Industrial Court held that the two principles applicable in mutual separation are:

1. There is a genuine consensus or consensus ad idem (meeting of the minds) between parties; and
2. Absence of vitiating factors such as harassment, compulsion, undue advantage, oppression, unfair labour practice, misrepresentation, duress, coercion.

Additionally, the Industrial Court at paragraph [40] held that the following provisions of the Contracts Act 1950 are relevant in the context of a mutual separation agreement:

1. Section 10(1) which states that contracts are valid only if made with the free consent of parties.
2. Section 13(1) which states that consent between both parties exist when they agree upon the same thing in the same sense.
3. Section 14 provides that consent is said to be free when it is not caused by coercion, undue influence, fraud, misrepresentation or mistake.

Once parties agree to mutually separate and the abovementioned key principles are complied with, their agreement is binding, and the employee cannot have the best of both worlds by accepting the arrangement and filing an unfair dismissal claim in the industrial court.

However, if an employee can establish any vitiating factors to prove that they did not sign the mutual separation agreement voluntarily, they can still file an unfair dismissal claim and be successful in their claim.

Best practices for employers and employees

1. Employers should provide employees with a reasonable opportunity to negotiate the agreed terms of mutual separation and seek independent advice, as this will ensure that both parties intended to enter into a mutual separation agreement willingly (meeting the requirement of consensus of mind).
2. Employers are encouraged to sign mutual separation agreements in the presence of a witness and/or record the signing process as a safeguard against potential disputes about the validity of the mutual separation agreement.
3. Employers should offer an attractive severance package after taking into consideration factors such as the employee’s length of service, notice period, termination benefits (if applicable), litigation costs, the maximum liability exposure they will face in an unfair dismissal claim and other relevant factors.
4. Employees should be mindful that they are bound by any mutual separation agreement voluntarily signed by them and will be estopped from making an unfair dismissal claim if the court recognises that the mutual separation agreement is a valid and binding contract – this is because there is no dismissal per se in mutual separation agreements.
5. Employees bear a high burden of proof in establishing vitiating factors relating to the execution of mutual separation agreements where they must prove that they did not willingly sign such agreement with their employer on a balance of probabilities in accordance with Section 101 and 102 of the Evidence Act 1950.[2]

Conclusion

Mutual separation offers a practical and often amicable means to end an employment relationship when there is it is no longer feasible for both employer and employee to continue working together.

When implemented properly, it can minimise conflict between employer and employee and reduce legal risks.

Employers and employees must both bear in mind the key principles of mutual separation discussed above to ensure that any mutual separation efforts carried out will not be in vain.

[1] Murali Tharan Nair G Narayana Nair v. HLMG Management Co Sdn Bhd [2020] 2 LNS 0276; Ahmad Fauzan Aziz & Others v Dynacraft Industries Sdn Bhd [2010] 3 MELR 381

[2] B Braun Medical Industries Sdn Bhd v Mugunthan a/l Vadiveloo [2024] 6 AMR 125

PS: This article is written with the assistance of our able pupil-in-chambers Ms Amelia Lo. Should you need any advice on this topic, please feel free to contact us.