Mutual separation agreements: to sign or not to sign?

The right to security of tenure in employment has been previously equated to a property right. After all, the 'right to livelihood' has been said to be encompassed within Article 5 of the Federal Constitution,which protects the right to life and personal liberty. Even though the Federal Court previously debunked such a notion in Pengarah Imigresen Negeri Sabah v Sugumar Balakrishnan which adopted the view in Loh Wai Kong that Article 5 is construed to only provide rights protecting the person or body of an individual, the Federal Court in the recent decision of Maritime Intelligence Sdn Bhd v Tan Ah Gek heldthat the right to livelihood is a fundamental right guaranteed under Article 5. This right is further exemplified under Section 20(1) of the Industrial Relations Act 1967 which ensures that an employee's right to livelihood is not arbitrarily affected at the employer's will.

That is why employees who are asked to sign a mutual separation agreement ("MSA") or the many other names for it, must understand what is being asked of them.

Essentially these contracts between employers and employees seek to provide the terms mutually agreed upon to terminate the employment. A standard term in an MSA would be that the employee accepts a severance package or an ascertained sum of money in exchange for their agreement to discharge the employer of all obligations and not refer a complaint to the Industrial Relations Department for unlawful termination or commence any legal proceedings against the employer.

This is a fair trade when both are negotiating at arm's length, but this is rarely the case. Some employers try to abuse MSAs by first representing to the employee that they are being made redundant, have poor performance, or are going to be terminated anyway. Such representations are sometimes intended to cause duress and pressure employees into signing unfavourable MSA terms.

In Suresh A/L K Velauthan v Petronas ICT Sdn Bhd, the Industrial Court held that there is no requirement for a redundancy to be proven before a mutual separation package is offered to an employee. However, the Courts will not enforce an agreement obtained "via compulsion, oppression or unfair labour practice that can vitiate the genuine mutuality of the separation agreement".

In Murali Tharan Nair A/L G. Narayana Nair v HLmg Management Co. Sdn Bhd, the employee contended that he was unfairly dismissed because he was coerced or put under duress to accept and sign the MSA. Further, the company had misrepresented the redundancy and restructuring exercise.

The employer argued that there was no dismissal as the employment was mutually terminated, and alternatively, even if there was a dismissal, such dismissal was with just cause and excuse.

The Court held that two things must exist for an employee to be terminated mutually: 1) there must be a genuine consensus between the parties when entering into the agreement; and 2) there must be no harassment, compulsion, oppression, unfair labour practice, misrepresentation, duress or coercion which the Court may consider to have vitiated the agreement.

After trial, the Court concluded that, firstly, the agreement was offered based on redundancy resulting from a restructuring. The Court also found that the employee was forced into signing the MSA as there was evidence of him consistently protesting and refusing to sign the MSA.

On the issue of whether there was just cause and excuse, the Court found that the employee signed the agreement as a result of the misrepresentations by the employer. The employer's contention that there was poor performance on the employee's part went unproven, and therefore, the employee was successful in his claim.

In conclusion, signing an MSA does not necessarily mean that the employee cannot sue for unfair dismissal. The Court will closely inspect the circumstances leading up to the signing of the MSA and what was communicated by the employer before determining if such a contract can be upheld.

As mentioned above, the right to livelihood is a fundamental right, and one should be wary before signing an MSA. Factors like receiving a reasonable severance package, restraint of trade clauses, and other clauses that may be unfair to the employee should be closely reviewed and negotiated.

For employers, the termination process is a delicate one. Clear,consistent, and just grounds must exist before pulling the trigger on one's employment. Even though an MSA may be mutually beneficial for both parties, the representations and communications made are vital to ensuring that an MSA stands in Court.