How Mutual Separation Agreement Can Protect Your Company

Just because a mutual separation agreement (MSA) was performed swiftly does not mean that it was accepted under coercion. The Industrial Court proved this finding in the case of Fatimah Binti Noordin versus her employer, which the Ipoh High Court recently upheld. 

What happened?

The claimant employee started her employment with the employer in 2002, and she last held the Section Manager position with the Human Resources Department.

When she reported for work on April 20, 2017, after a two-week annual leave break, the employer informed her that her last day of work would be the next day. 

The claimant was then asked to sign an MSA and was escorted out of the premises by security guards.

After executing the MSA, the employer investigated and found instances of fraud committed by the employee in the workforce supply since 2012. The employer filed a police report which led to the employee's arrest. The employer also withheld the employee's payment of the agreed sum under the MSA.

The claimant then made representations that the employer dismissed her without just cause or excuse to the Industrial Relations' Director-General under Section 20 of the Industrial Relations Act 1967, which were soon referred to the Industrial Court pursuant to a ministerial reference. 

The claim

In bringing a claim of dismissal without just cause or excuse, an employee bears the burden of proving that the employer dismissed them. Once it has been proven, the burden goes to the employer in proving the dismissal was made with just cause or excuse. 

The claimant argued that she was dismissed because she did not voluntarily sign the MSA. She also said that the employer had tricked her into signing it. 

She said that the employer told her that her position had been made redundant (which was false) and that she would be paid compensation if she accepted to sign the MSA. She was given a copy of the MSA and forced to sign it on the same day and was not allowed to consult anyone.

The employer argued that they did not dismiss the employee. The employee had signed the MSA, which captured the parties' mutual agreement to terminate the employment relationship. She was never pressured, coerced, or influenced into signing the MSA, and neither did she record her objection to the MSA's terms. 

The Industrial Court's findings

The Industrial Court found that the employee failed to prove that she was dismissed. 

The employee did not dispute the fact that the MSA had been performed. There was also no proof to show that the employee had signed the MSA under coercion or pressure. The employee took the position that she had signed the MSA under coercion only after the employer denied the payment. 

The Industrial Court also find it hard to believe that the employee, holding a senior position with 15 years of experience in human resources, would have signed the MSA without knowing its consequences. 

The Ipoh High Court's findings

Earlier in September 2021, the Ipoh High Court upheld the Industrial Court's decision. The fact that the employee had immediately agreed to sign the MSA did not necessarily nullify the voluntariness of her acceptance. 

The Ipoh High Court also found the employee failed to fulfil her burden of proving that she was dismissed. There was no evidence before the Industrial Court that she agreed to the MSA under coercion or compulsion.

What can we learn from this case?

In Malaysia, involuntary employment termination can be complicated. Employees, regardless if they are covered by the Employment Act 1955 or not, can challenge their employment's termination on the basis that it amounts to dismissal without just cause or excuse. 

However, as this case shows, an adequately executed MSA is a powerful defence against an argument that the employee was dismissed. 

Unless the employee can show that the MSA is unenforceable or void for any reason, an MSA brings the employment relationship to a mutually accepted end. 

Source: Herbert Smith Freehills

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