Voluntary or Mutual Separation Schemes & Retrenchment

"My boss told me that the Company will no longer require me to be on my role as a Coordinator and will compensate me with two (2) months’ salary and he asked me to sign a letter which was explained to me... and I agreed.  

After signing the said letter, I went to seek a lawyer’s advice on whether I am able to pursue an action in the Industrial Court for extra compensation for the dismissal.”

The recent pandemic caused millions of employees to lose their jobs. Your employer might be considering to close down the business or to fire some employees.

If you are unfortunately one of those who lost your job, here are some guidelines to help you determine whether you fall under the category of retrenchment, voluntary separation scheme (VSS) or mutual separation scheme (MSS).

Retrenchment

Retrenchment is the dismissal of employees who have become a surplus to the needs of the company.

This downsizing can occur when the business no longer requires a particular department or employees as it was used to, due to the redundancy of its functionalities or role. Retrenchment can be done in few situation as seen in Section 12(3) of the Employment Act, namely:

1. The employer has ceased, or intends to cease to carry on the business for the purposes of which the employee was employed;
2. The employer has ceased or intends to cease to carry on the business in the place at which the employee was contracted to work;
3. the requirements of that business for the employee to carry out work of a particular kind have ceased or diminished or are expected to cease or diminish;
4. the requirements of that business for the employee to carry out work of a particular kind in the place at which he was contracted to work have ceased or diminished or are expected to cease or diminish; 
5. the employee has refused to accept his transfer to any other place of employment, unless his contract of service requires him to accept such transfer; or 
6. there is a change in the ownership of business.

Voluntary Separation Scheme (VSS)

VSS, however, is a scheme where an employer invites and offers the employee to resign voluntarily without the implications of a retrenchment while still receiving fair compensation from it. 

Mutual Separation Scheme (MSS)

On the other hand, MSS is a scheme where both the employer and the employee come to an agreement to mutually override and terminate the employee’s current contract, and both parties come together to negotiate on the terms and compensation for accepting the said MSS.

In the above stated scenario, the Court will usually deemed it as Mutual Separation Scheme instead of Voluntary Separation Scheme or retrenchment where the employee was offered a compensation of two months’ salary which then was agreeable by the employee herself.

In MSS, the employees mutually agree with the employer to part ways. The MSS is not open to everyone, and both parties will have to come to a consensus to part ways unlike VSS which is usually open to every employee in the relevant department or in the organisation to accept the offer. 

Unfair Dismissals

In cases where the employee signs a letter by getting an amount of compensation without knowing the contents of it and then later found out it to be a MSS after consulting a lawyer. In situation like this, the employee won’t be able to claim for unfair dismissal unless the employee can show that there are vitiating factors such as misrepresentation, coercion, threats or inducement in agreeing to the MSS or VSS. 

The difference between VSS, MSS and retrenchment is simply the voluntariness of leaving the position employed, and the mode of which this is done.

For retrenchment, the employer has to comply with the industrial law principle of last in first out (‘LIFO’), the order of retrenchment depends on the duration of an employee’s employment in the company where the one with the least working experience will be the first one to go, regardless of their seniority in the company.