In this Case Update series, I share summaries of recent Malaysian court decisions to explore the current approach taken by the courts when deciding on employment-related issues. You can find all the posts in the series by clicking here, including case updates on other legal areas by TheMalaysianLawyer co-founder Lee Shih.
Malaysian employment law is relatively pro-employee when it comes to termination of employment. Based on the fundamental principle of security of tenure, any termination by an employer must be with just cause. In practice, just cause can sometimes be difficult to establish.
To avoid having to establish just cause — and to terminate an employment relationship without being exposed to the risk of an unfair dismissal claim — many employers opt to negotiate a mutual separation with the employee.
Typically, some form of monetary compensation (and sometimes other terms as well) is negotiated between the parties, and documented in a mutual separation agreement. The agreement will usually contain a clause to the effect that the employee confirms that the separation package and terms are in full settlement of any claims the employee may have, and that the employee will not bring an unfair dismissal claim.
So what happens where a mutual separation agreement is signed, and the employer makes the agreed compensation payment, but the employee then proceeds to file an unfair dismissal claim?
The relevant legal principles were recently considered by the Industrial Court in Raul Fabrizio Casserini v. George Fischer (M) Sdn Bhd  3 ILR.
The claimant (the Employee) had been employed by the company (Employer) on a three-year fixed term contract. Approximately two years into the contract, the Employer issued a termination notice to the Employee on the basis that his position had become redundant.
We will not discuss the retrenchment and redundancy issues in this case update, except to note that the Industrial Court found that the Employee had not become redundant and the Employer’s decision to terminate him was without just cause or excuse.
The following are the facts in relation to the severance package:
- The Employer claimed that, after being notified of the retrenchment, the Employee had agreed to a severance package which among others includes the payment of a month’s salary, annual leave and cost of repatriation to a destination of the Employee’s choice (he chose China). The Employer’s HR personnel proceeded to purchase an air-ticket and inform the Employee to make a claim for charges to repatriate his belongings to China.
- The Employer proceeded to bank in the agreed one months’ salary into the Employee’s bank account, as the Employee was not in the country. The Employer claimed that the Employee at no point communicated his disagreement to the severance package.
- The Employee denies agreeing to the severance package, or to any settlement, or to the payment of one months’ salary as an ex-gratia payment.
- No mutual separation agreement was signed.
- The Employee confirmed that he received the said ex-gratia payment, but did not return it upon the advice of his lawyers.
The Employee then filed an unfair dismissal claim.
Legal issue to be considered
For the purpose of this case update, the legal issue we will focus on is whether the Employee’s acceptance of the ex-gratia payment meant that the Employee accepted the termination of employment, or that the Employee then could not bring an unfair dismissal claim.
In this case, no mutual separation agreement was signed, and there was no written agreement by the Employee not to bring a claim. However, would that have made a difference?
Findings of the Court
The position regarding this issue is actually well-settled, and the Industrial Court affirmed this in this case.
The Court noted that it is trite law that an employee may accept a severance package without protest, and yet make an unfair dismissal claim. The Federal Court decision of Kumpulan Perangsang Selangor Bhd v. Zaid Mohd Noh  2 CLJ 11 was cited, and the Industrial Court further noted: “The law goes so far as to say that an employee may even sign a clause stating that he has no further claim, and yet he may file such a claim. It is well settled that estoppel, limitation and laches have no place in industrial jurisprudence.”.
Therefore the Employer’s assertion that a severance package had been agreed had no effect on the Employee’s ability to then claim he had been unfairly dismissed.
However, in calculating the monetary award payable to the Employee, the Industrial Court deducted the one month ex-gratia payment which had already been paid by the Employer.
In the Kumpulan Perangsang Selangor Bhd case mentioned above, the Federal Court cited the following:
- Nadarajah & Anor v. Golf Resort (M) Sdn. Bhd.  1 ILR 704, where the court observed that the Industrial Court “must act according to equity, good conscience and the substantial merits of the case without regard to technicalities and legal form. Technical rules such as estoppel, limitation, laches, acquiescence, etc (unless otherwise provided for in the Act) have no place in industrial adjudication and they should not be allowed to be invoked for defeating claims which are just and proper.”.
- Tamil Nesan (M) Sdn. Bhd. v. K. Ganesan (unreported), which applied a passage from Law of Industrial Disputes by Malhotra, fourth edition, part of which stated: “[…] even if some workmen accept [a] certain amount ‘in full and final settlement of their account’, they cannot be estopped from further claiming their legitimate dues nor can there be waiver in this respect of the rights accruing to them under the industrial law. The principle of estoppel or waiver cannot be rigorously applied against the workmen.”.
Another case also considered this issue — the High Court case of James Clement Hii Gin Kion v. Menteri Sumber Manusia & Anor  3 CLJ. The following are the relevant points from that case:
- The employer unilaterally sent a letter to the employee recording the separation terms, and credited the compensation sum into the employee’s bank account.
- The employee did not return the money, but filed an unfair dismissal claim.
- The employer contended that the employee was estopped from proceeding with the unfair dismissal claim as, even though he protested to the separation, he did not return the compensation sum.
- The High Court cited the Nadarajah case and found that “the principle of estoppel has no place in industrial adjudication”.
- The Court also noted: “Should the Industrial Court eventually find that the termination was without just cause or excuse, being a court enjoined to act according to equity and good conscience, in assessing any compensation due to the [employee], without doubt will have due regard to any monies paid and the appropriate deduction will be made for the compensation already received. Therefore the fact that the [employee] accepted the compensation from the [employer] does not in any way prevent or bar him from seeking the remedy of reinstatement from the Industrial Court.”
The law on this issue is clear: Even if —
- an employee negotiates and signs a mutual separation agreement;
- the agreement contains wording to the effect that the compensation is in full and final settlement of all claims; and
- the employee accepts and does not return the compensation sum,
the employee can still bring an unfair dismissal action against the employer.
To reduce the risk of a compensation sum being paid out and still having to defend an unfair dismissal claim, some employers ensure that the mutual separation agreement provides for the compensation sum to be paid in instalments — with a large portion of the sum being paid after the 60-day deadline for the employee to file an unfair dismissal claim has passed. This usually serves as an effective deterrent.
It should also be noted that any compensation sum paid will be deducted for any eventual monetary award handed down by the Industrial Court. Therefore if a reasonable compensation sum has been agreed and paid, it is unlikely that an employee will decide to also file an unfair dismissal claim.