Changes to the Industrial Relations Act from January 2021: Highlights and practical impact on employee exits

Some important changes to Malaysia’s Industrial Relations Act came into force on 1 January 2021, pursuant to the Industrial Relations (Amendment) Act 2020 (“the Amendment Act”). The changes heavily affect unfair dismissal claims — from the pre-trial conciliation process through to appealing an Industrial Court decision — and may significantly impact employee terminations.

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Case Update: Unfair dismissal due to poor handling of mutual separation agreement

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.

The COVID-19 pandemic has resulted in constant pressure on employers across almost all industries. There have been widespread measures to manage the financial fallout from the global effects of the pandemic, including salary reductions, employee redesignations, retrenchments, and separation schemes.

It has become a common practice for employers to use Mutual Separation Agreements (MSAs) — which also go by various other names such as “settlement agreements”, “separation agreements”, and “termination agreements” — to bypass or shortcut the usual termination processes. Many employers, as well as employees, view MSAs as a “cleaner” way of ending the employment relationship — instead of feeling like s/he has been “sacked”, the employee can be made to feel that the exit is on his/her terms, and employers prefer the certainty of clearly documented and mutually-agreed terms.

However, it is not uncommon for MSA exits to be improperly handled, resulting in a successful unfair/constructive dismissal claim by an employee, and a high financial cost to the employer. Some of my earlier articles would also be relevant for readers interested in this topic:

  1. Retrenchments in Malaysia — some recent cases (29 May 2020).
  2. Case Update: Insufficient justification and improper handling of Voluntary Separation Scheme may give rise to unfair dismissal (20 March 2019).
  3. Case Update: Can an employee bring an unfair dismissal claim after accepting a severance payment? (16 November 2017).
  4. What you need to know about the law on retrenchment of employees (22 January 2016).
  5. Handling employee dismissals properly under Malaysian law (13 January 2016).

In this article, we will review the Industrial Court case of Thanasegaran C Munusamy v. Vale Malaysia Minerals Sdn Bhd (Award No. 1647 of 2020), where the employee, Thanasegaran (the Employee) had signed an MSA, but then lodged an unfair dismissal claim against the employer, Vale Malaysia (the Company).

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Case Update: Can an employee bring an unfair dismissal claim after accepting a severance payment?

Case Updates - yellow

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 [2017] 3 ILR.

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