How to Negotiate a Mutual Separation Agreement

There was an interesting recent decision by our High Court that overturned the Industrial Court's earlier ruling that an employee had been forced to accept a Mutual Separation Agreement.

There are few key lessons we can learn from this decision and I wanted to share this update with you. Hope you find it useful.

HLMG Management Co Sdn Bhd v Murali T. N. & Ors

[High Court Judicial Review No: WA-25-141-04/2020]

Overview

This update addresses the following question:

“What is the criteria applied by the courts in evaluating whether a mutual separation agreement was forced upon the employee?"

In our feature case, the 1^st Respondent (employee) commenced employment with the Applicant (company) as it’s Senior IR Manager with effect from 12^th May, 2014. On 6^th December, 2017, the 1^st Respondent was informed that the whole of Hong Leong Manufacturing will be restructured and he was offered a Mutual Separation Package.

Vide an email dated 28^th December, 2017, the 1^st Respondent wrote to his superiors (COW-1 and COW-2) expressing his disagreement with the mutual separation. He was then informed by COW2 on the 5^th of January, 2018 that a ‘fit for role review’ was being undertaken for the Human Resources functions across the Group. On 22^nd January, 2018, COW-2 met the 1^st Respondent and informed him that his role would be made redundant. The 1^st Respondent agreed to a Mutual Separation Agreement being prepared.

Subsequently, an MSA dated 24^th January, 2018 was given to the 1^st Respondent for his execution. COW-2 thereafter met the 1^st Respondent on the 5^th of February, 2018 wherein he asked COW-2 to remove the clause on resignation in the MSA. This led to an amended copy of the MSA (with the resignation clause removed) dated 5^th February, 2018 being handed over to the 1^st Respondent. Following this, COW-2 met the 1^st Respondent again on the 9^th of February, 2018 wherein he proceeded to sign the MSA.

The 1^st Respondent continued working in the Applicant company and his last date of employment was 15^th March, 2018. On the 12^th of April, 2018, the 1^st Respondent raised the issue that he was forced to accept the MSA and proceeded to raise his claim to the Industrial Relations Department. The case then went before the Industrial Court which found that he had indeed been forced to accept the MSA.

This led to the applicant's application for judicial review before the present High Court.

What the High Court Held

The High Court held in favour of the applicant (company). In finding that the mutual separation agreement was voluntarily entered into, the court stated the following:

Quotation/Citation One

“COW-2 had testified that she did not insist that the 1^st Respondent must sign the MSA on 6.2.2018. According to COW-2 she had asked the 1^st Respondent to read the agreement and to come back to her on it. As the 1^st Respondent did not come back to COW-2, she asked to see him on 9.2.2018 and on 9.2.2018, the 1^st Respondent had signed the document. From the facts and evidence adduced before the Industrial Court, nowhere can it be shown that the 1^st Respondent was unwilling and unamenable to discuss his exit from the Applicant. After signing the MSA on 9.2.2018, the 1^st Respondent did not write to the Applicant contemporaneously stating that he was forced to sign the MSA. It is obvious that there was a discussion held with him and only after some time the Applicant stated that he was put under duress to accept and signed the MSA.

So, here is where the problem lies. When there is no evidence or insufficient evidence of the 1^st Respondent being coerced or that he was placed under duress, and the Industrial Court finds the 1^st Respondent was being forced or placed under duress to accept the MSP, this Court is of the considered view that the Industrial Court had committed material error of law by failing to give relevant consideration to the 1^st Respondent's action or inaction after he was offered the MSP. If indeed the 1^st Respondent had been forced by COW-2 to accept the MSP/MSA, for someone who is of his standing as the Senior Manager in Industrial Relations, he would not have waited until 26.1.2018 to put on record what transpired during the meetings on 5.1.2018 and 22.1.2018. Instead, when COW-2 met the 1^st Respondent on 22.1.2018 and informed him that his role would be made redundant, the 1^st Respondent had agreed to a mutual separation agreement being prepared.”

Quotation/Citation Two

“Further, the 1^st Respondent had only signed the MSA three (3) days later after the amended copy of the MSA was given to him. It is of the considered view that the 1^st Respondent had in fact ample time to consider the contents of the same. The fact remains that he signed the MSA without any reservation and it was him who had requested for the removal of the resignation clause in the MSA. It is of the considered view that since it was the 1^st Respondent himself who had requested for the resignation clause to be removed concludes that the 1^st Respondent was willing and amenable to accept his exit from the Applicant company. It is therefore illogical for the removal clause to be removed at the 1^st Respondent's request and then the Applicant is said to have forced the 1^st Respondent to resign. Further, the 1^st Respondent continued to work in the Applicant company until his last date of employment, 15.3.2018. It was only on 12.4.2018 i.e. 2 months and 3 days later that the 1^st Respondent put on record the series of actions by the Applicant that led him to sign the MSA dated 5.2.2018 expressing that he was forced to accept the MSA and that there was no valid reason for his dismissal.”

Quotation/Citation Three

“Finally, it is the finding of this Court that the Industrial Court erred in law when it found that the 1^st Respondent was in a state of clouded mind when he accepted the MSP on 9.2.2018. The basis of such finding by the Industrial Court is incorrect as the Industrial Court was relying purely on the evidence of the 1^st Respondent who testified that COW-2 had raised her voice in anger upon seeing the 1^st Respondent sign the MSA with a notation and that COW-2 insisted that he sign the second copy without any condition. This Court says that such finding is incorrect as it is inconceivable that the 1^st Respondent is in a state of a clouded mind due to such incident when the 1^st Respondent himself had appended his signature voluntarily a second time by signing a fresh copy of the MSA. As a Senior Manager, the 1^st Respondent did not raise his concerns to the higher management of the Applicant and he had in fact continue working with the Applicant until 15.3.2018.”

How Your Organisation Can Benefit From This Case

The Most Important Criteria Adopted by the Courts When Assessing a Claim of a Forced Mutual Separation Agreement Is the Element of Time

The High Court here clarified that in assessing whether an employee was forced to accept a mutual separation scheme was whether he/she was given time to consider the offer. Here, the court concluded that the fact that the employee took four days to return the mutual separation agreement with his signature showed that he had time to think over the offer – and hence could not deem that he had been forced to sign it.

Best to Provide the Employee with the Opportunity to Reply to a MSA Offer with Any Additional Terms He/She is Seeking

Another factor that turned the tide in the company’s favour here was the court’s cognisance that the 1^st respondent (employee) had actually sought an amendment to the MSA when he requested for the term ‘resignation’ to be removed from the agreement. This to the court’s mind showed that there was a bona fide negotiation between the parties which contradicted his claim that he had been forced to sign it.

Given this, it is recommended that organisation’s ensure that any mutual separation scheme offered to an employee contains the following phrase:

‘Please note that you have the right to accept, reject or make any amendments to the terms of this agreement no later than (state a date).’

Ensure An Employee Does Not Sign Any Mutual Separation Scheme with additional Notations

When the terms of the mutual separation agreement has finally been agreed to and the employee signs it, ensure that any attempt by the employee to include any notation such as ‘signed without prejudice to my legal rights’ are not entertained by the organisation and the employee must sign the agreement without any additional notations/comments. Otherwise, the mutual separation agreement would be likely seen as forced upon the employee by the courts.

You might like this: 5 “Bear Traps” in Your Contract of Employment