General Article on Retrenchments, VSS and MSS

Although the end result is the same for retrenchments, VSS and MSS (i.e. the employee is no longer employed), there are differences.

Retrenchment
This is dismissal of employees who are regarded as surplus to requirements. The company / department itself is not being closed, but rather a select group of employees are retrenched. Not all employees are retrenched.

Companies in carrying out retrenchment are required to abide the legal provisions of the Employment Act 1955 (where relevant) and the general rule of LIFO (Last In First Out).

VSS
VSS is “Voluntary Separation Scheme”. This arises when a company that is not officially retrenching but nonetheless wishes to reduce the headcount of employees.

In this scenario, the company will make an announcement that is addressed to the employees, akin to an advertisement that invites applicants to be considered for the VSS.

Usually the company will also talk about the terms and conditions of the VSS (compensation terms, qualifications, requirements etc).  Ultimately, the company reserves the right to accept or reject the application of the employee.  Additionally, in order to attract the required number of applicants, the VSS package should be sufficiently attractive.

A well-drafted, airtight VSS will make it more difficult for employees (who have left the company on VSS) to challenge this in the Malaysian courts.

MSS
MSS is “Mutual Separation Scheme”. This arises when both parties agree to terminate the employment relationship. The keyword is “mutual”, i.e. both parties agree to a settlement that is a win-win scenario for them.

Section 20 IRA 1967

As is the case with all dismissals of employees, the employer has the burden of proving just cause or excuse in dismissing the employee(s).

If it is a retrenchment and the purported reason is eg, losses for the preceding xx number of years, then the employer must be able to show the losses by way adducing evidence of the profit and loss account, etc.

A VSS is more difficult for the employee to argue unless it can be shown that the employee was coerced into it, or there existed the usual elements that may render the VSS void or voidable.

Legal Disclaimer

We trust that you have gained some information from this article. If you have any specific questions related to this article, please contact us at askdonny@dwc.com.my.

The article posted is for general information purposes only and should not be construed as legal advice. Facts and circumstances differ from case-to-case. Please consult your lawyer for specific legal advice and action to be taken.

This article is brought to you by Justin Lee and is copyrighted accordingly. Justin is an employment law specialist who can advice, draft and train your human resource managers.