RETRENCHMENT, VOLUNTARY SEPARATION SCHEME (“VSS”) & MUTUAL SEPARATION SCHEME (“MSS”), CHOOSING THE BETTER EVILS (UPDATED 5TH AUGUST 2021)
Retrenchment, Voluntary Separation Scheme (“VSS”) & Mutual Separation Scheme (“MSS”), Choosing the Better Evils:
As the daily newly reported cases of COVID-19 continuously to break its record coupled with the prolonged Phase 1 of the National Recovery Plan in Greater Klang Valley, the economic powerhouse of nation, the economy climate is undoubtedly challenging for various sectors of economy.
Employer who intends to downsize its workforce during difficult economic climate shall consider each method in conducting the exercise to reduce its legal risk and liabilities.
Retrenchment means the discharge of surplus labour or staff by the Employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action. Employer who embarks on retrenchment exercise is required to comply the strict requirements of the law in selecting the employees who are to be affected by retrenchment. Amongst others, the Employer will need to fulfill the following legal requirements prior to retrenching its employees: –
- there is a genuine need for the business reorganization exercised by the Employer;
- there is a genuine redundancy situation arising from that business reorganization which led to the retrenchment of the employees; and
- the Employer shall comply with the accepted standards and procedure when selecting and retrenching the employees (i.e. “Last In First Out” principle etc.).
Implication of failure to comply with Retrenchment Criteria
Failure to comply to Retrenchment Criteria may result in the aggrieved employee making representations with the Director General for Industrial Relations for dismissal without just cause or excuse. If there be no likelihood of the representations being settled, the Director General for Industrial Relations may then refer the representation to Industrial Court for an award.
In order to avoid the allegation of dismissal without just cause and excuse, Employer often opt for VSS and MSS, which provide sufficient flexibility. In employing VSS or MSS, Employers may reduce their excess manpower without increasing its legal risks significantly.
Voluntary Separation Scheme (“VSS”)
A VSS is a scheme put forward by Employer who intends to downsize or restructure the manpower organization. The VSS will be offered by the Employer though an announcement to targeted employees providing the targeted employees an option to accept the VSS scheme or otherwise.
The voluntary nature of such scheme is a more diplomatic approach adopted by the Employer in reducing its manpower surplus.
Mutual Separation Scheme (“MSS”)
Similar to VSS, MSS involves the termination of the contract of service mutually by the Employer and the employee.
Effect of VSS and MSS
Once an employee has elected to accept the VSS scheme offered by the company or has accepted the terms of MSS, a legally binding contract will be formed between the employee and the Employer.
How we may help
You may view our previous article on employment contingency at here.
We will be pleased to assist you in providing you with pragmatic legal advice on retrenchment, VSS and MSS.
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This article is written by our corporate advisory practice group:
Ho Wei Duan, Associate
Choong Mun Yee, Associate
This article shall never be construed as a legal advice. We hold no liabilities whatsoever howsoever arising from any person’s reliance on this article without any advice from our advocates and solicitors.
Should you require further assistance, kindly contact our corporate advisory practice group at the email addresses as abovementioned.