Mutual Separation Agreements (MSAs) are widely used to bring employment relationships to a close on amicable terms. When done properly, an MSA can help employers avoid protracted litigation and offer employees a dignified exit.
However, any missteps can instantly place the employer in an undesirable position of paying the employee under the MSA and still being subject to an unfair dismissal claim.
Whilst there is no hard and fast rule as to when and how a MSA should be utilized, the Court of Appeal recently provided some much-needed guidance in Fatimah Noordin v Carsem (M) Sdn Bhd [2025] CLJU 914. S
Brief Facts
- The Employee was a Section Manager in the HR Department of the Company.
- On 20.4.2017, the Employee returned to work after two weeks of annual leave. On the same day, the Head of HR met the Employee and gave her a letter dated 20.4.2017 (titled as mutual separation agreement). The Employee agreed to the MSA.
- The Company did not pay the Employee the agreed compensation under the MSA, which led to the Employee filing an unfair dismissal claim against the Company.
- Simultaneously, the Company filed a civil suit against the Employee in the Sessions Court on the basis that she made secret profits during her employment with the Company (“Civil Suit”). The claim was ultimately allowed by the Sessions Court and is pending appeal at the High Court.
- At the Industrial Court, the Employee’s claim of unfair dismissal was dismissed. The Industrial Court held that the Employee had read, understood and agreed to the terms set out in the MSA and there was no evidence to show that the Employee had executed the MSA under duress or coercion. Additionally, the Employee appeared to have only filed her claim because the Company did not pay her the agreed compensation sum under the MSA.
- The Employee filed an application for judicial review at the High Court. This was dismissed by the High Court as the Employee could not prove that she signed the MSA under coercion or duress.
- Dissatisfied with the Industrial Court and High Court’s decision, the Employee appealed to the Court of Appeal.
Court of Appeal’s Findings
Among other things, the Court of Appeal had to decide whether to admit some evidence from the Civil Suit as further evidence in the appeal. This was ultimately allowed by the Court of Appeal. As the focus of this article is on the Court of Appeal’s assessment regarding the validity of the MSA, the article will not discuss the admission of further evidence in an appeal in detail.
With regard to the MSA, the Court of Appeal affirmed that the Employee had the legal burden to prove that she did not sign the MSA voluntarily, on a balance of probabilities.
Although the Employee did not raise any objection or protest after signing the MSA, the Court of Appeal still held that the Employee did not sign the MSA voluntarily as: –
- There was a premeditated plan to remove the Employee.
- The MSA was prepared by the Company without any prior notice to the Employee.
- When the draft MSA was presented to the Employee on 20.4.2017, she was not given a reasonable period to consider the contents of the MSA, get legal advice regarding the effect of the MSA and/or discuss the contents of the MSA with her family members.
- The Employee was deprived of an opportunity to negotiate in good faith with the Company about the terms and conditions of the MSA.
- The timing of the draft MSA on 20.4.2017 (when she just returned from her 2 weeks of leave) was part of a “shock and awe” strategy to force the Employee to sign the MSA on that very day.
- The Company did not comply with the terms of the MSA. Despite stating a last working date of 21.4.2017, the Employee was escorted out immediately after signing the agreement.
- The opening sentence of the draft MSA which purportedly “confirm the details of the mutually agreed separation” was not accurate, as the Employee only saw the MSA for the very first time on 20.4.2017.
Based on the above, the Court of Appeal held that the MSA was a sham contract to cloak the unfair dismissal of the Employee.
Key Takeaways
Although there are no hard and fast rules regarding the presentation and negotiation process about the MSA, the decision above shows that employers should at least:-
- Consider the timing, especially where it coincides with the employee’s emotional weakness or vulnerable state of mind (eg: returning from leave or a stressful life event).
- Follow through on agreed terms.
- Offer a genuine opportunity to negotiate, and provide employees a reasonable opportunity to seek legal advice and negotiate terms.
- Ensuring that the language of the MSA reflects the actual course of events. Boilerplate terms that misrepresent the process should be avoided.
In conclusion, an employee’s signature on an MSA is not the end of the story; how parties got there matters just as much.
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This article was written by Leow Ho Eng (Associate) from Donovan & Ho’s employment law practice.
Donovan & Ho is a law firm in Malaysia, and our employment practice group has built a reputation for providing strategic employment advice to local and global organisations. Our team of employment lawyers provide advice on employment law and industrial relations including review of employment contracts, policies and handbooks, advising on workforce reductions, and managing dismissals of employees for poor performance or misconduct. We also represent clients in unfair dismissal claims and employment-related litigation.
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