Voluntary Separation Schemes (“VSS”) are commonly adopted by employers as part of workforce restructuring or cost-rationalisation exercises. It allows employees to voluntarily exit employment in exchange for an agreed separation package.
These are some frequently asked questions when considering or implementing a VSS.
What is a VSS?
A VSS is a scheme initiated by an employer, inviting eligible employees to voluntarily resign from employment in return for an enhanced separation package, usually including an ex-gratia payment.
Unlike involuntary retrenchments, a VSS is premised on employee consent and should be genuinely voluntary.
When can an employer implement a VSS?
A VSS is usually implemented in situations of business restructuring or reorganisation, cost-reduction initiatives or anticipated headcount reduction exercises.
Does offering a VSS mean that the employer is asking an employee to resign?
No. A VSS is an invitation, not a directive. In a typical VSS, employees apply to be considered for the VSS, and the employer can decide if their application is accepted. Therefore, participation is voluntary.
How should the VSS be communicated to employees?
Clear communication is key to managing expectations and reducing disputes. Employers should ensure that:
- The voluntary nature of the VSS is clear
- The terms and eligibility criteria are documented in writing
- Employees are given reasonable time to consider the offer and put in their application
What if an employee wishes to negotiate the terms of the VSS?
An employer is not obliged to negotiate or revise the VSS terms on an individual basis. As a VSS is made available to many employees at the same time, it will usually have a standardised package for consistency and to avoid allegations of bias. Negotiations can still be considered in good faith, provided this is done without creating expectations of preferential treatment and that it is properly documented.
Can an employer limit which employees are eligible for the VSS?
Yes. An employer may define eligibility criteria for the VSS based on legitimate business considerations, such as department, role, function, or grade.
Is an employer required to accept all applications under the VSS?
No. Employers have the right to accept or reject applications, limit the number of participants, or retain employees in critical roles. This right should be clearly stated in the VSS terms to avoid misunderstandings or disputes.
What are the usual documents in a VSS?
A VSS will typically involve these documents:
- Invitation / announcement letter / package explanation
- Application form
- Terms and conditions of the VSS
- Acceptance letter, confirming the agreed exit arrangements
- Rejection letter (if applicable)
What are the legal requirements for a VSS package or payment? Is there a formula?
There is no prescribed formula under law for VSS benefits. It is a contractual arrangement between employer and employee. VSS packages commonly include ex-gratia payments or a separation payment that is higher than statutory termination benefits. This is because the VSS is a voluntary, commercial buy-out of risks and rights, and must be attractive enough to secure genuine consent.
What happens if employees do not want to apply for a VSS?
Employees are not obliged to apply for VSS. Where employees are invited to participate in the VSS but they do not do so, the employer may treat the VSS offer as lapsed and continue the employment relationship on its existing terms, subject to any subsequent business decisions the employer may lawfully take as a result of the limited response to the VSS.
Should employers include a release and waiver clause in the VSS terms and conditions to prevent unfair dismissal claims?
Such clauses are common in a VSS, as the employer would want to secure the employee’s agreement that they will not make claims against the employer after receiving the VSS payments.
However, they do not provide absolute protection against claims since employees have a statutory right to lodge an unfair dismissal representation under the Industrial Relations Act 1967. A release and waiver is a risk-mitigation measure, rather than a complete bar to claims.
What if an employee accepts the VSS but later brings a claim against the employer?
Even where an employee has accepted a VSS, it is still possible for the employee to bring a claim, including an unfair dismissal claim. However, the burden of proof will be on the employee to show that there is a dismissal, and that voluntariness of the VSS was vitiated. The Industrial Court will uphold a VSS that is genuinely voluntary and fairly implemented.
Key takeaway for employers
A VSS can be an effective workforce management tool, and a legitimate way to avert retrenchment. However, take-up is never guaranteed. Employers should plan for multiple outcomes, maintain flexibility in their workforce strategy, and ensure that the process remains neutral, well-documented, and consistently applied.
Clear documentation and careful communication are critical in managing both legal risk and commercial realities when implementing a VSS.
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This article was written by Ilyssa Jace (Associate) from Donovan & Ho’s employment law & dispute resolution 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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