MSS and VSS in Malaysia: Are They Really Voluntary?

A Mutual Separation Scheme, commonly called an MSS, or a Voluntary Separation Scheme, commonly called a VSS, is generally valid where the employee genuinely agrees to leave in return for an agreed package. If the agreement is voluntary, the employment ends by mutual agreement rather than dismissal, which usually means there is no unfair dismissal claim.

The position changes if the employee can prove that the agreement was not genuinely voluntary. A resignation obtained through coercion or a real "resign or be dismissed" ultimatum may be treated as a dismissal despite the document being labelled an MSS or VSS.

What is the difference between an MSS and a VSS?

The terms are sometimes used loosely, but there is a practical difference.

A VSS is usually offered to a group of employees when a company wants to reduce its workforce voluntarily. The employer offers a separation package, often more attractive than ordinary retrenchment benefits, and employees are invited to apply.

JTKSM describes a VSS as a situation where an employer intends to reduce the workforce by encouraging employees to leave voluntarily, usually with better compensation than the minimum required by law.

An MSS is more commonly an individual arrangement negotiated between an employer and a particular employee. Both sides agree that the employment relationship will end on specified terms.

In either situation, the central legal question is the same: did the employee genuinely agree to leave?

Why does "voluntary" matter so much?

Section 20 of the Industrial Relations Act 1967 gives a workman who considers that he or she has been dismissed without just cause or excuse the right to make a representation for reinstatement.

There must first be a dismissal.

If an employee voluntarily agrees to end the employment relationship under an MSS or VSS, there may be no dismissal for the Industrial Court to examine.

This distinction was recognised by the Federal Court in Zainon Ahmad & Ors v Padiberas Nasional Bhd [2012] 8 CLJ 29. The Court treated the VSS as a separate agreement by which the parties mutually brought the existing employment relationship to an end.

Once a valid VSS has been accepted, an employee cannot ordinarily take the benefits under that agreement and later insist that the previous employment contract continues to give additional termination benefits that were not preserved.

This is why an MSS or VSS should not be treated as merely another HR form.

It is a legal agreement ending the employment relationship. This is also why the position is different from an ordinary resignation, which an employer cannot reject or refuse to accept: an MSS or VSS is not a unilateral notice at all, but a separate contract that both sides must actually agree to.

When can a "voluntary" separation actually be forced?

The fact that the document says "mutual" or "voluntary" is not conclusive.

Malaysian industrial law has long recognised that a resignation may amount to a dismissal where the employee was effectively told to resign or be dismissed.

The principle is often associated with Harpers Trading (M) Sdn Bhd v Kesatuan Kebangsaan Pekerja-Pekerja Perdagangan [1988] 2 ILR 314.

The important issue is what actually caused the employee to resign.

If the employee resigned because the employer made it clear that dismissal was otherwise inevitable, the resignation may be treated as forced.

On the other hand, if the employee chose to leave because the employer offered an attractive financial package or other negotiated benefits, the resignation may remain voluntary even though the alternative of remaining employed was uncertain.

The court therefore looks beyond the heading of the document and examines what actually happened.

Being offered "MSS or retrenchment" is not automatically coercion

This point has become particularly important following the Court of Appeal's decision in B Braun Medical Industries Sdn Bhd v Mugunthan Vadiveloo [2024] 4 MLJ 933.

The employee was presented with an MSS package worth substantially more than the alternative retrenchment package. He later argued that he had been forced to sign because he understood that retrenchment would follow if he rejected the MSS.

The Industrial Court originally found in his favour, and the High Court declined to interfere.

The Court of Appeal reversed those decisions.

It considered the employee's actual conduct. He had been given time to consider the offer, proposed several amendments to the MSS, successfully negotiated changes, requested an earlier release for a new job and received the agreed benefits.

His resignation letter did not record coercion, and messages to colleagues indicated that he had voluntarily signed the agreement.

On those facts, the Court of Appeal held that the MSS was voluntary.

The case is important because it shows that merely being presented with an MSS and a less attractive retrenchment alternative does not automatically amount to forced resignation.

The whole course of negotiation matters.

Who has to prove that the MSS was forced?

If the employer says the employee voluntarily signed an MSS but the employee says there was actually a dismissal, the employee must first prove that the separation was not voluntary.

This follows the principle in Weltex Knitwear Industries Sdn Bhd v Law Kar Toy & Anor [1998] 7 MLJ 359.

Where dismissal itself is admitted, the employer bears the burden of showing just cause or excuse. Where the employer says there was no dismissal at all because the employee resigned voluntarily, the employee must first establish that a dismissal actually occurred.

The Court of Appeal reaffirmed that approach in B Braun.

A bare statement that "HR forced me to sign" is therefore unlikely to be enough by itself.

The surrounding evidence matters.

What evidence suggests the agreement was genuinely voluntary?

Courts will usually look at the entire sequence leading to the agreement.

An employee who was given several days to consider the offer, negotiated the amount, requested additional benefits, proposed amendments and accepted the payment without protest will have more difficulty later arguing that there was no genuine choice.

The employee's communications after signing may also become evidence.

In Beh Hooi Soik v Century Integrated Sdn Bhd [2025] MELRU 1180, the Industrial Court rejected an allegation of forced mutual separation after considering the employee's conduct and communications surrounding the agreement. The court emphasised that allegations of coercion require convincing evidence.

This does not mean that accepting money automatically defeats every challenge.

An agreement obtained through genuine coercion can still be challenged. But negotiation, time to obtain advice and voluntary conduct after signing can make coercion much more difficult to establish.

What evidence may suggest that the separation was forced?

The position becomes more concerning where the employer gives the employee no meaningful opportunity to consider the proposal.

Examples may include being called unexpectedly into a meeting and told to sign immediately, being told that dismissal for misconduct will occur unless the agreement is signed, refusing permission to obtain advice, or providing a pre-written resignation letter which the employee is instructed to execute.

Contemporaneous protest is particularly important.

If an employee genuinely believes the agreement is being forced upon them, an email or written message recording that objection can become powerful evidence later.

Silence does not automatically mean consent, but alleging coercion months later after negotiating and accepting the full package creates an obvious evidential problem.

What happens if you refuse a VSS?

Refusing a VSS does not automatically mean the employer can dismiss you.

The employer may still proceed with retrenchment if there is a genuine redundancy and the retrenchment is carried out lawfully.

That is a separate legal process.

A VSS is intended to reduce the workforce through voluntary departures. JTKSM's current guidance confirms that VSS is commonly used as a workforce-reduction measure and generally involves more favourable compensation than ordinary statutory termination benefits.

An employer that does not achieve sufficient voluntary departures may later consider compulsory retrenchment, but it must still be able to justify that retrenchment based on genuine business circumstances.

Employees should therefore avoid assuming either that rejecting the VSS guarantees their job or that retrenchment is inevitable.

Does the employer need to notify JTKSM?

Yes, separation schemes also carry regulatory obligations for employers.

JTKSM currently requires employers undertaking a separation scheme to submit Borang PK, with the initial notification ordinarily made at least 30 days before implementation.

This requirement applies alongside the individual agreement between employer and employee.

For employees, however, the fact that an employer has filed Borang PK does not by itself answer whether their individual consent was voluntary.

What should you check before signing?

The first thing to check is the total package.

Do not look only at the headline number. Check whether the agreement deals with salary up to the final date, notice pay, accrued annual leave, bonuses or commissions, medical benefits, shares or incentives, tax treatment and any other amounts that may already be due.

Read the release provisions carefully.

Many agreements state that the payment is in full and final settlement of claims arising from employment and its termination. Those words can have significant consequences.

You should also check whether the agreement contains confidentiality, non-disparagement, non-solicitation or restrictive covenant provisions which continue after employment ends.

If you need time to consider the proposal, ask for it.

Where the amount is significant or the circumstances are uncomfortable, obtain legal advice before signing rather than trying to undo the agreement afterwards.

What if you believe you were forced to sign?

Preserve the evidence immediately.

Keep the MSS or VSS documents, emails, WhatsApp messages, meeting invitations, recordings lawfully obtained, HR correspondence and notes of what was said during meetings.

If you are signing under protest, record the objection clearly rather than relying only on a verbal complaint.

Most importantly, do not allow the statutory deadline to expire while negotiating with the employer.

A representation under section 20 of the Industrial Relations Act must generally be filed with the Director General of Industrial Relations within 60 days of the dismissal.

The Department of Industrial Relations will first attempt conciliation. If the dispute cannot be resolved, the matter may be referred to the Industrial Court.

Frequently Asked Questions

Is an MSS the same as retrenchment?

No. An MSS is based on agreement between employer and employee. Retrenchment is an employer-initiated termination resulting from genuine redundancy.

Can I claim unfair dismissal after signing an MSS?

Potentially, if you can first establish that the agreement was not genuinely voluntary and that the separation amounted to a dismissal. The burden of proving the alleged forced resignation initially lies on the employee.

If I negotiated a better package, can I still say I was forced?

It is not impossible, but negotiation can be strong evidence that the agreement was voluntary. The court will examine all the surrounding circumstances.

How long do I have to challenge a forced separation?

A section 20 representation must generally be filed within 60 days of dismissal. Employees should not wait for internal discussions to finish before checking the deadline.

Final takeaway

An MSS or VSS is not invalid simply because the employee faced an unattractive alternative.

The central question is whether the employee genuinely agreed to leave.

Time to consider the offer, negotiation of the package, written communications, the employee's conduct after signing and whether any real threat or ultimatum was made can all become important evidence.

For employees, the safest approach is to understand exactly what rights are being exchanged for the separation package before signing. For employers, a separation process should be documented carefully and conducted in a way that leaves no doubt that the employee was given a genuine opportunity to decide.

Speak to JPP LAW

Justin, Poh & Partners, also known as JPP LAW, assists employees and employers with MSS and VSS arrangements, retrenchment, forced resignation disputes, unfair dismissal, settlement agreements and Industrial Court matters in Malaysia.

If you have been offered a separation package and need to understand what you are giving up, or you believe a supposedly voluntary separation was actually forced, you may contact us to assess the agreement, surrounding communications and available options.

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Disclaimer: This article is for general information only and does not constitute legal advice. Whether an MSS or VSS is voluntary depends heavily on the wording of the agreement, negotiations, communications between the parties and the circumstances in which the employee agreed to leave.