Retrenchment, Voluntary Separation Scheme (VSS) and Mutual Separation Scheme (MSS): Choosing the Right Path
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As businesses strive to maintain revenue during challenging times, human resource restructuring often becomes a necessary strategy to reduce overhead costs. Employers have several methods at their disposal for managing surplus workforce, primarily through retrenchment, mutual separation scheme (MSS), and voluntary separation scheme (VSS).
Employers looking to downsize their workforce during difficult economic periods should carefully consider each method to minimize legal risks and liabilities. This article explores the key differences between retrenchment, MSS, and VSS, helping employers make informed decisions for their business and employees.
Retrenchment
Retrenchment occurs when a company reduces its workforce by discharging surplus labor or staff. According to section 12(3) of the Employment Act, this can happen in the following six situations:
- The employer ceases or intends to cease the business for which the employee was hired.
- The employer ceases or intends to cease business operations at the location where the employee works.
- The need for the employee's work ceases, is expected to cease, or diminishes.
- The need for the employee's work at a specific location ceases, is expected to cease, or diminishes.
- The employee refuses to relocate to a different workplace unless the contract stipulates acceptance of such a transfer.
- There is a change in business ownership.
There are some practices HR Must Know for Retrenchment and Downsizing Exercise including LIFO Principle (“Last In First Out”), FWFO Principle (“Foreign Worker First Out”), Code of Conduct for Industrial Harmony and more.
Voluntary Separation Scheme (VSS)
A Voluntary Separation Scheme (VSS) is an offer from an employer inviting employees to resign voluntarily. Employees who accept the offer receive fair compensation without the implications of retrenchment. The calculation of Voluntary Separation Scheme (VSS) benefits typically involves considering various factors, such as the employee's length of service, salary, and any additional components specified in the VSS policy.
Mutual Separation Scheme (MSS)
A Mutual Separation Scheme (MSS) is an agreement where both the employer and employee mutually agree to terminate the current employment contract. Both parties negotiate the benefits and compensation for accepting the scheme.
Differences between Retrenchment, VSS, and MSS
Retrenchment |
VSS |
MSS |
|
Voluntariness |
Employee does not have a choice as to whether he can continue in the employment. | Employees can choose to remain in the employment or part ways with their employer. | Employees mutually agree with the employer to part ways. |
Consideration on who to dismiss |
Employer has to comply with the industrial law principle of last in first out (‘LIFO’) i.e. the order of retrenchment depends on the duration of an employee’s employment in the company- the one with the least working experience will be the first one to go, regardless of their seniority in the company.
Employer can depart from this principle if is reasonable to do so. |
The offer is opened to everyone. Employees who accept the offer will still need to go through an interview process with their employer. Successful applicants will be allowed to part ways. The employer can also choose to reject the employee’s application if they choose to retain the employee. | The offer is not opened to everyone- both parties will have to come to a consensus to part ways. |
Justification |
Requirements under section 12(3) of the Employment Act. | Streamlining its workforce. | Both parties decided that it is time to part ways. |
Can claim for unfair dismissal? |
Yes if the requirements under section 12(3) of the Employment Act are not met, the decision was capricious, mala fide, or the employee is a victim of unfair labour practices. | Cannot, unless the employee can show that there are vitiating factors (such as coercion, threats, and inducement) in agreeing to VSS. | Cannot, unless the employee can show that they are vitiating factors in agreeing to MSS. |
Remedies for Unfair Dismissal
If an employee believes they have been unfairly dismissed, they can seek remedies through the following process:
- The employee must file a complaint with the Director-General of Industrial Relations within 60 days of their dismissal.
- The department will attempt to mediate and settle the matter between the employer and the employee.
- If mediation fails, the department will notify the Minister of Human Resources, who may refer the case to the industrial court.
- If the court finds in favor of the employee, it can order either reinstatement or compensation, based on the factors outlined in the relevant act.
- If either party is dissatisfied with the outcome, they can appeal to the high court.
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