Published with permission of Skrine, Advocates and Solicitors.
In the recent case of Matrix Global Education Sdn Bhd v Felix Lee Eng Boon [2023] 2 CLJ 34, the Court of Appeal held that once an employee engages in discussions for a severance/ separation package and subsequently tenders a resignation letter upon the agreed terms, a binding contract is formed.It is therefore no longer possible for an employee to sign off on a separation agreement and then allege constructive dismissal. In gist, the employee cannot have the best of both worlds.
Brief facts
The respondent, Felix Lee, was employed by the appellant, Matrix Global Education Sdn Bhd, as its Chief Executive Officer (CEO) and was responsible for managing educational institutions owned by the appellant (the schools). After, three and a half years of service, the appellant decided remove the respondent from his position as CEO and, in his stead, appointed an interim CEO. The basis for the decision was there were numerous complaints from parents about declining academic standards and a drop in the quality of education at the schools; and that there was a decrease in student admission and retention. The respondent was offered an alternative position as Head, Group Corporate Affairs & Communications on a fixed term contract basis but the offer was later withdrawn after the appellant received information of the respondent’s involvement in certain irregularities during his tenure as CEO.
Negotiations took place between both parties, following which the respondent tendered his resignation subject to receiving six months’ salary in lieu of notice, full waiver of his child’s tuition fees with one of the schools, and restructuring of the appellant’s car ownership scheme to allow the respondent an additional three months to repay the car loan. However, despite the appellant honouring the terms of the agreement reached vide an exchange of emails, the respondent made a representation for reinstatement on the basis that he considered himself to have been dismissed without just cause or excuse, which representation was heard by the Industrial Court.
The Industrial Court’s decision
In the Industrial Court, the respondent contended that he was coerced into resigning and argued that the negotiated terms did not prevent him from claiming constructive dismissal. The Industrial Court opined that the respondent suffered nothing short of the situation described by Gopal Sri Ram JCA (as he then was) in Quah Swee Khoon v Sime Darby Bhd [2001] 1 CLJ 9, i.e. where an employer makes the employee’s life so unbearable to drive the employee out of employment, be it transfer, demotion, or giving fewer responsibilities or less prestigious responsibility so as to amount to constructive dismissal. The Industrial Court found that the appellant’s conduct towards the respondent constituted a persistent effort to diminish the importance of his role which ultimately resulted in the respondent being compelled to leave employment. The Industrial Court ordered the appellant to pay back wages and compensation in lieu of reinstatement to the respondent.
The High Court’s decision
The appellant’s application to the High Court to quash the Industrial Court award was unsuccessful. The High Court, relying on Michael Brian Davis v Microsoft (M) Sdn Bhd [2000] 2 MLHR 276 which cited BBC Brown Boveri (M) Sdn. Bhd v Yau Hock Heng [1990] 2 ILR 2, took the position that forced resignation is indeed a dismissal and concluded that an invitation to resign in which it is clear that, otherwise the employee will in any case be dismissed is the most obvious kind of indirect dismissal.
The Court of Appeal’s decision
The Court of Appeal in hearing the appeal by the appellant, cited the failure of the Industrial Court and the High Court to consider a relevant and pertinent fact that prior to his resignation, the respondent had engaged in discussions with the appellant to explore the possibility of securing an improved severance package. The Court of Appeal noted that although the appellant suggested that the respondent should contemplate resigning in light of the numerous grievances raised against him, it was an undeniable fact that after the suggestion was put forward, the respondent commenced discussions with the appellant to secure an improved severance package. The Court of Appeal was of the view that conduct of the respondent in entertaining and entering into negotiations for settlement on terms does not fit snugly and indeed cannot support what he later asserted at the Industrial Court that he was constructively dismissed. The Court of Appeal referred to cases upheld by the Employment Appeal Tribunal in the United Kingdom such as Sheffield v Oxford Controls Co Ltd [1979] ICR 396 where it was held that where an employee was threatened that if he did not resign he would be dismissed and the threat caused the resignation, that amounted to a dismissal in law; but where the resignation was brought about not by the threat of dismissal but by other factors such as the offer of financial benefits, there was no dismissal; and Logan Salton v Durham Country Council [1989] 1 RLR 99 where it was held that the employee’s termination of employment was by way of mutual agreement when he resigns pursuant to an agreement entered into freely and without duress and under which he benefitted from a financial consideration.
The Court of Appeal went further to say that if the respondent firmly believed that the series of actions of the appellant which he complained against are interrelated and have resulted in a repudiation of his employment contract, then he must demonstrate and be perceived as having dissociated himself from the appellant’s actions and forthwith walk out of his employment and treat himself as having been constructively dismissed. Any allegation by an employee that he was “forced to resign” must be examined meticulously by the Industrial Court to determine how the coercion was applied. If a company’s intentions were simply to terminate the employee’s employment, the employee should wait for the company to do so and then bring the matter before the Industrial Court.
As the Court of Appeal was satisfied that the respondent had resigned from his employment with the appellant on agreed terms, it quashed and set aside the award of the Industrial Court and with that the order of the High Court that had affirmed the said award.
Commentary
In essence, the Court of Appeal’s decision has set things straight. Employees can no longer have the cake and eat it – on one hand, negotiating and agreeing to the terms of a separation, and on the other hand, asserting that it was a dismissal.
The concept of forced resignation was given backing by the Supreme Court in the case of Tuan Haji Sarip Hamid & Anor v Patco Malaysia Berhad [1995] 3 CLJ 627 (the Patco case). The Supreme Court heard an appeal by the employee against the decision of the High Court in allowing the Company’s leave application to apply for certiorari to quash the award of the Industrial Court, taking the point suo moto, found that the enforced resignation of the employee was, having regards to all circumstances, not a resignation and was tantamount to a dismissal in law. The Patco case involved similar facts where the employee had entered into a series of negotiations with his employer, obtained approval of the Board of Directors for the sale of 1.5 million shares owned by him, and later claimed constructive dismissal. The Supreme Court’s decision in 1995 had opened an avenue for employees to take their employers to court alleging constructive dismissal after having negotiated and collected his severance package.
What the Supreme Court did not emphasise in the Patco case is that the key question is or should be whether there was duress or coercion involved in getting the employee to accept the terms of separation. The Court of Appeal in deciding the case under discussion, made special mention of the respondent being a CEO with a legal education and background. The Court of Appeal also observed that the choice of words used by the respondent in his resignation email, such as “I thank you for the opportunity with the Group over these few years”; “I will continue to assist with MGS in anyway on the outside if needed as MGS will always be a large part of me”; and “Please let me know how else I can assist to ensure a smooth process”, was respectful and suggested a conciliatory closure to the respondent’s employment with the appellant.
In conclusion, what the Court of Appeal has made clear is that there can be no blanket rule that every separation agreement may be set aside or that every employee is necessarily disadvantaged when invited to negotiate a separation. Instead, whether a separation agreement will be upheld depends on the facts surrounding and leading up to it; and whether they demonstrate that it was a genuine mutual agreement. This decision removes the obstacles to employers easing employees out of employment without being exposed to the risk of an unjust dismissal action provided of course both parties negotiate on equal footing to achieve a mutual separation.
