How to Guide: Negotiate a Mutual Termination
A practical guide to negotiating mutual termination in Malaysia, including key contract terms, negotiation tips, and post-termination compliance.
Mutual termination is a popular mode of terminating an employment contract in Malaysia. A successful mutual termination requires a couple of key ingredients and this guide could be a flow employers can adopt.
Step 1: Understanding the context of the matter
It is important to firstly understand the reasons behind proposing a mutual termination. A mutual termination is merely a ‘method’ to terminate a contract. The key question here should be - whether you (as the employer) have sufficient grounds to terminate a contract?
By answering the above, you should have an understanding:
Whether your proposal would be unexpected / shocking to the employee?
The approach you should take while communicating with the employee
The budget you should prepare for this mutual termination
Any emotional reactions to expect from the employee
Step 2: Contractual terms
Understanding key contractual terms would be important. Here’s why:
Terms of Contract | Reasons |
Years of service | To determine severance - normally calculated based on years of service |
Annual leave | To determine balance leave which needs to be paid back in the event of termination |
Notice of Termination | To determine length of notice / or amount to be paid for salary in lieu of notice |
Termination Benefits | To understand if there are termination benefit clauses in place - if so, the amount should be adopted / or a higher quantum could be proposed |
Other suggestions | Company belongings - understand assets currently in the employee’s possession Post-employment requirements - consider if this is necessary, if so, prepare a post-employment confidentiality / non-solicitation, etc. ESOS (Employee shares) - if an employee owns shares by way his / her service, this needs to be addressed and sorted as part of negotiations Bonds / Amounts owing - determined if there are any amounts owing from either party Benefits - sometimes, benefits can be used as a negotiation chip. It is quite popular for employees to demand for medical or insurance coverage for the next couple of months! |
Step 3: Negotiating
Remember, this is a negotiation. Be fully prepared! You should already have an idea on your approach. There is absolutely no point in threatening an employee. Present the option and allow the employee to think about it. If you’ve placed a good offer on the table, you should receive acceptance.
Think contingency - always understand that if a mutual termination negotiation fails, you should have a plan B. Lay that down and allow the employee to understand that.
Here’s a simple example:
“You hold a senior role in this company and we are required to place you on a performance improvement plan due to your recent performance levels. We have the option of a mutual termination if you wish to explore further - otherwise, we’ll proceed with the PIP proper.”
Considerations during negotiations:
Be professional, be comfortable
Avoid forcing, threatening the employee
Allow space and time to consider, allow questions and provide support
If the employee wants to seek external legal support, allow it. There’s nothing wrong with this.
Be fair, work around your budget and contingencies
Understand that this is not personal, your end goal would be a mutually agreed termination
Step 4: Signing
Ensure you have a well-drafted agreement. Check the contents and explain the clauses to the employee. The employee needs to understand and be able to make changes (subject to agreement from both parties).
Once everything is resolved, you can proceed with signing.
One last point to note - Requirements with authorities. Be it with the Inland Revenue (for tax clearance), Labour department (for PK form) or PERKESO (for EIS), remind yourself to comply with the required timelines.
