Sharmila Ravindran provides a commentary on Padiberas Nasional Berhad v Zainon Bt Ahmad.

INTRODUCTION
 
The Court of Appeal in a recent unreported decision of Padiberas Nasional Berhad v Zainon Bt Ahmad & 690 Others (Appeal No. B-02-374-2008) unanimously overturned the decision of the High Court in allowing a declaration that the Respondents are entitled to retirement benefits pursuant to specific clauses in the Padiberas Employment Handbook (“Handbook”) after receiving a pay-out pursuant to a mutual termination under a Voluntary Separation Scheme (“VSS Scheme”) offered by Padiberas Nasional Berhad (“Padiberas”).
 
THE BACKGROUND FACTS
 
On or about 2003, the Respondents, all of whom were employees of Padiberas were invited to apply for a separation package under the VSS Scheme.
 
Pursuant to the VSS Scheme, the Respondents were informed that the successful applicants would receive a separation package which includes, inter alia, basic compensation, salary in lieu of notice, salary in lieu of unutilised leave and medical benefits for a period of one year after termination. The Respondents applied for the VSS Scheme and were successful in their application.
 
Payments were subsequently made to the Respondents pursuant to the terms of the VSS Scheme.  
 
Some two years after the Respondents ceased employment with Padiberas, the Respondents approached Padiberas for a payment of purported ‘retirement/termination benefits’ pursuant to a clause in the Handbook.
 
Padiberas refused the Respondents’ request which resulted in the Respondents commencing a declaratory action against Padiberas in the High Court.
 
The High Court Judge held that even though there was a mutual termination of the Respondents’ employment contracts, the Respondents’ right to be paid retirement/termination benefits as stated in Handbook subsists as it was never waived.
 
THE REVERSAL BY THE COURT OF APPEAL
 
The Court of Appeal unanimously reversed the decision of the High Court. In coming to that conclusion, the Court of Appeal deliberated on the following issues:
 
(1)     Whether there is a need for an express term in the VSS Scheme waiving the retirement/termination benefits in the Handbook; and
 
(2)     Whether there was an intention by both parties to rescind the Respondents’ employment contracts when they embarked on the VSS Scheme.
 
Is an express waiver necessary?
 
The Respondents took the position that there must be an express waiver of the rights under the retirement/termination benefits in the Handbook.
 
The Court of Appeal disagreed with this contention and held that although it was not expressly stated that the VSS Scheme would extinguish the rights and obligations under the Respondents’ contracts of employment, the new agreement in the form of the VSS Scheme clearly revealed an intention to rescind the Respondents’ employment contracts.
 
The Court of Appeal applied Section 63 of the Contracts Act 1950 and affirmed the Court of Appeal decision in Ramli bin Shahdan v Motor Insurers Bureau of West Malaysia [2006] 2 MLJ 116 when it stated that the mutual termination of the Respondents’ contracts of employment by the VSS Scheme brought about a complete rescission of the Respondents’ contracts of employment and along with it, the Handbook. 
 
The Court of Appeal also referred to United Dominion Corp (Jamaica) Ltd v Micheal Miri Shouciar [1969] 1 AC 340 where Lord Devlin made the following observation:
 
 “if the new agreement reveals an intention to rescind the old, the old goes, and if it does not, the old remains in force and unamended.”
 
Intention of parties
 
The Court of Appeal pointed out that the clear intention of the VSS Scheme was to bring a complete cessation of the employer-employee relationship between the Respondents and Padiberas.
 
The termination under the VSS Scheme was a termination upon mutually agreed terms which did not include the retirement/termination benefits payable under the Handbook.
 
The Respondents would have been in a position to compare and to ascertain that the compensation they would receive under the VSS Scheme did not include what they would have received under the retirement/termination benefits in the Handbook.
 
In those circumstances, the Court of Appeal came to the conclusion that it is not necessary to insert an express waiver clause in relation to the retirement/termination benefits in the Handbook. 
 
Effect of acceptance of VSS Scheme
 
The Court of Appeal made a finding that the Respondents had voluntarily chosen the VSS Scheme which brought about a complete cessation of their employment with Padiberas at the point when the Respondents received the benefits pursuant to the VSS Scheme.
 
The Court of Appeal made a further observation that it would be wrong to allow the Respondents to again agitate for benefits which were not included in the compensation package under the VSS Scheme. This is because the retirement/termination benefits in the Handbook would only be paid if the Respondents continued their employment with Padiberas. If the Respondents are allowed to do so, it would frustrate the whole purpose of introducing the VSS Scheme.
 
The Court of Appeal adopted the principle in the case of AK Bindal v Union of India [2003] 2 LRI 837 where the Indian Supreme Court made the following observation,
 
“The main purpose of paying this amount is to bring about a complete cessation of the jural relationship between the employer and the employee. After the amount is paid and the employee ceases to be under the employment of the company or the undertaking, he leaves with all his rights and there is no question of his again agitating for any kind of his past rights ...”
 
CONCLUSION
 
For employers, this judgment brings welcome confirmation that employees who apply for and are accepted under a VSS Scheme cannot have a second bite of the cherry.
 
Notwithstanding the Padiberas decision and to avoid any doubt as to whether the employee can re-agitate any rights under his contract of employment, it is recommended that an express term be included in a VSS Scheme whereby the employee waives his rights under his contract of employment.
 
It is also prudent for employers to note that once a contract is terminated by way of mutual agreement pursuant to a VSS Scheme or by way of mutual separation, all rights and obligations under the contract of employment including post-contractual rights and obligations are extinguished.
 
It is therefore important that in a VSS Scheme or a mutual separation situation, the employer identifies and states expressly those post-contractual obligations that the employer requires to be saved as a matter of course. These clauses may include clauses on confidentiality, non-solicitation and non-disclosure.
 
 
Writer's e-mail: sharmila.ravindran@skrine.com
 
Sharmila is a Senior Associate in the Dispute Resolution Division of SKRINE. Her main practice areas are Civil and Commercial Litigation, Employment and Shipping.