Difference between Retrenchment, VSS, & MSS

Although the end result is the same for retrenchments, VSS and MSS (i.e. the employee is no longer employed), there are differences.

This is dismissal of employees who are regarded as surplus to requirements. The company / department itself is not being closed, but rather a select group of employees are retrenched. Not all employees are retrenched.

Companies in carrying out retrenchment are required to abide the legal provisions of the Employment Act 1955 (where relevant) and the general rule of LIFO (Last In First Out).

Voluntary Separation Scheme. This arises when a company that is not officially retrenching but nonetheless wishes to get rid of employees.

In this scenario, the company will make an announcement that is addressed to the employees along the lines of 1) “Profit hasn’t been good” 2) “We have been making losses” 3) “The company is not dismissing anyone, but will welcome application from employees to be considered for VSS”.

It is like a job advertisement that invites applicants. The difference here is that it is not a job advertisement, but rather, an invitation by the company for application by the employees, to be considered for VSS.

Usually the company will also talk about the terms and conditions of the VSS (compensation terms, qualifications, requirements etc).

Because of the nature of VSS, it is usually more difficult for employees who have left the company on VSS to challenge this in the Malaysian courts.

Mutual Separation Scheme. This arises when both parties agree to terminate the employment relationship. The keyword is “mutual”, i.e. both parties agree to a settlement that is a win-win scenario for them.

Section 20 IRA 1967
As is the case with all dismissals of employees, the employer has the burden of proving just cause or excuse in dismissing the employee(s).

If it is a retrenchment and the purported reason is eg, losses for the preceding xx number of years, then the employer must be able to show the losses by way of the profit and loss account, etc.

A VSS is more difficult for the employee to argue unless it can be shown that the employee was coerced into it, or there existed the usual elements that may render the VSS void or voidable.


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