Are "Full and Final Settlement" Agreements Truly Final?

We often come across ?"full and final settlement" agreements being used by employers to resolve all claims by an employee at the Labour Office, or to close a reinstatement claim at the Industrial Relations Office.? We also use this full and final settlement agreement for closing a mutual separation agreement. ??After we sealed the deal, we simply? assumed that all is done and final.? Unfortunately, it may not really be full and final at all.? We have several case law in Malaysia have shown that such agreements must be carefully crafted to prevent the employee from pursuing further claims after he, you and the witness put their signatures to it.

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?The Importance of Clear, Comprehensive Settlement Agreements

A "full and final settlement" agreement is intended to close off any future claims between an employer and employee and vice-versa.? For the employee, the employer typically intends that the ex-employee is barred from making more claims on final salary, severance payments, and any other entitlements. ?Everybody, including the JTK and IR Officers (who don’t actually care for it afterwards, anyway), expect that ?once the agreement is signed, both parties move on with no further claims. ?However, Malaysian courts, (as well as Commonwealth and American courts) ?have consistently shown such full and final settlement agreements may still leave room for employees to claim additional contractual or statutory entitlements.

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?Case Study 1: Charles S. Nathan v. Faber Group Berhad (Award No. 666/2000)

Charles S. Nathan had accepted a settlement package upon his termination, which included a "full and final settlement" agreement. However, after signing, Nathan claimed continued to claim that certain contractual entitlements, such as bonus payments, were not included in the settlement. The Industrial Court ruled in his favor, allowing him to pursue his claim for the unpaid bonus. The court found that the settlement agreement was not specific enough in covering all entitlements, particularly the bonus, and Nathan was thus entitled to claim it.

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?Case Study 2: Jacqueline Binti Joseph v. University College Sabah Foundation (Award No. 24/2023)

This is a more recent case. ?Jacqueline Binti Joseph signed a "full and final settlement" agreement at the Sabah Labour Office in settlement of her claims against the University following the non-renewal of her fixed term contract of service. ?She had settled for a lower amount of termination benefit under the mediation of the Labor Officer.?? However, after the agreement was signed, she also took up a case of unfair dismissal and reinstatement at the Industrial Relations Office, which later was heard in court.? She claimed for the usual compensation and also asked for the court to grant her the full ?termination benefits under the USCF Scheme of Service.? The court ruled against her in the matter of unfair dismissal but went on to rule in her favour on the matter of unpaid termination benefit.? The Industrial Court agreed with her that she is entitled to the full payment of termination benefit as provided for under the CSF Scheme of Service as ?ruling that the settlement did not cover her full contractual entitlements. Jacqueline was allowed to claim the remaining benefits.? This goes to show that that even signed settlement agreements can be challenged if the employee's full entitlements are not clearly and fairly addressed or if the agreement is not drafted in a complete manner to specifically exclude every agreed benefit.

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?Legal Precedent: Tamil Nesan (M) Sdn. Bhd. v. K. Ganesan [2005]

The High Court case of Tamil Nesan (M) Sdn. Bhd. v. K. Ganesan [2005] further underlies this principle. In this case, the court held that an employee who had signed a "full and final settlement" agreement could still claim additional entitlements if the agreement failed to cover all of the employee’s statutory or contractual rights. The court ruled that statutory entitlements, in particular, cannot be waived unless explicitly and legally provided for in the agreement.? As my personal input, I would also caution you that even if there is explicit agreement to waive certain benefits, particular if it is a statutory benefit, the court could rule that the waiver is illegal and therefore the employee is still entitled to it.? One such statutory benefit which the court would not allow a waiver could be the right to maternity allowance.

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?Key Takeaways for HR and IR Professionals

1. ?Use Clear and Specific Language: Ensure that the "full and final settlement" agreement explicitly lists all entitlements—whether statutory or contractual. A term like "any other claims" can be ruled as vague and still leave open the door to future disputes.

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2. Include All Contractual and Statutory Rights: ?Comb through your contract and ensure that statutory rights (e.g., EPF contributions) and contractual rights (e.g., bonuses, incentives, increments or commissions) are fully covered in the agreement. Failure to address these clearly may lead to legal challenges, as seen in the Nathan and Jacqueline cases.

3. Adequate Consideration: The settlement offered must be sufficient to cover all of the employee's claims. If the employee believes the settlement is inadequate (as in Jacqueline's case), they may have grounds to challenge the agreement.

4. Avoid Ambiguity: The Tamil Nesan case shows that Malaysian courts will scrutinize agreements for clarity and fairness. Any ambiguity can result in the agreement being set aside or opened to further claims.

?Conclusion

For Industrial Relations professionals, the lesson is clear: settlement agreements must be comprehensive, precise, and fair. The cases of Charles S. Nathan, Jacqueline Binti Joseph, and Tamil Nesan v. K. Ganesan highlight how courts in Malaysia will uphold employees' rights if a settlement agreement does not explicitly and fairly address all entitlements. By ensuring clear, well-drafted agreements, employers can minimize the risk of future claims and ensure true closure for both parties.? Bear in mind that Commonwealth and American courts are consistent in this matter.