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May 3rd, 2019

En. Zainal Latiff,


Gombak
Selangor Darul Ehsan

RE: OPINION ON ACCEPTING EX-GRATIA PAYMENT AND ACCEPTING NEW


APPOINTMENT.

Dear En. Zainal Latiff,

On 25th April 2019, you have met with Ms. Uma Devi, our firm’s senior associate to
discuss on whether you should accept the ex-gratia payment offered by your employer and
whether you are restrained from accepting the new appointment at Wonderwood Bhd. My
opinion is based on the facts you have conveyed to Mr. Uma Devi, the current statute
Contracts Act 1950 and several pertinent case laws. Kindly review these facts and reach me if
any of those facts are misstated or if you wish to add any additional information. Please be
noted that the law may change over time and affect the validity of this opinion. Thus, it is
limited to the law as it currently stands. Please also understand that this opinion will not
create any legal rights and obligation between us.

FACTS
On 1st November 2013 you have entered into an employment contract with Rimba
Hijau Bhd, a well-known manufacturer of high quality tropical-wood furniture as a
Marketing Director of the Company.

In January 2019, a new statutory regulation came into effect, and this prevented
Malaysian furniture companies from exporting tropical-wood products unless they were in
receipt of a Government Export License. Rimba Hijau had applied for such a license but was
refused. The Company, therefore, decided to reduce their expenses by declaring some of their
employees redundant.

On 10th March 2019, you received a letter from the Chairman of Rimba Hijau
terminating your contract and relieving you off your duties and stated that ex gratia payment
of RM 250,000 is given to you and claims that the company were not under any contractual
obligation to make such payments.

On 20th April 2019, you received a letter from Rimbau Hijau Bhd stating that if you
accept the new appointment as Marketing Director of Wonderwood Bhd then you’ll be
breaching Clause 4 and 5 of your employment contract and that the company will commence
legal proceedings against you if you fail to comply.

CONCLUSION
You may accept RM250,000 as it is considered a gratuity payment paid by Rimba
Hijau Bhd as an attribute to your past services. This ex gratia payment will be included in
your gross income from the employee and is taxable. Apart from that, there is no breach of
the contract on your part in the event you decide to accept the new appointment as Marketing
Director of Wonderwood Bhd, or in fact, if you are engaged in any business similar to Rimba
Hijau Bhd. This is because employee should not be restraint from engaging other business
offered by other companies upon determination of contract. As such, Rimba Hijau Bhd
cannot sue you on Clause 5 of the Contract since the clause is null and void.

However, you may be liable for breach of contract if there is sufficient proof that you
obtained Rimba Hijau Bhd’s confidential information for the purpose of soliciting their
customers to purchase or service which is similar or in competition with Rimba Hijau Bhd.
Clause 4 of the contract of employment embeds a valid reasonable restriction for Rimba
Hijau Bhd to protect their business.

EXPLANATION
Firstly, it is important for you to know the meaning of ex gratia payment. Ex gratia is
one of the types of gratuity payment which can be paid in lump sum to the you for early
termination of your contract of service by Rimba Hijau Bhd. It is paid to the you to
compensate the you for the loss of your employment. Ex gratia payment will be included in
you gross income from employment and therefore is taxable under Income Tax Act 1967. Ex
gratia payment rests entirely to the discretion of Rimba Hijau Bhd. However, once Rimba
Hijau Bhd decided to pay ex gratia payment to you, they must establish the purpose of the
payment in order to determine the tax treatment of the payment. Therefore, you can accept
the company’s offer of ex gratia payment and you must note that the payment is taxable
under the law.

On the issue of Rimba Hijau Bhd restraining you from accepting the new appointment
at Wonderwoord Berhad, Rimba Hijau Bhd cannot restrain you from accepting any new
appointment or position offered by other companies after the termination of your
employment with them. It is important for us to emphasize that Contract of Employment
between you and Rimba Hijau Bhd must be interpreted in accordance to Malaysian law as is
stated in Clause 7 of your Contract of Employment. Generally, under Section 28 of the
Contracts Act 1950, an agreement which contains provision to restrain a person from
exercising the lawful profession, trade or business is considered as considered as a void
agreement. If you are restrained from accepting the appointment offered by Wonderwood
Bhd, it will deprive you from getting an income to support your family after the termination
of your employment with Rimba Hijau Bhd. Thus, Rimba Hijau Bhd cannot sue or take any
legal action against you for breaching clause 5 of the Contract of Employment as the clause
itself is void under Malaysian contract law.

Besides that, Clause 5 of the Contract of Employment is also known as a non-


competition clause. Non-competition clause are often used by companies to limit their
employees especially the high positioned employee from accepting any employment with
other companies who has the same nature of business with them for a period of time after the
resignation of the employee. It is usually included in the Contract of Employment to prevent
the employee from using their trade secrets and confidential information while working with
the new company and allowing them to benefit and make profits from the information. It is
stated in Clause 4 of your Contract of Employment with Rimba Hijau Bhd that you are
prohibited to contact their customers for the purpose of soliciting their customer to purchase,
lease or license a product that has the same competition with products offered by them for
three years. This is also considered as Rimba Hijau Bhd’s trade secret and confidential
information clause. Therefore, in order for you to escape the liability for breach of contract
with Rimba Hijau Bhd, you must refrain yourself from using any of their trade secrets or
confidential information while working with Wonderwood Bhd in the future.

CLOSING
I hope this letter adequately answers your question. Please make an appointment to
see me sometime in the next two weeks. Please also bring all the records as requested in this
letter in the next meeting.

Please call me if you have any question.

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