Termination of employees is gradually becoming an issue of challenge in the at-will employment jurisdiction of Singapore. Although notice can generally be given to terminate an employment, some employees whose employment have been terminated do nevertheless challenge the validity of the termination alleging constructive or unfair dismissal instead. This also occurs where the employee has resigned from his role. Whilst the position at law is seemingly clear, with the recent Court decision in Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] shedding some light, this article provides that caution is nevertheless necessary. 

Legal Risks in Employee Termination

Introduction

Singapore is an at-will employment jurisdiction, and as a general rule, employers can terminate the employment of their respective employees provided the manner of termination complies with the provisions of the employment agreement and where applicable, the Employment Act (Cap 91) (“EA”). Further, under Singapore Law, there is no legal obligation on the employer to provide the employee with reasons for the termination. Notwithstanding this, in recent times, there has been an increase in the number of employees challenging the termination of their employment, whether by way of a legal action, or complaints filed with either the Ministry of Manpower (“MOM”) or the Tripartite Alliance for Fair and Progressive Employment Practices (“TAFEP”).

One recent example of an employee bringing an action against his employer and alleging that his termination is a case of wrongful dismissal is the case of Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] SGCA 43 (“Wee Kim San”). In this case, the employee alleged that “he has been forced to resign as a result of persecution and unreasonable bias that had been directed towards him by the Company or its officers” by reason of his sexuality, and sought damages from the Company. This was an appeal from an earlier decision by the High Court in Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2013] SGHC 279, which held that “the bare fact of termination cannot be a ground to claim damages other than what he would have been entitled to under the employment contract for a lawful termination, even if he was constructively dismissed”. This finding by the High Court was affirmed by the Court of Appeal. While this case did not deal with the issue of whether the employee had been wrongfully terminated, it suggests that the current position adopted by the Courts in Singapore may be that even if the employee had been wrongfully terminated, he/she is only entitled to payments due under his/her terms of employment should the termination be carried out lawfully. This would mean that the employer will not be required to pay additional damages to the employee even if the Courts had found that this is a case of wrongful termination. 

While this decision by the Court of Appeal makes clear the above position, it still raises a number of issues that companies should be aware of, particularly when exercising its right to terminate the employment of their employees.

Constructive Dismissal

In Wee Kim San, the appellant had argued that he was entitled to additional damages as he was constructively dismissed by the company. In summary, the appellant had argued that he was forced to resign from the company as the company was persecuting him simply because he was a homosexual. However, given that this was an appeal against the decision by the High Court to strike out the claim of constructive dismissal on the ground that the claim was legally unsustainable, the Court of Appeal did not discuss at length the concept of constructive dismissal in Singapore. 

Nevertheless, the Courts recognised that the concept of constructive dismissal remains a cause of action available to employees in Singapore. In brief, constructive dismissal “refers to a situation where the employer’s repudiatory breach entitles the employee to treat himself as discharged from the employment contract; although it is the employee who terminates the contract, he is considered as having been ‘constructively dismissed’ by the employer”. 

In the case of Cheah Peng Hock v Luzhou Bio-Chem Technology Limited [2013] SGHC 32 (“Cheah Peng Hock”), the High Court held that the following elements must be made out before an action in constructive dismissal can be founded:

1. The employer must have committed a repudiatory breach of the employment agreement. This can be by way of a single action or through a series of acts or omissions. 

2. The employee must have accepted the repudiatory breach. 

3. The repudiatory breach must have caused the employee to leave his/her employment.

Assuming the above elements are made out, the Courts will then turn to look at the measure of damages due to the employee as a result of the repudiatory breach by the employer. On damages, following the decision of the Court of Appeal in Wee Kim San, it appears that if the employee had already been paid all amounts due to him/her under the contract of employment, no additional sums would be ordered. This may likely be the case even if the above elements are clearly made out on the facts of the particular case.

Further, the High Court in Cheah Peng Hock affirmed that it is the employee who bears the burden of establishing that the breach went to the root of the contract, and that the test for constructive dismissal is an objective one. 

In Cheah Peng Hock, the plaintiff had alleged that he had been constructively dismissed by the Company as he had, inter alia, been excluded from board meetings and consultations, his responsibilities as CEO were removed from him and the decisions he had made as CEO were unilaterally reversed by the company. The High Court held that the above acts of the company went to the very essence of the employment contract and such acts of repudiation had been accepted by the employee when he resigned from his position. Consequently, the High Court ordered the company to pay to the employee his salary for the remaining term of the employee’s employment contract, which was a fixed term agreement. This position taken by the High Court is similar to the position taken by the Court of Appeal in Wee Kim San, in that in the event of a finding of wrongful termination, the employee will only be entitled to sums due to the employee under the terms of the employment agreement, and no additional compensation is payable.

While there was no ruling on constructive dismissal by the Court of Appeal in Wee Kim San, it is clear that constructive dismissal remains a cause of action available to disgruntled employees under Singapore Law, and one that companies must continue to bear in mind during the continuance of the employment relationship, and in its subsequent termination thereof. As a general rule, while the employees remain under the control of their respective employers, companies must exercise caution when deciding to unilaterally vary the employee’s conditions of employment, particularly where the variation results in a deterioration of the employee’s terms of employment. Nevertheless, and as a source of comfort for employers, it appears from the above cases that even if the Court finds that the employee had been wrongfully terminated, the Court will only order that the employer pays to the employee sums due to the employee under the relevant terms of employment, or in the absence of which, a reasonable sum which represents the amount due to the employee under his/her employment contract should the termination be a lawful one. It would only be in the very rare instance that a Court would order beyond this, and claims for the likes of distress will be difficult to succeed. 

Duty of Mutual Trust and Confidence

In Wee Kim San, the appellant had argued, in the alternative, both in the High Court and in the Court of Appeal that the Company had breached the implied term of mutual trust and confidence in his contract of employment. Consequently, the Court should order the Company to pay additional damages, given that this breach by the Company was separate and distinct.  

By way of background, this implied term was recognised as a part of Singapore law in the High Court case of Chan Miu Yin v Philip Morris Singapore Pte Ltd [2011] SGHC 161, and affirmed in Cheah Peng Hock. In Cheah Peng Hock, the High Court had listed the following as situations when the duty of mutual trust and confidence is applicable:

1. A duty not to act in a corrupt manner which would clearly undermine the employee’s future job prospects;

2. A duty not to unilaterally and unreasonably vary terms;

3. A duty to redress complaints of discrimination or provide a grievance procedure;

4. A duty not to suspend an employee for disciplinary purposes without proper and reasonable cause;

5. A duty to enquire into complaints of sexual harassment;

6. A duty to behave with civility and respect; 

7. A duty not to reprimand without merit in humiliating circumstances; and

8. A duty not to behave in a wholly unacceptable way.  

On this, the Court of Appeal in Wee Kim San recognised that a breach of this implied term could “give rise to an altogether separate category of injury or loss such as emotional distress or impairment of future of employment prospects”. However, where wrongful dismissal is the only consequence of the breach of this implied duty, the employee will only be entitled to “premature termination losses flowing from the employer’s failure to give proper notice or pay salary in lieu of notice”. Essentially, the employee will only be entitled to additional damages if the premature termination of the employment contract is not the only consequence of a breach of this implied term, which was the case in Wee Kim San. 

As a separate but related point, while not expressing a final view on the subject, the Court of Appeal asked that caution be exercised in relation to English authority which held that claims for damages based on a breach of this implied duty can only be brought if the cause of action accrued before and existed independently of the cause of action for wrongful dismissal. This is because, unlike  Singapore, there is an English statutory scheme for compensation in the event of a wrongful dismissal, and the House of Lords in  Johnson v Unisys Ltd [2003] 1 AC 518 held that allowing an employee to claim for damages arising from the manner of his dismissal was inconsistent with this statutory scheme.

The High Court in Cheah Peng Hock also stated that the implied duty of mutual trust and confidence does not include a duty of good faith, but includes a narrower duty of fidelity, which entails that the employer must act honestly and faithfully. This means that the “employer shall not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage relationship of mutual trust and confidence between the employer and employee”.  Further, this duty of fidelity can be limited or excluded by express terms in the employment agreement. Hence, it is important that companies review their existing employment agreements to ensure that this implied term of mutual trust and confidence is sufficiently limited in scope.  

While the alternative argument by the Appellant in Wee Kim San failed, and the Court of Appeal did not award any additional damages to the employee, this duty is one that companies should be fully aware of, whether during the maintenance of the employment relationship or in its subsequent termination thereof. This is primarily because, unlike in the case of wrongful termination, a breach of this implied duty may potentially result in the company having to pay additional damages to the employee.  

Discrimination

Apart from the above points, one allegation raised by the appellant in Wee Kim San was that his employment was terminated because he was a homosexual. While the appellant failed to provide sufficient evidence to substantiate this allegation, his allegation was essentially that the company had unfairly discriminated against him by reason of his sexuality. 

While the claim of discrimination against the company was not established in this case, it is important for employers to note that following the introduction of the Fair Consideration Framework (“FCF”) by the MOM in September 2013, businesses which have in place discriminatory human resource practices, whether relating to recruitment or termination practices, will be subjected to additional scrutiny from the MOM. In addition, the MOM may ask companies to provide to the MOM information on the company’s recruitment, progression and termination processes, which tend to be highly confidential and sensitive in nature. While there is no statutory obligation on companies to provide the above information, companies which remain unresponsive may have their work pass privileges curtailed for a period of time, which can be highly disruptive to a company’s operations. Further, even if a company chooses to respond to a request for information by the MOM, precious management time would be wasted.  

As an overarching principle under the FCF, companies are required to put in place fair employment, hiring and staff development practices that are open, merit-based and non-discriminatory. Specifically on hiring, companies posting job advertisements must ensure that their respective selection criteria is stated clearly in the job advertisements and words or phrases indicating preferences for candidates of a certain age, race, language capability, gender, marital status and religion are strictly prohibited. On this, it is important that any attributes required by the company is objectively justified based on the requirements of the relevant position. This enables the company to effectively defend its position should a query arise.  

Finally, in relation to dismissals, it is important that companies maintain records of employee’s performance and conduct, and ensure that such records are true and accurate. Essentially, the company’s decision to terminate an employee must be able to withstand scrutiny in the face of a challenge on discrimination or such other grounds that a disgruntled employee may potentially raise.

Conclusion

While Singapore is an at-will employment jurisdiction, the trend is that companies terminating their employees are now subject to greater scrutiny, whether from the MOM, the Courts or the employee. Given this, companies must ensure that they are able to objectively justify the termination of an employee, and that such justifications must be able to withstand the scrutiny. While companies are not obliged to inform employees of these justifications at the point of termination, they will ultimately aid the company in defending any claim brought by the employee or in responding to queries from the MOM.

Where the company is unable to successfully defend an action of wrongful termination brought by the employee, case law has suggested that the Courts will only order that the company pay to the employee all sums due to the employee under the terms of the employment agreement should the company terminate the employment lawfully. This means that unless that employee is able to establish that the company had acted in breach of its duties, and such breach resulted in a consequence other than wrongful dismissal, the Courts are unlikely to award any additional damages to the employee. 

Finally, under the FCF, a company who has been found to have engaged in discriminatory HR practices may be required by the MOM to provide an undertaking or have their work pass privileges curtailed for a period of time, which may potentially be far more damaging than the mere payment of contractual damages.

► Kala Anandarajah
    Partner
    Rajah & Tann Singapore LLP
    E-mail: [email protected]

► Marcus Teo
    Associate
    Rajah & Tann Singapore LLP
    E-mail: [email protected]