Termination of Employment

Tan Chuan Thye and Elizabeth Wong examine the termination of employment where the Employment Act (Cap 91, 1996 Ed) does not apply.

General

Introduction

Singapore's employment (or labour) law and practice is a combination of common law and statute law. While cases from other jurisdictions are helpful, care should be taken when considering them as they are usually decided in a legislative and policy framework particular to their own jurisdictions.

The main legislative provision is the Employment Act. The Employment Act addresses several aspects of the employer-employee relationship and stipulates certain minimum terms and conditions of employment. The Employment Act applies to all employees as defined in the Employment Act with the exception of seamen, domestic servants, government employees or any person employed in a managerial, executive or confidential position. In addition, Part IV of the Act governing, inter alia, rest days, hours of work, holidays, retrenchment and retirement payments, applies only to employees whose salaries do not exceed S$1,600 per month. In this article, we look at situations where the Employment Act does not apply.

Termination Without Notice

Fixed-term contract

A contract of employment which is expressed to be for a specified project or period expires when the project is completed or the period expires. This is strictly not the same as the termination of employment. It has been ruled that the word 'terminated' requires some positive act on the part of the employer to end the employee's employment, such as actively making an employee redundant (Teachers Pension Agency v Hill (The Times, 12 June 1998)).

Employer's financial circumstances

The appointment of a receiver by the court automatically terminates all contracts of employment between a company and its employees. It is immaterial that the receiver continues to carry on the business temporarily since he does not do so as agent for the company. On the other hand, the appointment by debenture holders or mortgagees of a receiver to act as an agent of the company does not operate to terminate existing contracts of employment, unless:

The law is summarised in Griffiths v Secretary of State for Social Services [1974] QB 468.

However, if the receiver is appointed to act as agent for the debenture holders, the appointment will terminate the company's contracts of employment (Hopley-Dodd v Highfield Motors (Derby) Ltd (1969) 4 ITR 289).

It is not settled whether the appointment of a judicial manager automatically terminates the contract of employment. (The point is dismissed in Woon, Company Law (2nd Ed) at page 650. In England, the appointment of an administrative receiver does not result in automatic termination: Powdrill v Waton [1996] 1 BCLC 386.) Insofar as the judicial manager is the agent of the company and has to continue its business, it may be thought that the appointment is not an automatic termination.

Where an employer is insolvent and is the subject of a compulsory winding-up order or a resolution to wind up, the order or resolution operates to terminate all contracts of employment between the company and its employees (Re Mack Trucks (Britain) Ltd [1967] 1 All ER 977).

Frustration of the employment contract

A contract of employment can be frustrated where there is a supervening event that renders the employer or the employee unable to perform his obligations under the contract. The decided cases show that a serious illness or accident befalling the employee, or his imprisonment, can amount to frustration.

It is a difficult question of fact whether the circumstances are sufficiently serious to warrant finding that the contract has been frustrated. By way of guidance, case law has suggested the following factors for consideration in the situation of an employee being taken ill (Marshall v Harland & Wolff Ltd [1972] 1 WLR 899 at page 903):

The factors outlined above 'are inter-related and cumulative, but are not necessarily exhaustive of those which have to be taken into account'.

In Chakki v United Yeast Co Ltd [1982] 2 All ER 446, where the employee was imprisoned, the court took into account factors such as when it was necessary for the employer to consider if a replacement would have to be engaged, the likely length of the employee's absence and if a replacement had to be engaged, whether it was reasonable to engage a permanent replacement rather than a temporary one. (There are two inconsistent decisions of the Malaysian courts in this area - the court in Sathiaval a/l Maruthamuthu v Shell Malaysia Trading Sdn Bhd [1998] 1 MLJ 740 distinguished Subramaniam v Esso Malaysia Bhd [1990] 3 MLJ 118, where a different conclusion was reached on similar facts.)

Obviously, the ultimate supervening event is the death of the employee (Stubbs v Holywell Rly Co (1867) LR 2 Exch 311) or the employer (Farrow v Wilson (1869) LR 4 CP 744; Graves v Cohen (1929) 46 TLR 121).

Termination by operation of law

Where employment depends upon an employee meeting statutory criteria, the contract terminates when he is unable to meet the criteria (see Tarnesby v Kensington and Chelsea and Westminster Area Health Authority (Teaching) [1981] ICR 615, where it was held that the loss of registration as a medical practitioner automatically terminated the employee's contract of employment).

Termination by Notice

Generally

An employer must be careful to issue termination letters in the correct form. The Court of Appeal has held that in a situation where the notices of termination were typed on the letterhead of the employer's affiliated company, no valid notices of termination had been given as the notices had been issued by an entity with whom the employees had no contractual relationship whatsoever (Alexander Proudfoot Productivity Services Co S'pore Pte Ltd v Sim Hua Ngee Alvin and another appeal [1993] 1 SLR 494, where the court noted that the effect might have been different if the notices had been issued on behalf of the employer although the letterhead used was that of the affiliated company).

Where a notice is validly given to terminate a contract of employment, there will usually not be an enquiry into the reasons or the motives for the termination. However, the recent local case of Noor Mohamed bin Mumtaz Shah v Apollo Enterprises Limited (DCA 34/1000, unreported) is a reminder that this is not always so. The employee in this case was employed for almost 25 years by the employer when his services were terminated on one month's pay in lieu of notice. Under a collective agreement, the employee was entitled to redundancy payments. The employee claimed that the employer had disguised his dismissal as a termination in order to avoid paying him the redundancy benefits under the applicable collective agreement. The employer argued that as a matter of law, they were entitled to terminate the employment with one month's pay in lieu of notice as provided in sections 10 and 11 of the Employment Act.

Lee Seiu Kin JC held that if an employee is dismissed in circumstances where a redundancy results and that employee would have been entitled to redundancy payments if he had been retrenched instead, there is a presumption that the dismissal is on the ground of redundancy. The onus then shifts to the employer to show that the dismissal was not solely or mainly due to redundancy. It would otherwise be all too easy for employers to escape their legal obligation to pay the redundancy benefits to which employees are entitled.

On the facts, the court allowed the employee's claim for redundancy payments.

Common law

Contracts usually specify the period of notice. In the absence of any express stipulation as to duration or expiry, every contract of employment is treated as determinable by reasonable notice.1

The question as to what is a reasonable period of notice is one of fact, depending on all the circumstances of the case and the nature of the employment. In Bramble v Medis Health and Pharmaceutical Services Inc [1999] 175 DLR (4d) 385, the court held that the primary object of notice is to provide the terminated employee with a reasonable opportunity to seek alternate suitable employment. In determining what constitutes reasonable notice of termination, the courts have generally considered four factors: the character of employment, the employee's age, the length of service, and the availability of similar employment.2

In the absence of any stipulation to the contrary, there is no obligation for notice to be given in writing (Latchford Premier Cinema Ltd v Ennion [1931] 2 Ch 409). The normal rule is that once notice has been given effectively by either party, it may not be withdrawn unilaterally. Accordingly, withdrawal of notice may be by mutual consent only (Harris and Russell Ltd v Slingsby [1973] 3 All ER 31).

In practice, it is accepted for an employer to give the employee wages in lieu of notice even if the contract does not provide for this. This is based on Konski v Peet [1915] 1 Ch 530.3 However, the decision in Konski v Peet should be contrasted with that in Heron, Gethin-Jones & Liow v John Chong [1963] MLJ 310, where the Singapore Court of Appeal took the view that there was usually no need to imply that a contract of employment could be terminated by the payment of salary in lieu of notice (note, however, that the case of Konski v Peter [1915] 1 Ch 530 was not cited to the court).

As a practical matter, it should be noted that CPF contributions are not payable in respect of the sum paid in lieu of notice.4

Age

The Retirement Age Act (Cap 274A) prohibits employers from dismissing employees (whether or not they come within the Employment Act) below 60 years of age, or the prescribed retirement age (presently 62 years), on the ground of age. The Act, however, does not take away the employers' right to dismiss employees for poor performance, ill health, or misconduct.

An employee will be treated as dismissed by his employer if:

The Retirement Age Act also provides that any term of a contract of service or collective agreement will be void in so far as it purports:

The scope of the Act has been, however, limited by the Retirement Age (Exemption) Notification, which exempts 22 groups of employees from the protection of the Act.

Garden Leave

An issue that arises in practice is the position of an employee during the period between his giving notice and the expiry of the notice period. It is common for an employer to ask the employee to stay at home during the period. An employer may take this course of action, rather than waive the notice, as he wishes to ensure that the employee does not go to work for a competitor during that period and/or to give that employee's replacement time to take over his contacts and business. Contracts usually provide an employer with this right.

It is settled law that the contract remains in place during the period of notice. If the employee acts inconsistently with the contract, the employer will want to injunct the employee. The court will have regard to the need of the employer for protection, questions of confidential information, possible detriment to both parties and the nature of the employment that the employee wishes to take up (Provident Financial Group plc v Hayward [1989] 3 All ER 298).

This is further elaborated by Mehigan & Griffiths in Restraint of Trade and Business Secrets (3rd Ed) at page 278, where the learned authors identify the following as the principal considerations:

  1. That the employer has not accepted the employee's repudiatory breach.
  2. That the employer has not agreed to provide the employee with any particular type of work. If there is such an agreement and the employee is required to be on 'garden leave', he can argue that the employer has repudiated the agreement.
  3. That the employee will receive the same salary and benefits whilst on garden leave as he would have done if he had remained at work. Unless there is an express provision dealing with the point, this means that he must be able to participate in any bonus scheme during the relevant period. The difficulty with an express provision which excludes any right to a bonus is that its existence may militate against the grant of an injunction. It may, however, be most prudent to include a clause which says that the employee agrees that he cannot complain that any bonus payable to him may be less than it would have been by reason of his non-attendance at work.
  4. That the employer can demonstrate existing or likely detriment. In [Provident Financial Group plc v Hayward] it was said that fostering the profitability of a trade rival can constitute detriment: one obvious way in which that can exist is if the employee possesses confidential information which may be of use to his employer's competitor.
  5. That the period for which the garden leave is sought is not excessive.
  6. That the employee is not engaged in an activity where to grant a garden leave injunction might deprive him of future work or if his skills might atrophy during the relevant period.

In William Hill Organisation Ltd v Tucker (The Times, 8 April 1998) (see also article by Meriel Schindler at [1998] Sol Jo 736), it was argued that enforcement of the notice period would be contrary to the employee's right to work. The court said that the question had to be answered by construing the contract of employment in the light of its surrounding circumstances. Having done so, the court concluded that the contract did give rise to a right to work. Three factors led the court to this conclusion:

The Court of Appeal further commented, obiter, on the approach which it felt that the courts should adopt when considering applications for garden leave injunctions. It suggested that a garden leave clause did not give an employer greater protection than a justifiable covenant in restraint of trade.

Summary Dismissal

An employer has a common law right to dismiss an employee without notice on the grounds of the employee's gross misconduct. Such dismissal is not wrongful. This right is explained in contractual terms as the acceptance by the employer of a repudiation of the contract by the employee (see Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 ChD 339 and Pepper v Webb [1969] 2 All ER 216; previously, the right to summarily dismiss was explained as a legal incident of the status of master and servant).

An employer faced with a repudiatory breach has the option of accepting the breach and dismissing the employee, or affirming the contract. Thus, an employer who, with full knowledge of the employee's misconduct, elects to let him continue in service cannot subsequently dismiss him for the misconduct which the employer has condoned (see Horton v McMurtry (1860) 5 H&N 667; Bond v CAV Ltd [1983] IRLR 360).

There is no common law right for an employee to be given reasons for his dismissal by his employer (see Halsbury's Laws of England (4th Ed Reissue) at Volume 16, paragraph 299).

Factors giving rise to summary dismissal

Whether or not an employer is entitled to dismiss summarily depends on whether the misconduct was sufficiently grave to amount to a repudiation by the employee of the contract of employment (General Billposting Co Ltd v Atkinson [1909] AC 118).

This is a question of fact in any particular case (Jupiter General Insurance Co Ltd v Shroff [1937] 3 All ER 67). An employer has to conduct an inquiry before summarily terminating an employee's contract of employment, but a failure to do so is curable by an inquiry before an adjudicating body (see Sil Ad (Johor Bahru) Sdn Bhd v Hilton Oswald Franciscus [1998] 3 CLJ 233). Previous case law is of limited precedent value (Wilson v Racher [1974] IRLR 114). However, the following instances are probably sufficient grounds for dismissal: disobedience to instructions,5 misconduct6 and conduct incompatible with the faithful discharge of the employee's duty to his employer.7

Grounds for dismissal discovered subsequently

The common law rule relating to wrongful dismissal is that, provided good cause for dismissal in fact existed, it is immaterial whether or not it was known to the employer at the time of dismissal.8

A summary dismissal can therefore be justified by facts only ascertained by the employer subsequent to the dismissal, and on a ground different from those alleged at the time (Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 ChD 339).

In Edward Bruce Cowie v Berger International Private Limited [1999] 3 SLR 491, the Singapore High Court held that it was established law that where an employee has in fact been guilty of uncondoned misconduct so grave as to justify instant dismissal, the employer can rely on that misconduct in defence of any action for wrongful dismissal, even if at the date of the dismissal, the misconduct was not known to the employer.

Wrongful Dismissal at Common Law

Meaning of 'wrongful dismissal'

A wrongful dismissal is a dismissal in breach of the relevant provision in the contract of employment relating to the expiration of the term for which the employee is engaged (Halsbury's Laws of England (4th Ed Reissue) at volume 16, paragraph 302).

To entitle the employee to sue for damages, two conditions must normally be fulfilled:

Remedies

Enforcement of the contract

There is a normal rule of practice that a court will not enforce a contract of employment either by way of specific performance, or by the granting of an injunction that would have a similar effect, or by way of granting a declaration that a contract still subsists.10

An employee who has been wrongfully dismissed will, therefore, normally have to accept the repudiation and sue the employer for damages. However, the advantage of accepting the employer's repudiation is that the employee may thereby claim to be released from obligations on himself under the contract, especially a restraint of trade clause (General Billposting Co Ltd v Atkinson [1909] AC 118, Briggs v Oates [1991] 1 All ER 407 and Rock Refrigeration Ltd v Jones & Anor [1997] 1 All ER 1).

Damages

A wrongfully dismissed employee must normally accept the repudiation and sue the employer for damages. He cannot simply wait until the termination of the period for which he was engaged and sue in debt for the whole of the remuneration which would have been due (Fewings v Tisdal (1847) 1 Exch 295 and Denmark Productions Ltd v Boscobel Productions Ltd [1969] 1 QB 699).

An employee who has been wrongfully dismissed is entitled to recover estimated pecuniary loss resulting from the premature determination of his service. He is only entitled to claim for the sums which he was contractually entitled to receive, but not that which he probably would in fact have received (Lavarack v Woods of Colchester Ltd [1967] 1 QB 278 and Micklefield v SAC Technology Ltd [1990] 1 WLR 1002, where a loss of share option was not recoverable).

This point was recently affirmed by the Singapore Court of Appeal in the case of Scott Latham v Credit Suisse First Boston (Suit No 2048/97, unreported). The relevant clause provided that 'a bonus may be paid to you at the end of each calendar year'. The court held that proper construction of the contract indicated that the decision to grant a bonus was entirely at the discretion of the employer. Even if the employee had continued to be employed, he would not have a legal right to claim a bonus from the employer. Unless the bonus had been expressed to be guaranteed, an employee could not claim to be legally entitled to a bonus, the granting and quantum of which are entirely at the discretion of the employer (cf Clark v Nomura International plc (2000, unreported) where the English High Court held that a bonus scheme described as discretionary created a contractual obligation on the employer to exercise its discretion in a way which is not perverse or irrational).

Moreover, damages are usually restricted to definable pecuniary loss and, therefore, no amounts may be recovered representing the manner of dismissal or prejudice to reputation or chances of other employment (Addis v Gramaphone Co Ltd [1909] AC 488, Shove v Downs Surgical plc [1984] 1 All ER 7 and SR Fox v Ek Liong Hin Ltd [1957] MLJ 1).

In the case of a fixed term contract, the starting point is the remuneration for the remainder of the fixed term. However, most contracts are determinable by notice so that the employee is entitled to recover only the amount of remuneration during the notice period (Addis v Gramaphone Co Ltd [1909] AC 488).

Employee's duty to mitigate

As the action is for breach of contract, not debt, the employee is under a duty to mitigate his loss (Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109 at page 147).

If the employee obtains employment during the period relevant for the purposes of the calculation of damages, amounts earned must be deducted from the damages (Re Imperial Wine Co, Shirref's Case (1872) LR 14 Eq 417 and Reid v Explosives Co (1887) 19 QBD 264). If the period relevant for the purposes of calculation of damages is still running at the time of trial, the court may make a deduction for possible future mitigation (Edwards v Society of Graphical and Allied Trades [1971] Ch 354; [1970] 3 All ER 689).

If it can be shown that the employee could with reasonable diligence have avoided a loss, his damages may be reduced accordingly (Beckman v Drake (1849) 2 HL Cas 279). Therefore, if the former employer can show that the employee could reasonably have obtained suitable employment at similar wages soon after his dismissal, the employee may recover only nominal damages (Brace v Calder [1895] 2 QB 235 and Re Gramaphone Records Ltd [1930] WN 42).

The question of what are reasonable steps to take to mitigate loss is one of fact in all the circumstances of the case and must be considered realistically.

Constructive Dismissal

An employee who terminates the contract of employment, with or without notice, may still claim to have been dismissed if the circumstances are such that he is entitled to terminate it without notice by reason of the employer's conduct.

An employee seeking to rely on constructive dismissal must show that the employer was guilty of a repudiatory breach of contract, not simply of unreasonable conduct (Western Excavating (ECC) Ltd v Sharp [1978] QB 761). In the Malaysian case of Anwar bin Abdul Rahim v Bayer (M) Sdn Bhd [1998] 2 MLJ 599 at page 605, the Court of Appeal held that the proper approach in deciding whether constructive dismissal has taken place is not to ask whether the employer's conduct was unfair or unreasonable, but whether the conduct of the employer was such that the employer was guilty of a breach going to the root of the contract or whether he has evinced an intention no longer to be bound by the contract (see also Christoph Hoelzi v Langkawi Island Resort Sdn Bhd [1998] 6 MLJ 162 at page 168).

The employee must leave in response to the breach of contract and indicate that he is treating the contract as repudiated. Delay in so doing may amount to waiver of the breach and affirmation of the contract though this will depend on the facts of the case. In the case of Weathersfield Ltd v Sargent (The Times, 31 December 1998), the English Court of Appeal held that the fact that an employee left her employment without giving reasons did not preclude her from claiming that she had been constructively dismissed, although such conduct would usually make it more difficult to make out a case of constructive dismissal. The court arrived at this conclusion in recognition of the fact that for many employees, the more outrageous or embarrassing the instructions given to them, or suggestions made to them, the less likely they might be to argue the point there and then. They might wish to remove themselves at the first opportunity and with a minimum of discussion.

Whether there has been a repudiatory breach by the employer entitling the employee to leave is essentially a question of fact in the circumstances of each individual case. Reported cases should not be regarded as precedents (Halsbury's Laws of England (4th Ed Reissue) at volume 16, paragraph 321, page 332). They are, however, useful as illustrations. Demotion (Abdul Rahim Jemali v Merlin Management Corp Sdn Bhd & Anor [1997] 4 MLJ 422; cf Christoph Hoelzi v Langkawi Island Resort Sdn Bhd [1998] 6 MLJ 162 at page 168) and the unilateral decision to cut pay (Amanah Butler (M) Sdn Bhd v Yike Chee Wah [1997] 1 MLJ 750) are two of the more common grounds of constructive termination. Other grounds include a failure to pay wages, a change of job content not permitted or envisaged by the contract, undermining a senior employee's position, change of the place of work, or breach of a mobility clause whether express or implied,11 unilateral change of hours, failure to ensure employee's safety, breach of the implied term of trust and respect, failure to follow a contractually binding disciplinary procedure and imposition of a disciplinary measure in a disproportionate manner.


Tan Chuan Thye & Elizabeth Wong
Allen & Gledhill

Endnotes

1    In the Singapore High Court decision of Low Pu Tong v Housing and Development Board [1990] SLR 1019, the court held that it is settled law that to be placed on the permanent establishment did not mean that the employee would have security of tenure for life ending on his retirement. How his contract of service may be terminated had to be decided on the relevant rules and regulations that applied to the particular contract of service.

   However, the New Brunswick Court of Appeal in this case held that judicial notice should no longer be taken by Canadian courts of the impact of the character of the terminated employee's job on his or her quest for suitable alternate employment. In the court's view, the proposition that junior employees have an easier time finding suitable alternate employment, and that senior employees required more time to find suitable alternate employment, is no longer a matter of common knowledge. It remains to be seen if this novel approach will be followed by the courts in Singapore.

3    In Abrahams v Performing Rights Society Ltd (The Times, 5 May 1995), the court held that the payment in lieu of notice was a contractual entitlement rather than a claim for liquidated damages and, consequently, there was no duty on the employee to take steps to mitigate his loss, and payment could not be reduced on the basis that he had in fact mitigated the loss.


    Section 7 of the Central Provident Fund Act provides that CPF contributions must be made in accordance with the rates set out in the First Schedule to the Act, ie based on the quantum of an employee's wages. 'Wages' is defined to mean the remuneration in money, including any bonus, due or granted to a person in respect of his employment. The CPF Board views salary in lieu of notice as a benefit which is paid as compensation for loss of payment (see Employers' Questions About CPF Contributions (May 1997), page 15).


5    See Gorse v Durham County Council [1971] 2 All ER 666 and Spain v Arnott (1817) 2 Stark 256; cf Price v Mouat (1862) 11 CBNS 508, Turner v Mason (1845) 14 M&W 112 at page 118 and McDonald v Moller Line (UK) Ltd [1953] 2 LLR 662.

6    See Clouston & Co Ltd v Corry [1906] AC 122 at page 129 and Laws v London Chronicle (Indicator Newspapers) Ltd [1959] 2 All ER 285 at page 287. Apart from concealment amounting to fraud, an employee is under no duty to disclose his misconduct to this employer (Healey v SA Francaise Rubastic [1917] 1 KB 946 at page 947).

7    Pearce v Foster (1886) 17 QBD 536, Sinclair v Neighbour [1967] 2 QB 279 (where an employee enters into transactions whereby his personal interests conflict with his duty as employee), Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 ChD 339 (where an employee takes a secret commission), Sinclair v Neighbour [1967] 2 QB 279, Amor v Fearon (1839) 9 Ad&El 548 (where the employee claims to be a partner), Lacy v Osbaldiston (1837) 8 C&P 80 and East Anglian Rly Co v Lythgoe (1851) 10 CB 726 (where the employee's conduct has been such that it would be injurious to the employer's business to retain him).

8    Goh Kim Hai Edward v Pacific Can Investment Holdings Ltd [1996] 2 SLR 109 at page 116, Boston Deep Sea Fishing and Ice Co v Ansell (1888) 39 ChD 339 and Cyril Leonard & Co v Simo Securities Trust Ltd [1971] 3 All ER 1313 at page 1318.

9    There may also be cases where the contract of employment limits the grounds on which the employee may be dismissed (McClelland v Northern Ireland General Health Services Board [1957] 2 All ER 129) or makes dismissal subject to a contractual condition of observing a particular procedure (Gunton v Richmond-upon-Thames London Borough Council [1981] Ch 448). In such cases, it may be argued that, on a proper construction of the contract, a dismissal for an extraneous reason or without observance of the procedure is a wrongful dismissal on that ground.

10    Francis v Municipal Councillors of Kuala Lumpur [1962] 1 WLR 1411 PC. This is partly on the grounds of the difficulty of policing any such court order and partly on the grounds of the personal nature of a contract of employment (De Francesco v Barnum (1890) 45 ChD 430 and CH Giles & Co Ltd v Morris [1972] 1 All ER 960).

11    Note, however, that there will not be constructive dismissal if it is expressly provided in the employment contract that the employee may be transferred from one location to another: Chua Yeow Cher v Tele Dynamics Sdn Bhd [2000] 1 MLJ 168.