Not an Iron Rice Bowl¹

This article examines the retrenchment benefits of the non- rank-and-file workers.

The Ministry of Trade and Industry in ‘Performance of the Singapore Economy in Third Quarter 2002 and Outlook for 2002 & 2003’ reported that the total employment in Singapore declined by 15,000 in the third quarter of 2002. The report also noted that the seasonally-adjusted unemployment rate for September 2002 was 4.8%; exceeding the peak of 4.3% during the Asian Financial Crisis but lower than the 6% during the mid-1980’s recession. In its September report, ‘Labour Market Second Quarter 2002’, the Manpower Research and Statistics Department highlighted the increasing susceptibility of higher-educated workers to retrenchment in the new economy where mergers and consolidations resulted in job losses at the higher end and professionals, managers, executives and technicians accounted for 41.9% of the workers retrenched.

In this season of uneasiness, we look at the retrenchment benefits of the non-rank-and-file workers.

Not a Paternalistic State

The only statutory provision that deals specifically with retrenchment is s 45 of the Employment Act (‘the Act’) (Cap 91). Strangely, it deals not with entitlement to retrenchment benefits but rather disqualifies certain employees from such benefits. It reads: ‘No employee who has been in continuous service with an employer for less than 3 years shall be entitled to any retrenchment benefit on the termination of his service by the employer on the ground of redundancy or by reason of any re-organisation of the employers’ profession, business, trade or work.’

Some read the section to mean that a relevant employee who has worked continuously for three years is entitled to retrenchment benefit. That reading is, however, erroneous. The Court of Appeal in Bethlehem Singapore Pte Ltd v Ler Hock Seng & Ors [1995] 1 SLR 1 unequivocally stated, albeit as obiter, that ‘Section 45 [of the Act] cannot be read to imply that in the cases of employees with more than 3 years’ continuous service with an employer there is legal compulsion on the employer to pay retrenchment benefits’. Indeed, the court found in favour of the employer’s argument that the payment of retrenchment benefits, in the absence of contractual provisions otherwise, was purely discretionary.

We must caution that even if a worker has been in the employ of an employer for a continuous period of three years, he may not be entitled to rely on s 45. Some workers are more equal than others. Firstly, the Act is only applicable to ‘employees’ which by definition excludes, amongst others, ‘any person employed in a managerial, executive or confidential position’ (‘the Executives’). Secondly, s 45 falls under Part IV of the Act and only applies to employees who are in receipt of a salary not exceeding S$1,600 a month.

By the Stroke of a Pen

As legislation imposes no obligation to pay retrenchment benefits on employers, an employee would have to read the fine print in his employment contract to discern his entitlement. Often, however, the retrenchment benefit provision in the contract is writ in water as the following cases demonstrate.

In Bethlehem, the employees’ contract provided that they would be entitled to retrenchment benefits ‘in accordance with the [employer’s] current policies and practices’. The employees argued that the court must look at the immediate past to ascertain what the employer’s current or prevailing policy and practices are. The learned judge of first instance, Justice Warren Khoo, said in his judgment that:

The company says that under the terms of the contract, it has unfettered discretion to determine what amount of retrenchment benefits the company should pay ... if a contract gives one party to it the right to decide a matter which involves the rights and obligations of two parties, it surely goes without saying that that party must exercise that right reasonably. In the light of the established practice of the company of payment of retrenched employees at the rate I have mentioned, is it reasonable for the company by a stroke of the pen to make such a substantial change to the established rate? ... To my mind, anything that produces a result like this cannot be an exercise of discretion; it is, without disrespect, more like whim and fancy.

The court found the word ‘current’ to mean the present, attributing to the word its ordinary meaning. The employees’ argument and Justice Khoo’s views found no favour with the Court of Appeal which held that the employer has a discretion to formulate its practice or policy in quantifying the amount of retrenchment benefits it wished to pay its employees and, although it had in the past exercised its discretion in a consistent way, it was not barred from exercising its discretion in some other manner to reflect its ‘current’ policy at that point in time. The Court of Appeal stated that they knew of no rule of law to the effect that once a discretion has been consistently exercised in a certain way it can no longer subsequently be exercised in a different way.

In Loh Siok Wah v American International Assurance Co Ltd [1999] 1 SLR 285, the court stated:

Retrenchment benefits are usually given on an ex-gratia basis. No matter how many times an employer may have given ex-gratia retrenchment benefits in previous retrenchment exercises, that per se does not give rise to any legal obligation to pay retrenchment benefits for the next exercise. Payment of ex-gratia retrenchment benefits is absolutely at the discretion of the employer and it depends entirely on the goodwill and perhaps also on the financial position of the employer concerned.

What was Might Not be

In Bethlehem, the employer had a past consistent policy and practice of paying one month’s wages for every year of completed service on retrenchment. From this fact, Justice Khoo implied as ‘a term of the contract independently of the provision of the initial letter of appointment’ that an employee is entitled to one month’s wages for every year of completed service on retrenchment. Justice Khoo found support for his approach from the Halsbury’s Laws of England which argued that the orthodox contract law on the implication of terms may need to be stretched in the context of employment because implied term will be more frequently used as a device to impose a particular legal solution or requirement on contracts of employment; historically, contracts of employment have left more to be filled in by implied terms than most other types of contract, and the need to fill such gaps may be more urgent. The Court of Appeal disagreed as a term would only be implied into a contract, including employment contacts, if it was necessary in the business sense to give efficacy to the contract, and it was insufficient that the term implied would be a reasonable term.

In Loh Siok Wah, the employee claimed entitlement to retrenchment benefits of the equivalent of at least one month’s salary for each year of service with the defendants or at such rate as the court shall determine on the implied term of his employment. Judicial Commissioner Chan Seng Onn in applying the test propounded by Bethlehem refused to imply the term as ‘even if the [employee] thinks that it is reasonable for him to be given retrenchment benefits because others have been getting it, that clearly is insufficient ... payment of retrenchment benefits is not a necessary requirement for the proper and effective operation of the employment contract ...’. Further, the Judicial Commissioner highlighted that the court should not arbitrarily decide for the company how much retrenchment benefits it ought to pay.

In the light of these two cases, it would appear that the Singapore courts would decline to imply a right to retrenchment benefits into an Executive’s employment contract despite an employer’s established and consistent practice of paying such benefits.

Paper Tiger

The Industrial Relations (Amendment) Act 2002 (‘IRAA’), passed on 23 July 2002, took effect on 1 September 2002. The IRAA amends the Industrial Relations Act (Cap 136) (‘IRA’) by, inter alia, inserting new ss 30A to 30F allowing a recognised trade union to represent executive employees (defined to mean an employee who is employed in a managerial or executive position).

Section 30A defines the terms to support the other sections, and ss 30C to 30F map out the process of the trade union inviting the employer to negotiation, the employer accepting or not accepting such invitation and conciliation.

Section 30B empowers a recognised trade union to represent any executive employee individually, and not as a class, for certain enunciated purposes. However, an employer may object to such representation if the employee:

• is employed in a senior management position;
• has decision-making powers, or the power to substantially influence decision-making, on any industrial relations matter;
• performs any function which includes representing the employer in any negotiation relating to any industrial matters;
• has access to confidential information relating to the budget and finances of the employer, any industrial relations matter or the salaries and personal records of other employees; or
• performs or exercises any other function, duty or power that may give rise to a real or potential conflict of interest if he is represented by the trade union.
  

The trade union is empowered, upon the retrenchment of the executive employee, ‘to negotiate with the employer with a view to resolving any dispute relating to the retrenchment benefit payable to the executive employee’.

The first point to note is that s 30B does not purport to give a right to retrenchment payments where none existed before. The second point to note is that the right to negotiate is only available if there is, in fact and law, ‘a dispute’ relating to the retrenchment benefit payable. The word ‘dispute’ has been judicially considered in numerous cases. In Hayter v Nelson and Home Insurance Co [1990] 2 Lloyd’s Rep 265, Justice Saville observed that ‘if it can be shown that a claim under a contract is indisputable, ie a claim that simply cannot be resisted on either facts or the law, then there is no dispute’. For example, if a contract expressly provides for retrenchment payments of one week for every year of completed service on retrenchment and the executive is retrenched, while he may be unhappy with the term and wish to renegotiate or revise that term, there is no ‘dispute’ as to what is payable by way of retrenchment and so s 30B would be irrelevant.

As discussed earlier, the statutes do not impose an obligation on employers to pay retrenchment benefits. If an employment contract has express and clear provisions on retrenchment benefits, there would be no dispute to trigger s 30B. The courts have not implied an obligation to pay retrenchment benefits even when an employer has consistent past practices of making such payments. It appears that the scope of dispute as to retrenchment payments is small. Though employers might, out of goodwill, entertain a union’s requests for negotiations, it would appear that s 30B has no bite.

‘Success Comes to Those Who Never Give Up’

Legislative change to the current regime is unlikely.

During the euphoric dotcom era, Executives negotiated hard for sign-on bonuses and entitlements under employee share option schemes. With the gloomy economic outlook for 2002,² the tables have now turned, and it is probably foolhardy for employees to bargain for retrenchment benefits to be provided for in their employment contracts.

The Jobs Task Force launched the ‘Success comes to those who never give up’ advertising campaign as part of its public education programme to change the workers’ mindset ‘to adapt to the changing economic landscape’. For now, it would appear that the Executives have to but heed the call of the Jobs Task Force and draw on their ‘brave fighting spirit that never gives up in the face of adversity’.

Nicole Tan
Rajah & Tann
E-mail: nicole.p.tan@sg.rajahandtann.com

Endnotes