Jurisdiction - Singapore
News
Singapore – Navigating the Twin Concepts Of Constructive Dismissal And The Implied Term Of Mutual Trust And Confidence In Employment Contracts.

12 November, 2014

 

Legal News & Analysis – Asia Pacific – Singapore – Labour & Employment

 

Introduction

 
The twin concepts of constructive dismissal and breach of the implied term of mutual trust and confidence in an employment contract have always been prevalent in employment disputes. These two concepts were clarified by the Singapore Court of Appeal in Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] SGCA 43 (“Wee Kim San”) as distinct but closely related. The question before the Court of Appeal was whether, assuming that the plaintiff had indeed been constructively dismissed, he was entitled to recover damages beyond the two months’ salary in lieu of notice as provided for in his employment contract.

 

Brief Summary Of The Law

 
The Court of Appeal confirmed that the amount of damages which may be recovered by an employee who is constructively dismissed is limited only to what he would have been entitled to under the contractual notice period for a lawful termination.

 
In contrast however, an employer’s breach of the implied term of mutual trust and confidence may give rise to the employee’s additional claims for other types of financial losses. This includes losses potentially flowing from mental or emotional distress caused by the employer’s breach, or continuing financial losses where the employer’s breach affects the employee’s future employment prospects; the burden remains on the employee to prove these types of additional losses.

 
Constructive Dismissal

 
In Wee Kim San, the plaintiff alleged that he was forced to resign as a result of the defendant company’s persecution and unreasonable bias which were directed against him due to his homosexuality. Significantly, although his employment contract provided for two months’ written notice of termination from either party or two months’ salary in lieu of such notice, he had received four months’ salary in lieu of notice. Dissatisfied, the plaintiff commenced an action against the defendant seeking additional damages for constructive dismissal, or in the alternative, for the defendant’s breach of the implied term of mutual trust and confidence in his employment contract. This claim for additional damages was dismissed by the High Court as well as the Court of Appeal.

 
Seperately, the Court of Appeal took the opportunity to explain that the concepts of constructive dismissal and breach of the implied term of mutual trust and confidence are distinct but closely related. Constructive dismissal refers to the situation where “the employer’s repudiatory breach [of a fundamental term] entitles the employee to treat himself as discharged from the employment contract; although it is the employee himself who terminates the contract, he is considered as having been constructively dismissed by the employer.” In contrast, the implied term of mutual trust and confidence requires that “the employer shall not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of mutual trust and confidence between employer and employee”.

 
According to the Court of Appeal, “[a] breach of the implied term of mutual trust and confidence by the employer would constitute a breach of a fundamental term of the contract of employment, and an employee who accepts this breach as a repudiation of the contract would be treated as though he has been “constructively” dismissed by the employer”. In such a case, the employee may claim against the employer for premature termination of his employment contract. The damages which the employee can recover is the amount of salary payable for the contractual notice period in his employment contract.

 
In Wee Kim San, the plaintiff’s claim was only for financial loss arising from the premature termination of his employment contract. Accordingly, the plaintiff’s claim failed since he had already received more than what he was entitled to under his employment contract.

 
The Implied Term Of Mutual Trust And Confidence

 
Employers will welcome the position confirmed in Wee Kim San as it limits the amount that an employee may claim against it. However, the question remains: what exactly constitutes the implied term of mutual trust and confidence, that if breached by an employer would result in constructive dismissal?

 
In the earlier High Court case of Cheah Peng Hock v Luzhou Bio-Chem Technology Ltd [2013] 2 SLR 577 (“Luzhou”), the court held that “[t]he content of that implied term can … vary greatly depending on the facts in each case; this includes but is not limited to the type of employer and employee, the business or activity of the employer, the position or nature of the appointment of the employee, the employee’s level within the hierarchy of employees, the express and other implied terms of employment and the termination provision.” The court further observed that the duties imposed on employers by the implied term of mutual trust and confidence include, but are not limited to, the following:

 
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 the terms in the employment contract;

 
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 an intolerable or wholly unacceptable way.

 
In Luzhou, the plaintiff had been employed as the defendant’s chief executive officer. He complained that his authority within the company had been undermined by, amongst others, the defendant’s failure to consult him and to hear his explanation in respect of certain organisational changes which he implemented. The court held that this amounted to a breach of the implied term of mutual trust and confidence in his employment contract, and awarded him damages of RMB 8.5 million (being his salary for the remainder of his term contract). Luzhou therefore demonstrates that the court may imply a term of mutual trust and confidence in the employment contract of employees holding senior management positions who are responsible for a company’s high-level or strategic decision-making process.

 
Concluding Words

 
It is noteworthy that one month after the judgment in Wee Kim San was released, the apex court of Australia in Commonwealth Bank of Australia v Barker [2014] HCA 32 (“Barker”) ruled that Australian law does not imply a term of mutual trust and confidence in employment contracts. The pending judgment in Barker was noted by the Court of Appeal in Wee Kim San. However, until the Court of Appeal has the opportunity to reconsider the developments in Barker, employers should safeguard their position in two ways.

 
First, employers should stipulate clearly the salary that is payable in lieu of the contractual notice period upon termination, howsoever occasioned, of the employment contract. This will then act as a clear limitation of liability in the event where a disgruntled employee brings a claim against the employer.

 

Second, as the court in Luzhou held, employers may stipulate express terms in the employment contract to specifically exclude or limit the content of the implied term of mutual trust and confidence. Especially in relation to senior or “C-Suite” type employees who wield strategic decision-making powers, the company should stipulate clearly in their employment contracts that certain acts, such as the board of the company unilaterally reversing a certain decision of the employee, will not amount to a breach of the implied term of mutual trust and confidence.

 

Rajah & Tann

 

For further information, please contact:

 

Mohammed Reza, Partner, Rajah & Tann
mohammed.reza@rajahtann.com

 

Jonathan Yuen, Partner, Rajah & Tann
jonathan.yuen@rajahtann.com

 
Tan Ruo Yu, Rajah & Tann
ruo.yu.tan@rajahtann.com

 

Rajah & Tann Labour & Employment Practice Profile in Singapore

 

Homegrown Labour & Employment Law Firms in Singapore

 

International (with Local Law Capabilities) Labour & Employment Law Firms in Singapore

 

Comments are closed.