LAWWATCH. In Brief. Salary-related disputes will now be heard by Employment Claims Tribunal

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1 NOVEMBER In Brief LEGISLATION Salary-related disputes will now be heard by Employment Claims Tribunal The Employment Claims Act is expected to come into effect by April Changes to the Child Development Co-Savings Act provide extended leave benefits to qualifying parents Government-paid maternity and paternity leave and other benefits will be extended in CASE LAW What constitutes serious misconduct sufficient to amount to a breach of an employment contract? Singapore Court of Appeal overturned the High Court ruling and held that an employee s breach of his employment contract constituted serious misconduct pursuant to the terms of that contract 5

2 NOVEMBER LEGISLATION Salary-related disputes will now be heard by Employment Claims Tribunal To discuss the possible implications of this for your business, please contact: The Employment Claims Act is expected to come into effect by April 2017 On 1 November 2016, the Employment Claims Act (the Act ) was published in the Government Gazette. The Act was passed by Parliament in August 2016 following a public consultation carried out by the Ministry of Manpower ( MOM ) earlier this year. Please see our previous Update Consultation on the Establishment of an Employment Claims Tribunal to Hear Salary-Related Disputes. The Act will facilitate the expeditious resolution of salary-related employment disputes by providing mediation services and establishing Employment Claims Tribunals ( ECT ) to help resolve these disputes. The Act is expected to come into effect by April Jenny TSIN d: e: At present, there are three options available to employees who have a salaryrelated claim against their employer. Union members have recourse to conciliation under the Industrial Relations Act, employees covered by the Employment Act (rank-and-file employees and Professionals, Managers and Executives ( PMEs ) earning up to $4,500 per month) have access to the Labour Court at the MOM and all employees have access to the civil courts. However, the Act aims to give all employees access to an affordable and expeditious way to resolve their salary-related disputes. Vivien YUI d: e: The key provisions of the Act are set out in the table below: Key Provisions of Employment Claims Act What disputes will be heard by the ECT? Contractual salary-related claims, including payment of allowances, bonuses, commissions, salary in lieu of notice and retrenchment benefits or any other dispute matters specified in the First Schedule of the Act. Statutory salary-related disputes on employee entitlements under the Employment Act, Retirement and Reemployment Act and the Child Development Co-Savings Act, including unpaid salary, overtime pay,

3 NOVEMBER salary in lieu of notice, employment assistance payment and maternity benefits or any other dispute matter specified in the Second Schedule to the Act. Claims by employers regarding notice pay as specified in the Second Schedule to the Act. Who will have access to the ECT? All employees covered by the Employment Act, Retirement and Reemployment Act and the Child Development Co-Savings Act. Employees, including PMEs, who earn more than $4,500 per month and are beyond the scope of the Employment Act. Public servants, domestic workers and seafarers with statutory-related salary disputes regarding employment assistance payment and maternity benefits. How do I lodge a claim with the ECT? All parties must go through mediation conducted by MOM-approved mediators. Claimants must submit a request for mediation within one year after claim arises, or within six months from the end of the employment relationship. If mediation is successful, parties will sign a settlement agreement to be registered in the District Court. If mediation is unsuccessful, the mediator will issue a referral certificate for a claim to be lodged at the ECT. What is the jurisdiction of the ECT? The claim must be for one or more amounts of money, each relating to a specified employment dispute. The amount claimed must not exceed the applicable prescribed claim limit, being $30,000 for cases which go

4 NOVEMBER through mediation with union involvement, and $20,000 for all other claims. The claim cannot be divided and pursued in separate proceedings. A claimant may abandon the excess amount so that the ECT has jurisdiction to hear the claim. Who can appear at an ECT hearing? How will an ECT hearing be conducted? A party must generally act in person. No legal representation permitted. The Government may be represented by a public officer and a body corporate may be represented by an officer or employee. The hearing will be conducted in private. Proceedings will be conducted in an informal manner. The ECT will adopt a judge-led approach to identify the relevant issues and ensure the relevant evidence is adduced. The ECT will not be bound by the rules of evidence. Evidence is not required to be given under oath. An appeal to the High Court may be permitted on a question of law, or a jurisdictional matter with the leave of the District Court.

5 NOVEMBER Changes to the Child Development Co-Savings Act provide extended leave benefits to qualifying parents Government-paid maternity and paternity leave and other benefits will be extended in 2017 The Child Development Co-Savings (Amendment No. 2) Act 2016 was passed by Parliament on 10 November 2016, making amendments to the Child Development Co-Savings Act ( CDCA ) relating to government-paid maternity and paternity leave and other benefits. The changes will come into effect in Currently, fathers are only entitled to one week of compulsory, government-paid paternity leave, with a second week provided by employers on a voluntary basis. The amendments to the CDCA will provide for two weeks governmentpaid paternity leave to new fathers from 1 January Fathers can choose to clear the two-week block of leave within 16 weeks from the birth of the child, or they can work out an agreement with their employer to take the leave flexibly by days within a year from the birth of the child. Fathers will also have the choice of taking additional leave in their baby s first year, with shared parental leave benefits being increased from one week to four weeks from 1 July Parents can decide how to apportion the four weeks of shared parental leave between them at any time before the child turns 1 year old, however the decision cannot be changed once it is made. The CDCA is also amended to provide that all qualifying mothers, regardless of their marital status, will be entitled to 16 weeks of maternity leave from 1 January Presently, unwed mothers are only entitled to eight weeks maternity leave, so these amendments have been introduced to ensure that children will not be excluded from state support for the fact that they were born to unwed parents. Other key changes to the CDCA provide for greater support to adoptive parents. From 1 July 2017, adoptive mothers will get 12 weeks of adoption leave. For the first and second child, the first four weeks of the leave will be paid for by their employers and the last eight weeks will be funded by the Government. For the third and subsequent child, all 12 weeks of leave will be funded by the Government. Currently, adoption leave is for four weeks, and is fully paid by the Government. The leave must be used within one year of the birth of the child.

6 NOVEMBER CASE LAW What constitutes serious misconduct sufficient to amount to a breach of an employment contract? Singapore Court of Appeal overturned the High Court ruling and held that an employee s breach of his employment contract constituted serious misconduct pursuant to the terms of that contract In Phosagro Asia Pte Ltd v Piattchanine, Iouri [2016] SGCA 61, the Court of Appeal overturned the decision of the High Court Judge and held that an employee s breaches of his employment contract amounted to serious misconduct sufficient to amount to a repudiatory breach of that contract and to preclude the employee from claiming benefits following the termination of his employment. The Court looked at the common law principles relating to a repudiatory breach and held that, in the circumstances, the Respondent s conduct regarding the reimbursement of his expenses was a clear breach of a term of the contract that was so important that any breach, regardless of the actual consequences of such a breach, entitled the Appellant to terminate the contract. Our Comments/Analysis The High Court had looked only at the nature and consequences of the breach in determining whether a particular term would constitute a repudiatory breach. In contrast, the Court of Appeal considered whether the intention of the parties to the contract was to designate that term as one that is so important that any breach would result in the discharge of the contract, regardless of the actual consequences. The Court of Appeal s decision provides comfort to employers given that in many cases, while the consequence of a breach may not be serious, the term itself is one which the parties had considered to be a condition of the contract. This case further underscores the importance of drafting. If certain conduct is manifestly abhorrent to the employer, a well-drafted employment contract, which clearly provides for the consequences of an employee engaging in such conduct will remove ambiguity, and provide transparency for both employer and employee about what is expected from the employment relationship. That said, as the Court of Appeal decision illustrates, in the absence of any such express provision, it may still be possible for an employer to show that any conduct which it deems to be in breach of the employee s fiduciary or contractual duty, whether express or implied, is

7 NOVEMBER misconduct which is serious enough to result in discharge of the contract; however establishing this may involve protracted legal proceedings. This Update takes a look at the Court of Appeal s decision. Background In February 2013, Phosint Trading Limited entered into a share purchase agreement for the purchase of Asiafert Trading Pte Ltd ( Asiafert ), a company of which the Respondent was sole director and shareholder. Following the purchase, Asiafert was renamed Phosagro Asia Pte Ltd (the Appellant ) and the Respondent was employed as the Managing Director of the Appellant pursuant to an employment contract dated 1 March 2013 (the Contract ). The term of employment was for three years. The salient terms of the Contract relevant to the appeal were: Clauses 2 and 14, which provided that either party could give three months notice of termination in writing. If the Contract was terminated before the expiry of the three-year term, the Respondent would be entitled to 100% annual salary as a one-off payment; Clause 3, which provided that the Respondent must well and faithfully serve the Company in all respects and use his best endeavours to promote the interests of the Company ; and Clause 20, which provided that the Appellant could terminate the Contract without notice or payment in lieu of notice in the case of serious misconduct or wilful breach or non-observance of any terms of the Contract. When a dispute arose between the parties, the Respondent s employment was terminated with immediate effect by an dated 28 February On 18 March 2014, the Respondent received a letter from the Appellant, accompanied by a large pile of receipts, advising that, subsequent to termination of the Respondent s employment, an investigation had revealed that the Respondent had been guilty of serious misconduct and/or had not acted in the Appellant s best interest and/or had acted in breach of his fiduciary duties to the Appellant. The Appellant alleged that the Respondent had misappropriated close to S$500,000 by way of unjustified expense payments during the course of his employment. As a result of this alleged misconduct, the Appellant advised that the Respondent was not entitled to receive either payment in lieu of notice or payment of a lump sum under the Contract. The unjustified expense payment allegations arose from the process in place for handling finances, which the Respondent had carried over from his previous position as sole director and shareholder of Asiafert (the Expense Accounting Practice ). Under the Expense Accounting Practice, the respondent would, on a monthly basis, submit his credit card expenses

8 NOVEMBER together with supporting receipts to the Appellant s external accountant. This would occasionally include the Respondent s personal expenses as well. The Respondent would then sign a cheque to himself as reimbursement for his expenses. The Respondent claimed that, at the end of the financial year, the accountant would identify expenses that the Respondent was not entitled to and seek reimbursement. It should be noted that the Appellant had no regulations to govern either its accounting practices or the process by which the expense claims of directors were to be processed. The Respondent commenced proceedings seeking damages by way of payment of the salary and bonuses he would have earned if he had been employed for the full three-year term, or alternatively, one year s salary that was due to him under Clause 2 of the Contract given that the Contract was terminated before the expiry of the three-year term, together with other salary and bonuses he was contractually entitled to amounting to S$1,236,900 (the Alternative Claim ). In response, the Appellant filed a counterclaim for S$499,719.20, consisting of 867 claims of alleged unauthorised payments. High Court Decision The High Court Judge (the Judge ) rejected the Respondent s claim for damages by way of the salary and bonuses he would have earned had he been employed for the full three-year term and no appeal was brought against that decision. With regard to the Respondent s Alternative Claim, the Judge held that the Respondent had breached Clause 3 of the Contract, as the Respondent s practice of claiming for personal expenses during the year and only reimbursing the Appellant for these expenses when and if queries were raised by the Appellant s accountants at the end of the year could not be said to be in the interest of the Appellant. For the same reasons, the Judge also held that the Respondent had breached his duty to serve the Appellant with good faith and fidelity and his fiduciary duty to act in the best interests of the Appellant. However the Judge found that, despite these breaches on the part of the Respondent, he was not guilty of serious misconduct or willful breach or nonobservance of the stipulations in the Contract. The Judge held that the breaches were not so serious that they struck at the root of the Contract or destroyed the confidence underlying the Contract and therefore the Appellant was not entitled to rely on Clause 20 to terminate the Contract. The Judge held that the Respondent was entitled to one year s salary under Clause 14 of the Contract, as well as three months salary for payment in lieu of notice, together with the balance of his first year guaranteed bonus.

9 NOVEMBER Court of Appeal The two issues raised by the Appellant before the Court of Appeal were: Whether the Respondent was guilty of serious misconduct and/or willful breaches of the Contract ( Issue 1 ); and Whether the Appellant was entitled to reimbursement of the alleged personal claims ( Issue 2 ). The Court of Appeal allowed the appeal in respect of Issue 1 but dismissed the appeal in respect of Issue 2. Issue 1: Whether there had been serious misconduct In determining what guidelines should apply in deciding whether there had been serious misconduct pursuant to Clause 20 of the Contract, the Court of Appeal looked at the common law principles relating to discharge of breach, or repudiatory breach, for guidance. In particular, the Court held that the common law principles as set out by the Court of Appeal in RDC Concrete Pte Ltd v Sato Kogyo (S) Pte Ltd and another appeal [2007] 4 SLR (R) 413 ( RDC Concrete ) were relevant. In RDC Concrete, the Court specified four situations in which a breach of contract would amount to a repudiatory breach: Where the contract clearly and unambiguously states that, in the event of a certain event or events occurring, the innocent party will be entitled to terminate the contract ( Situation 1 ) Where a party, by his words or conduct, simply renounces his contract inasmuch as he clearly conveys to the other party to the contract that he will not perform his contractual obligations at all ( Situation 2 ). The condition/warranty approach where the focus is on the nature of the term breached and, in particular, whether the intention of the parties to the contract was to designate that term as one that is so important that any breach, regardless of the actual consequences of such a breach, would entitle the innocent party to terminate the contract ( Situation 3(a) ). Where the focus is on the nature and consequences of the breach; in particular, where the breach in question will give rise to an event which will deprive the innocent party of substantially the whole benefit which it was intended that he should obtain from the contract ( Situation 3(b) ).

10 NOVEMBER The Court noted that serious misconduct would include the breach of important terms of the employment contract itself. Such terms would be termed conditions pursuant to Situation 3(a) in RDC Concrete, with the breach of such a term entitling the innocent party to elect to treat the contract as discharged, regardless of the nature and consequences of the breach. The Court held that the rational for this approach was the same as that for treating a breach of condition at common law as being a repudiatory breach namely, if the term concerned was intended by the parties to be of such importance that any breach of it (regardless of the consequences) would entitle the innocent party to elect to treat the contract as discharged, then there was no reason in principle why effect ought not to be given to that intention. In the present case, the Court held that it was essential to ascertain the intention of the Appellant and the Respondent by construing the actual contract itself (including the relevant clause, Clause 3) in the light of the surrounding circumstances as a whole. The Appellant company had formerly belonged to the Respondent, who was now its employee and whose duty it was to ensure that he did not take advantage of his insider knowledge to advance his own interests, but instead prioritised the welfare of the Appellant. This requirement was embodied within both the letter and the spirit of Clause 3 of the Contract. The Court emphasised that the Respondent was in a unique position of being entrusted with a significant degree of authority, responsibility and independence in the conduct of the Appellant s affairs, which was clear from the fact that the Respondent had the sole authority to reimburse himself for the expenses he had incurred. In the Court of Appeal s view, it was precisely because the Respondent had previously been the sole shareholder and director of the Appellant (as it previously was) that he was accorded such autonomy in the running of the company. With such trust being placed in the Respondent, it would be expected that Clause 3, which placed an obligation on the Respondent to well and faithfully serve the [Appellant] in all respects and use his best endeavours to promote the interest of the [Appellant] would have been intended by the parties to be of the utmost importance. The Court held that Clause 3 was a condition within the meaning of Situation 3(a) in RDC Concrete, and given that there had been a clear breach of that particular clause, the breach did constitute serious misconduct within the scope of Clause 20 of the Contract. The Court found that Situation 3(b) of RDC Concrete was, in any event, not applicable to the present case as it could not be said that the Respondent s conduct in breach of Clause 3 was such that it deprived the Appellant of substantially the whole benefit of the Contract.

11 NOVEMBER Issue 2: Whether the alleged personal claims should be reimbursed The Court of Appeal held that, the fact that the Expense Accounting Practice was improper in that it amounted to a breach of the Respondent s contractual duties to act in the best interest of the Appellant did not, in and of itself, suffice to establish a prima facie case that all of the expenses in the Appellant s counterclaim were personal in nature. The Court noted that it was significant that the Appellant had not called any representative of its external accountant to give evidence as to whether the relevant expense claims were unauthorised, as this may have been sufficient to establish a prima facie case in the Appellant s favour and shifted the burden of proof to the Respondent to show otherwise. However, as the Appellant had failed to produce such evidence, it could not be said that a prima facie case had been established. Application of principle in Boston Deep Sea Fishing In a threshold matter before the High Court, the Judge had considered whether Clause 20 could even be relied upon by the Appellant since it had only sought to rely on this clause after it had first terminated the Respondent s employment. Whilst there were no legal difficulties surrounding the applicability of Clause 20 on appeal, the Court of Appeal provided some brief views on this issue and confirmed the Judge s view that the principles set out in the seminal English Court of Appeal decision of Boston Deep Sea Fishing and Ice Company v Ansell (1888) 39 Ch D 339 ( Boston Deep Sea Fishing ) applied to the present case. The Court noted that Boston Deep Sea Fishing stood for the proposition that if an employer did not rely on his employee s misconduct at the time of the dismissal because he did not know about it, he may subsequently invoke that misconduct as a defence to a wrongful dismissal claim brought by the employee. Although the principle in Boston Deep Sea Fishing was set out in the context of the termination of an employment contract for breach at common law, the Court of Appeal in the present case observed that it could see no reason in principle why the proposition should not apply in a situation where the termination was effected pursuant to the express terms of the employment contract itself. Whether Cavenagh (a UK case) applied in Singapore The Judge in the present case had also considered the effect of the English Court of Appeal decision of Cavenagh v William Evans Ltd [2013] 1 WLR ( Cavenagh ), which purported to modify the legal principle in Boston Deep Sea Fishing. In Cavenagh, the employer terminated the employment contract pursuant to an express term of the contract itself, but subsequently discovered wrongdoing on the part of the employee which would have entitled the employer

12 NOVEMBER to terminate the employment contract for breach at common law instead. The court in Cavenagh held that the employer could not avail itself of the principle contained in Boston Deep Sea Fishing to terminate the contract for breach at common law. The Judge in the present case agreed with the legal principle established in Cavenagh but thought that it did not apply on the facts of the present case. The Court of Appeal commented that it was not necessary for the Judge to endorse the legal principle laid down in Cavenagh in the present case. The Court noted that there were persuasive arguments both for and against the adoption of this principle, however it felt that it would be preferable for the courts to express a definitive or conclusive view only when the issue arose directly for decision in the future.

13 NOVEMBER SOME OF OUR OTHER UPDATES DATE TITLE 9 November 2016 Competition Law Update: CCS Issues Revised Competition Guidelines and a New Fast Track Procedure 27 October 2016 LawWatch: Issue 4 of October 2016 CaseWatch: Hammer time for judgment creditor can t touch that (joint account) 12 October 2016 LawWatch: Intellectual Property, Media & Technology Edition Issue 2 of 2016

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