Seminar 8

Termination of the Employment Contract

Any contract may come to an end by 1 or more of 4 ways:

• (1) Performance• (2) Agreement• (3) Repudiatory/Fundamental Breach• (4) Frustration

(1) Performance

• Any contract may come to an end by performance.• Example: How can your contract with

NUS come to an end by performance?

(2) Agreement• A contract may come to an end by agreement (eg: a 2 year

contract may be terminated half-way through by agreement) without a need for a valid reason.

• Since there is agreement, the party initiating the termination would not incur liability for early termination.

• The “agreement” may arise subsequently.• Alternatively, the “agreement” may come from the original

contract itself:- Express provision- Implied provision (note: in some contracts this implied right will

only apply to one party, in some to both and in some to neither).• Example: can you or NUS terminate a 4-year contract to study at

NUS without reason and without liability after you have studied for 1 year?

(3) Repudiatory Breach• A contract may also come to end by a

repudiatory/fundamental breach. • If one party commits a repudiatory/fundamental

breach, the innocent party would have a valid reason to terminate the contract immediately without notice (if he wants to) and sue for losses (if any).

• Example: what could be a repudiatory/fundamental breach on your part which would allow NUS to terminate the contract on the spot?

Frustration• A contract may also come to an end by frustration.• Frustration refers to something happening after the making of

the contract, beyond the control of the parties, which makes further performance:

- impossible or - radically different from what was originally envisaged.• If frustration is established, contract automatically comes to

an end and there is no need to give notice. • In such a situation there would be a valid reason for the

termination and the party not providing the service/good would not incur liability because something happened which was beyond his control.

• Example: How can your contract with NUS come to an end by frustration?

Performance

• Like all contracts, an employment contract too may come to an end by performance.

Agreement - Notice• For employees not falling under the Employment Act:• There could be an express clause allowing termination

by notice.• If not there is still an implied right for either party to

terminate the contract by reasonable notice unless the contract makes it clear that it cannot be terminated earlier (eg: a genuine fixed term contract).

• In relation to implied right – length of notice depends on many factors such as:

• Subject to what is stated in the contract, notice can be given orally or in writing.

Agreement - Notice• For employees falling under the Employment Act: • Section 10 of EA lays down the amount of notice to

be given: eg: - 1 day’s notice if employed for less than 26 weeks, - 1 week’s notice if employed for more than 26 weeks

but less than 2 years, etc.• However, the Employment Act provides that contract

can provide for a shorter/longer period of notice.• For employees falling under the Employment Act,

notice has to be in writing.

Agreement – Salary in Lieu of Notice

• For employees not falling under the Employment Act:• There could be an express clause.• If there is no such express clause,

there may not be an implied right to terminate by giving salary in

lieu of notice.

Agreement – Salary in Lieu of Notice

• For employees falling under the Employment Act:• Either party may terminate it by

giving salary in lieu of notice – section 11

Must there be a valid reason for terminating the contract by notice or salary in lieu of notice?

• Generally, either party to the contract does not have to have any valid reason for terminating the contract by notice or salary in lieu of notice.

• But there are some limited exceptions such as: A female employee’s contract cannot be terminated during maternity

leave if she falls with the EA or CDCA. A pregnant employee’s contract cannot be terminated during pregnancy

(formally within 6 months prior to delivery) unless there is a sufficient reason if she falls within the EA or CDCA.

A person’s contract cannot be terminated on the grounds of old age under the Retirement and Re-employment Act.

If the employee is covered by the Employment Act and he feels that his dismissal is without just cause or reason, he may appeal to the Minister within 1 month of the dismissal (this includes termination by notice or salary in lieu of notice) under section 14(2) and the Minister may order reinstatement or compensation.

Repudiatory Breach - Employer• Employer can commit repudiatory breach – eg: does not pay

wages for 2 months.

• Employee (whether covered by the Employment Act or not) can resign without giving notice/salary in lieu of notice - and sue for damages (if any).

• What could be some examples of repudiatory breach by the employer?

• Note also: if employer is in repudiatory breach – employee may not be bound by terms of contract (like ROT/Garden Leave). Why?

Repudiatory Breach – Employee – Not Falling under EA

• If an employee not falling under the Employment Act, commits a repudiatory breach (eg: steals $1m from the office), employer can:

- summarily dismiss employee without having to give notice/salary in lieu of notice and

- sue for damages (if any).

• What could be some examples of repudiatory breaches by the employee?

• No procedure (eg: giving employee a chance to be heard) need be followed before dismissal unless contract provides for it. But there are some exceptions such as in the case of “public” or “police” officers are involved.

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(a)If an employee commits a crime outside the employment, in what circumstances, would that amount to a repudiatory breach?

(b) If it is not clear whether it is a repudiatory breach, but the employer

summarily dismisses the employee, and later the court holds that it is not a repudiatory breach, the employer will be liable. In light

of this, what can the employer do to better protect himself?

CRIMES – REPUDIATORY BREACH?

What happens if employer “waives” breach?(a)What happens

if the employer represents to the employee that the breach has been waived or “forgiven” – can the employer then summarily dismiss the employee for the very same breach?

(b) What happens if there is a fresh new breach of the same type?

Repudiatory Breach – Employee – Falling under EA

• For Employees falling under the Employment Act – the position is similar.

• For instance, section 11(2) allows summary dismissal for wilful breach and 14 allows summary dismissal for misconduct.

• However, for employees falling under the Employment Act, there is a procedure to be followed before employer can summarily dismiss for misconduct– ie: there must be a “due inquiry”.

Lim Tow Peng v Singapore Bus Services Ltd

• Employee (bus driver) accused of assaulting a fellow employee.

• Employee summarily dismissed.• Employer did not hold a due inquiry.• Employee not told why he was being dismissed and was not

given a chance to be heard.• Circumstances leading to the assault not examined.• Employee sued for wrongful dismissal.• The court held that the dismissal was wrongful because there was no due inquiry.

Wrongful Dismissal/Termination• Employees not covered by EA can sue for wrongful

dismissal/termination (eg: insufficient notice given in breach of contract or summary dismissal where there are insufficient grounds for summary dismissal). Typically, they would go to court to sue.

• Employees covered by EA can sue for wrongful dismissal/termination too (eg: as above or no due inquiry or no just cause for termination by notice/salary in lieu of notice). For some matters they can go to court, but for some (eg: section 14(2) of EA) they can only go to MOM/Minister.

Remedies for Wrongful Dismissal – in Court• The most common remedy for wrongful dismissal is damages

or compensation.

• Damages are usually based on - how could the employer have lawfully terminated the contract? Eg: If the contract could have been lawfully terminated by giving 1 month’s notice – employee can get what he would have lawfully earned during that one month.

• But note: damages are subject to “mitigation” – ie the employee must take reasonable efforts to minimize his losses.

• Further, the employee cannot claim damages for “mental distress” or “disappointment” as they are difficult to .

Reinstatement

• Generally employee cannot get “specific performance” (reinstatement).

• Why is this so?• However, there are exceptions: eg: - For employees falling under Employment Act,

pursuant to section 14(2), if it is found that the dismissal is without just cause or reason the Minister may order reinstatement. (But note: this is not commonly done).

General Summary of Termination by Agreement/Repudiatory Breach

Not Covered by EA Covered by EA

Generally can terminate by notice?

Generally can terminate by salary in lieu of notice?

If there is no valid reason for either of the above, can it be challenged?

Must there be a valid reason for summary dismissal?

If the contract is silent on the matter, is there a procedure to be followed for summary dismissal?

Can you get compensation for wrongful termination/dismissal?

Can you get reinstatement for wrongful termination/dismissal?

Frustration• The most common event which may frustrate the

employment contract is an employee’s illness.• However, not every illness will result in frustration.

Whether illness would result in frustration would depend on factors such as:

- Does the illness end within period of entitlement to sick pay?

- How long is the illness going to last?- How long as the employment been thus far?

Frustration

• An employee’s imprisonment may also frustrate the contract depending on factors such as the length of time the employee would be away etc.

Summary– A contract of employment, like all other contracts, may come to an end in one

of four ways.– The most common way in which the contract of employment can come to an

end is by one party giving notice or salary in lieu of notice. No justification need be given to terminate the contract in this manner. However, there are some limited situations whereby the contract cannot be terminated in this manner.

– Another way in which the contract can come to an end is where one party commits a repudiatory breach. The innocent party can then terminate the contract without notice or salary in lieu of notice. There is no procedure to be followed. However, there are exceptions such as where the contract provides for it or the employee falls under the Employment Act.

– Where there is wrongful termination (for example, the employee has been summarily dismissed when there are no grounds for summary dismissal), the innocent party can sue for damages. However, he must take steps to mitigate/minimize his losses. Further, an employee cannot seek to be reinstated in his former job. However again, there are some exceptions such as under section 14 of the Employment Act.

– Certain events such as prolonged illness or imprisonment may result in frustration which is yet another way in which the contract may come to an end. No notice or salary in lieu of notice need be given in such a situation to terminate the contract.

Readings

• Basic Text (6.1-6.2, 6.4-6.6, 6.8, 6.13, 6.18-6.25, 6.51, 6.55, 6.57, 6.63-6.64, 6.84-6.85, 6.89-6.92, 6.97, 6.100, 6.105, 6.108-6.109, 6.121, 6.123-6.128, 6.131, 6.136, 6.145-6.146, 6.149).

• Singapore case referred to in Tutorial 7.