Termination of Employment Contracts in Singapore

Statute and common law both apply to termination of employment contracts

In Singapore, both statute (the Employment Act (Cap 91)) ("EA") and common law apply to the termination of employment contracts. As well, in certain circumstances the following additional legislation and regulations may apply:

The Income Tax Act (Cap 34, 2004 Rev), Central Provident Fund Act (Cap 36, 2001 Ed), Children Development Co-Savings Act (Cap 38A, 2002 Rev Ed), Retirement Age Act (Cap 274A), Industrial Relations Act (Cap 136, 2004 Rev Ed), Companies Act (Cap 50) and the Employment of Foreign Manpower Act (Work Permits) Regulations 2007.

Ambit of the Employment Act

The EA does not apply to all employed persons. It does not apply to a seaman, domestic worker, or a person in a managerial or executive position. From 1 January 2009 it does apply to a person in a confidential position.

If the EA applies to an employee, then Part IV EA (which contains provisions dealing with conditions of service, including rest days, annual leave, hours of work, retrenchment and retirement benefits) may but will not necessarily apply. From 1 January 2009 Part IV EA applies only to non-workmen employees whose monthly salaries are $2,000 or less per month and to workmen employees whose monthly salaries are $4,500 or less per month.

Termination of an employment contract

The provisions relating to termination are set out in Part II EA. These are the statutory minimum and an employer may offer more generous terms to employees to whom the EA applies. For employees to whom the EA does not apply, termination of employment will be governed by the common law and the terms of the employment contract.

Automatic termination of contracts for a fixed term or a specified piece of work

An employment contract which is for a fixed term or a specified piece of work will terminate automatically when the term expires or the work is done (as the case may be).

An employment contract which is not for a fixed term or a specified piece of work is a contract for an unspecified period of time. How such a contract may be validly terminated depends on its form (oral, written or partly oral and partly written) and its terms (express or implied by custom or by statute) or the terms of a collective agreement, if applicable, and also on whether the EA applies.

Termination without notice

Where the EA applies, either party may terminate an employment contract without giving a reason and without notice if the other party wilfully breaches a condition of the contract. In addition, under the EA an employer is entitled (after due inquiry) to dismiss an employee without notice on the grounds of misconduct.

At common law, either party may terminate an employment contract without notice if the other acts in a way which amounts to a repudiation of the contract. This applies whether or not the contract is for a fixed term or a specified piece of work or is a contract for an unspecified period of time.

The contract may expressly provide for termination by payment of salary in lieu of notice. Payment in lieu of notice is also permitted under the EA and at common law.

Termination with notice

If there is a notice period specified in the employment contract then notice is to be given in accordance with it. Where the EA applies, notice must be in writing and the day on which it is given must be included in the period of the notice. Payment of all outstanding salary and any sum due is to be made on the termination date or if this is not possible then within 3 days of it.

Under the EA, either party can terminate the employment contract without giving a reason provided it gives the amount of notice specified in the contract. Where the EA does not apply, the terms of the employment contract will govern whether it can be terminated without giving a reason.

Termination by employer (ie dismissal) – without just cause or excuse

Where the EA applies and where the employer terminates an employee’s employment contract (ie dismisses the employee), whether or not with notice and whether or not by giving a reason, if an employee considers he has been dismissed without just cause or excuse, he may within one month of the dismissal make representations in writing to the Minister to be reinstated. The Minister may inquire into the reasons for the dismissal. The Minister may direct the employer to: (a) reinstate the employee and pay back wages referable to the time between termination and reinstatement; or (b) pay as compensation an amount of wages determined by the Minister instead of ordering reinstatement. It would be prudent for an employer to anticipate this by ensuring that reasons are well documented and evidenced in line with modern HR practices for continuing employee appraisal.

Where the EA does not apply, the terms of the employment contract will determine whether it can be terminated without reason. If there is no contractual term permitting this, then at common law the employer can terminate the contract without notice or salary in lieu of notice provided the reason is an act of the employee which amounts to a repudiation of the contract. If the employer terminates the contract without such a reason the employee would have an action at common law for unfair dismissal. Whether or not an employment contract can be terminated without reason under the contract or at common law, the employee will have no right to make representations to the Minister to be reinstated – only those to whom the EA applies can do this.

Length of notice of termination

Where the EA applies, the contract must specify at least the statutory minimum period of notice. This varies with the length of service. Applicable minimum periods are as follows:

Where the EA does not apply, then the terms of the employment contract will govern what period of notice must be given. In a contract for an unspecified term, if there is no express term specifying the amount of notice required, then at common law a reasonable period of notice will be implied. In a contract for a fixed term or a specified purpose, no such period of notice will be implied – these contracts cannot be terminated on this basis.

With rare exceptions, there is no obligation on the employer to provide work to the employee during the notice period and it is open to the employer to put the employee on “garden leave” during that time, effectively preventing the employee from having contact with clients.

Length of notice of termination in cases of retrenchment (redundancy or reorganisation)

Under the EA there are no special requirements in relation to the length of notice in cases of termination for redundancy or reorganisation. Either the minimum notice period applicable under the EA or the contractual notice period will apply. However, in cases of retrenchment the tripartite partners Ministry of Manpower (“MOM”), National Trades Union Congress (NTUC) and Singapore National Employers Federation (SNEF) have published revised guidelines encouraging employer companies as far as possible to inform affected employees of the impending retrenchment before notice is given.

Termination agreements

Termination agreements setting out agreed terms on which an employment contract will be terminated are common, particularly with executive staff. Provisions typically set out termination payments (entitlements and negotiated payout amounts) and, where applicable, provisions protecting an employer’s proprietary interests after termination (by a confidentiality agreement and/or restrictive covenants).

Retrenchment benefits on termination for redundancy or reorganisation

The EA does not provide an employee with any right to retrenchment benefits on termination for redundancy or reorganisation of the employer’s business. In fact, in the case of an employee to whom Part IV EA applies (ie a workmen on a salary of $4,500 or less per month or a non-workman employee whose salary is $2,000 or less per month), if he or she has been employed for less than 3 years continuously the right to retrenchment benefits is specifically excluded. No employee has any right to retrenchment benefits under the common law. Irrespective of whether the EA applies, an employee has no right to retrenchment benefits unless his or her employment contract or an applicable collective agreement so provides.

Payments on termination

On termination, an employer may make an ex gratia payment to an employee. However, it is not bound to do so, even if this was its past practice. Accrued but unpaid salary up to the termination date, accrued and unused annual leave and (if applicable) salary in lieu of notice must be paid. In addition, an employee will be entitled to payment of any contractually agreed benefits on termination.

As for the timing of payments due on termination, where the EA applies payment of all outstanding salary and any sum due to an employee is to be made on the termination date or if this is not possible then within 3 days of it.

Constraints on termination during timeframes referable to maternity leave and confinement date/delivery date

The EA includes provisions specifying periods within which an employee may take maternity leave. If an employee is on maternity leave or entitled to maternity leave the employer will be in breach of the EA if within specified periods it gives her notice of termination of employment. In addition, except in specified circumstances and timeframes referable to an employee's confinement date/delivery date, an employer who gives her notice of dismissal will be obliged to pay her any entitlement otherwise due to her under the EA.

Under the Children Development Co-Savings Act (“CDCSA”) the same provisions apply to a woman who is an "employee" as defined in the CDCSA provided Part III of the CDCSA applies (ie provided certain requirements are met regarding the employee's marriage to the child's father and the citizenship of the child born). The term "employee" is more widely defined in the CDCSA than in the EA, so that the CDCSA applies to a woman in a managerial or executive position although the EA does not.

Other applicable legislation

The Retirement Age Act and the Industrial Relations Act may apply.

Under the Retirement Age Act, if an employment contract specifies an applicable retirement age, then an employer cannot terminate the contract on the basis of age before the employee reaches the specified retirement age. If there is no contractual retirement age, then under the Retirement Age Act an employment contract can be terminated on the basis of age only when the employee reaches the statutory retirement age (62 years of age).

Under the Industrial Relations Act, no trade union intervention or collective bargaining is permitted in relation to termination for redundancy or reorganisation or in relation to the criteria for such termination. However, a union is entitled to negotiate terms in relation to termination of employment, eg the amount of compensation payable on retrenchment and the minimum length of notice of termination to be given.

Requirements of IRAS, CPF Board and MOM

In the case of termination of employment of certain categories of employees, it may be necessary to comply with the requirements of the Inland Revenue Authority of Singapore ("IRAS"), Central Provident Fund ("CPF") Board and MOM.

Q&A

Are there any special considerations for terminating a director?

There are. The Companies Act contains provisions relating to removal of a director. The effect of these is as follows:

• Members of a public company may by ordinary resolution remove a director before his period of office expires, notwithstanding anything in the Memorandum and Articles of the company or in any agreement between the company and the director.
  
  
• However, in the case of a director appointed to represent the interests of any particular class of shareholders or debenture holders, the resolution to remove him is ineffective until a replacement director has been appointed.
  
  
• Special notice must be given of a resolution to remove a director or to appoint a replacement director at the meeting at which he is removed. At the meeting to remove him, the director is entitled to be heard on the resolution. A listed public company must give the SGX notice of receipt of a resolution to remove a director.
  
  
• In the case of a private company, a director must be removed in accordance with the company's Memorandum and Articles and, in addition, in the case of removal of an executive director, in accordance with the termination provisions of his employment contract with the company.
  
  
• The resignation or removal of a director (whether pursuant to the termination of his employment in the case of an executive director or otherwise) will be deemed to be invalid unless at least one director ordinarily resident in Singapore (who may be the sole director) will remain on the board.
  
  
• The cessation of appointment of a director must be notified to ACRA through Bizfile within one month of the date he ceases to hold the office.

Are there any special considerations for making a number of employees redundant at the same time or carrying out a reduction in force (RIF) in connection with a reorganisation or consolidation of functions?

No special considerations apply.