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It places an obligation upon the party who has breached the contract to provide compensation to the aggrieved party affected by the breach. The Supreme Court has recently issued a judgment in the joined cases of Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis which has clarified the position on penalty clauses in employment contracts. All she needed to do is give (written or oral) notice of termination of her employment. They were overworked and exploited. They allow businesses to obtain financing, outsource work to experts and to pursue selling their business with the security that important business secrets will remain confidential and will not be used by competitors with their interests. Inductive Bible Study Method Framework COMA. What is an employment contract? Hence, the rules developed in the Singapore courts do bear a very close resemblance to those developed under English common law. Typically, a non-compete clause prevents employees from plying their trade or skill or engaging in businesses in certain markets and geographies for a certain period of time. Termination of employment Either you or your employer can end an employment relationship by terminating the contract of service. Learn how your comment data is processed. unenforceable) is whether the … In particular, if you are looking for a Singapore litigation lawyer; technology lawyer; employment lawyer; contract drafting; corporate lawyer; advice on shareholders agreements or dispute; startup lawyer; financing lawyer. A non-disclosure agreement is a legally binding contract under which one party undertakes not to disclose certain confidential information. The employment contract may include that the employee owes a penalty if he violates the agreed-upon conditions. The past few years have seen subtle but important shifts in how the concept of a penalty is defined. She was not allowed to claim overtime pay. I was furious when I heard about such exploitative wrongdoing. Singapore High Court considers application of “legitimate interest” test to liquidated damage clauses Singapore 14.01.2019 This article is produced by CMS Holborn Asia, a Formal Law Alliance between CMS Singapore and Holborn Law LLC. It remains to be seen whether the Singapore courts will also adopt the Cavendish Square principle for this doctrine on penalty clauses. Failure to do so could depend on the nature of the breach, leading to a fine of $100-$200 per incident, and/or an order from the Ministry of Manpower to rectify the breach. In certain circumstances, it may also be possible to obtain an injunction to prevent the employee from continuing to breach the contract. Can I include a term in the employment contract to prevent a former employee from working for a competitor, opening a competing business, or soliciting clients or employees from my business? If your employee’s role … More recently, in Cargill International Trading Pte Ltd v Uttam Galva Steels Ltd 8 the High Court held that Cargill was entitled under the terms of a contract to default interest at a rate of one-month LIBOR plus 12% p.a., applying the two limb test for penalty clauses which had been proposed by Lord Mance in Cavendish Square. The Employment Act of Singapore is the principal statute governing termination of employment. It places an obligation upon the party who has breached the contract to provide compensation to the aggrieved party affected by the breach. These are some of the following areas covered: The Employment Act covers all persons (including foreigners) working under a contract of service in Singapore except: Additionally, Part IV of the Employment Act, which contains provisions for working hours, days of rest and other conditions of service, only applies only to: If the employment in question is covered by the Act, AND the employer enters into an employment contract which does not follow the requirements of the Employment Act, then the employer will be found guilty of a criminal offence which is punishable with a fine of up to $5000, up to six months in prison, or both. If the contract does not contain an express termination clause with a notice period, the court will imply a reasonable notice period instead. More importantly, this applicant’s case highlights the importance of keeping a copy of documents one signs. Such contracts would unlikely to be deemed penalty clauses because the 1 month’s salary would likely be the recruiter’s genuine pre-estimate of loss, i.e. A penalty clause is an express provision in a contract. The rule does not apply to primary obligations. (Cavendish Square Holding BV v Talal El Makdessi and ParkingEye Limited v Beavis [2015] UKSC 67 at [32]). This agreement can be made orally or in writing. If the court finds that the scope of the restraint of trade clause is excessive, the court may either find the entire clause unenforceable or will apply the ‘doctrine of discretionary severance’ to remove excessive portions of the clause and only enforce the legitimate portions of the clause. Remember that this period may not suit your needs as an employer, so it is important to include your desired notice period when drafting an employment contract. In fact, her contract stipulated that she had to work at least 44 hours a week. There are many reasons why an employer might wish to alter the terms of a contract with an employee. I’m a Singapore lawyer with commercial litigation & arbitration and corporate practices. The contract provision you’ve described is a liquidated damages provision. Such clauses belong to a group of contractual clauses known as ‘restraint of trade’ clauses. Many employers try to include so-called non-compete clauses into their employment contracts to prevent former employees from working for competitors or opening a competing business by including a non-compete clause in the employee’s contract. The gloss to this principle is the recent UK Supreme Court decision which posits the touchstone of penalty clauses to be “whether the impugned provision is a secondary obligation which imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation“. We'll do our best to work within your schedule. I’m burdened about seeking the common good of society, building community and being a social justice advocate for marginalized people. Penalty clause. The Singapore Employment Act does not apply to all Penalty clauses such as clauses that restrict an employee from leaving employment although no training, upskilling, or upgrading cost was expended are also illegal. The United Kingdom Supreme Court (“UKSC”) has since created a new leading authority to replace Dunlop Tyre. The Employment Contract sets out detailed provisions on various aspects of employment. I’m Ronald JJ Wong / Ronald Wong Jian Jie / 黄健杰. Please select one of our lawyers below to chat on WhatsApp or send us an email to [email protected], Call us on +65 6298 2537  from 9:30am to 6:00pm. Therefore, it is essential that when drafting a non-compete clause, employers should word a non-compete clause as carefully as possible to ensure that the clause is enforceable in court. When drafting a non-disclosure agreement, it is important to bear in mind exactly what kind of information you wish to protect or exclude, as well as how long the agreement is intended to last, and whether the receiving party should destroy the information once the assignment or other purpose is complete. Persons employed in executive or managerial positions earning more than $4,500 in basic monthly salary; Seamen, Domestic workers and persons employed by the Government or by a Statutory Board, Workmen earning below $4,500 in basic monthly salary, and. However, this clause may not be found to be enforceable in court. Fourth, in some cases I’ve seen, a recruiter would charge a client about 1 month’s salary should the client terminate the employment which the recruiter brokered prior to a stipulated time period. Our company used to do it but we removed the clause from our employment contract a few years ago, as the clause is not enforceable if it limits the employability of the employee. Councils should nonetheless be aware that these clauses may exist in their contracts with employment agencies, check the terms carefully and avoid falling foul of such clauses if they do employ former agency staff permanently. Article: Can You Get Bail After Being Charged For A Criminal Offence? A contract can be entirely written, entirely oral or partly written and partly oral. If your employee’s role requires him or her to have access of trade secrets or other sensitive business-related information which would harm your business if leaked, a non-disclosure agreement can help to ensure that such information remains confidential. It is therefore advisable that European companies from civil … Generally, where employees covered by the Act are required by their employers to work beyond 44 hours, they’re entitled under the Act to claim overtime and rest day pay. When would a contractual provision be considered a penalty clause not enforceable in courts? Every employment contract must contain a clause on termination, outlining both the employers and employees rights, duties and responsibilities on termination of employment. Employment in modern law is not, and does not condone, slavery. The position adopted by Singapore courts is largely based on the early 20th century authority of Dunlop Pneumatic Tyre Company v New Garage and Motor Company[1915] AC 79 (“Dunlop Tyre”). Click to share on Twitter (Opens in new window), Click to share on Facebook (Opens in new window), Article: Cross-border or international aspects in matrimonial and divorce law, Article: Considerations When Drafting Employment Contracts - RONALD JJ WONG, commercial litigation & arbitration and corporate practices, some of my articles are published in academic journals, music, creative & non-fiction writing, theatre & film, creative media and producing podcasts, faith with integrity, with the grace of God. Accordingly, the Dunlop formulation remained the applicable test for penalties in Singapore. There are no restrictions on the kinds of information that can be covered by a non-disclosure agreement – typical examples include sales plans, design specifications, software and client databases. Liquidated damages provisions in contracts are unenforceable if they constitute a "penalty". Penalties in a contract are specified terms that cause a penalty to be paid by a party if that party doesn't keep the terms laid out in the contract. SECTION 1 GENERAL APPLICATION A. Singapore contract law largely based on English contract law 8.1.1 Contract law in Singapore is largely based on the common law of contract in England. Does it mean that MOM would not get involved in all of such matters? SINGAPORE: An employee who wanted to quit after less than three months on the job was told to pay the company a month's worth of salary as compensation. (1) The High Court remained bound by the Singapore Court of Appeal's endorsements of the Dunlop formulation in the previous case of Xia Zhengyan v Geng Changqing. Some important factors include how long the restrict lasts, how large an area the restriction covers, and which specific activities are restricted. Some employers include these clauses to discourage breach by … I’m a Singapore lawyer with commercial litigation, international arbitration and corporate business advice practices. That’s odd, given that almost all employment relationships would necessarily involve contracts, whether verbal or written. She went to the Ministry of Manpower (“MOM”), who purportedly told her that since there was a contract between her and her employer, she had to deal with it herself and MOM couldn’t help her. Under Singapore law at present, the touchstone for penalty clauses is still the Dunlop Pneumatic Tyre Company v New Garage and Motor Company [1915] AC 79 (HL) principle that the sum is “not a genuine pre-estimate of loss” (CLAAS Medical Centre v Ng Boon Ching [2010] 2 SLR 38; Max Media FZ LLC v Nimbus Media Pte Ltd [2010] 2 SLR 677). For example, if the employee quits after 3 months, he would be liable for a sum exceeding $9,000. Under contract law, contract clauses which stipulate a pre-determined sum of money as damages, known as liquidated damages, may be valid. Find out the guidelines for termination with or without notice and termination due to misconduct. She had no idea what the contract terms were and no proof of when she had given notice of termination. A clause will be regarded as a penalty, and therefore unenforceable, if it is not a “genuine covenanted pre-estimate of damages”.1 In Singapore, Dunlop remains good law, despite being more than a century old. I also write on the law; some of my articles are published in academic journals. Generally parties are free to contract as they choose subject to complying with the Employment Act and certain limits. If an employee chooses not to complete the bond, they might have to pay the amount of liquidated damages provided in the contract. Hi HR Professionals, I would like to check if my company include a clause in the company policy stating that employee need to compensate full course fees to company if employee resign within 1 year after completed training courses sponsor by company. When she took MC, her employer will make her “pay back” by working on a Sunday. Penalty clauses in employment contracts. In the other, it was 6 months. Getting compensation for a contract breach can sometimes be a difficult process that requires an arduous and costly legal battle. What is an employment contract? Elements of an Employment Agreement. Possible examples of penalty clauses. Clauses 3 and 4 in the examples above are drafted to minimize the risk of those clauses being deemed to be "penalty clauses". At BCS legal clinic yesterday, 2 separate foreign applicants came distressed, seeking legal advice on how they can quit their job. Typically, when drafting an employment contract, employers include terms relating to commencement of work, salary and remuneration, job scope and requirements, working hours, leave (including medical leave, benefits, grounds for dismissal and notice periods for termination. For contracts governed by the Employment Act, one party may terminate employment without providing a reason or notice if the other party willfully breaches a condition of the employment contract or if found to have committed misconduct which conflicts with an express or implied term of the contract. First, these applicants fell within scope of employees covered by the Employment Act. Companies from civil law jurisdictions may make little distinction between liquidated damages clauses and penalty clauses in their contracts. According to Singapore law, if one party to a contract does not perform his or her obligations under a contract, the other party may file a civil suit to sue for damages for breach of contract. It is not necessary for the employment contract to be in writing, though it is advisable to issue a written contract so that both parties are aware of the specific terms of the agreement, including their rights and responsibilities. Potential changes could include a new rate of pay, new working hours or new duties. If either of these parties wishes to terminate the employment, they must follow the terms of the employment contract or the minimum statutory period. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. The past few years have seen subtle but important shifts in how the concept of a penalty is defined. In Singapore, however, this is a critical difference: a penalty clause is unenforceable while a liquidated damages provision is enforceable if it meets the conditions set forth in Dunlop. Accepted file types: jpg, png, pdf, doc, docx, jpeg, gif. However, if the stated sum is disproportionately large compared to the primary obligation, the clause may be deemed under the law to be a penalty and therefore not valid and enforceable. A contract may also be terminated by expiry once a specific task or project is completed. obligations triggered by a breach of contract. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. Repeat offenders could face fines of up to $10 000, up to 12 months in prison, or both. She does not need her resignation to be accepted by her employer. The case determined that the key test in determining whether the clause is a “penalty clause” (i.e. Fifth, in one applicant’s case, she said that when she tried to resign, her supervisor refused to accept her resignation. Enter your email address to subscribe to this site and receive notifications of new posts by email. If the penalty rule applies, we have to then consider whether the consequence of a breach is out of all proportion or “unconscionable” or “extravagant” having regard to the legitimate interests of the innocent party. I also enjoy culture and the arts,  dabbling in music, creative & non-fiction writing, theatre & film, creative media and producing podcasts. Article: What if an expatriate dies in Singapore? In general, Singapore law follows a freedom-of-contract approach, meaning that the parties are free to include whatever terms they wish into a contract, provided that these terms are not illegal. An employment contract cannot last forever. Enter your email address to subscribe to this blog and receive notifications of new posts by email. Whether a non-compete clause is enforceable under Singapore law depends on the context. Third, the so-called “bonds” or penalty clauses in their employment contracts are most likely unenforceable. Courts will also consider how experienced the former employee is, how much confidential information he or she had access to, and which industry the employee works in. However, it is not quite that simple. Under Singapore law at present, the touchstone for penalty clauses is still the Dunlop Pneumatic Tyre Company v New Garage and Motor Company [1915] AC 79 (HL) principle that the sum is “not a genuine pre-estimate of loss” (CLAAS Medical Centre v Ng Boon Ching [2010] 2 SLR 38; Max Media FZ LLC v Nimbus Media Pte Ltd [2010] 2 SLR 677). When they left the legal clinic, they were uplifted and relieved because they found out from us that they could leave their unhealthy jobs without penal consequences. (Check out my write-up on this case here.). If the employment is governed by the Employment Act and the employee is employed for 14 days or more, employers must issue a list of key employment terms, in writing, to the employee. 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