penalty clause employment contract singapore


This website contains general information and opinions about legal matters. If an employee chooses not to complete the bond, they might have to pay the amount of liquidated damages provided in the contract. The other applicant was made to work long hours without claiming overtime pay. Receiving compensation is not as straightforward as it may seem and it may be very complex and difficult in certain situations. (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. Non-disclosure agreements play an important role in businesses. That’s odd, given that almost all employment relationships would necessarily involve contracts, whether verbal or written. The employer then refused to cancel her S-Pass even though it was obliged to under the law. Once a contracting party signs a written contract, the court will conclude that he or she has agreed to all of the terms contained within the contract. Liquidated damages provisions in contracts are unenforceable if they constitute a "penalty". It places an obligation upon the party who has breached the contract to provide compensation to the aggrieved party affected by the breach. Liquidated damages provisions in contracts are unenforceable if they constitute a "penalty". Hence, the rules developed in the Singapore courts do bear a very close resemblance to those developed under English common law. I believe in being an advocate who seeks justice, peace and joy for others. 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. Find out the guidelines for termination with or without notice and termination due to misconduct. 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“. There are many reasons why an employer might wish to alter the terms of a contract with an employee. All she needed to do is give (written or oral) notice of termination of her employment. What is an employment contract? The terms of Mr Leiman’s employment contract 10 Mr Leiman’s contract with NRL is set out in a letter dated 6 December 2005 on NRL’s letterhead and signed by Mr Elman as adirector of NRL.10 11 The letter states that the agreement “contains the whole agreement” between Mr Leiman and NRL, and that Mr Leiman agreed to comply with Around 50 of such cases, with some involving a high financial penalty, had been lodged with the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) since September 2018. Accepted file types: jpg, png, pdf, doc, docx, jpeg, gif. the loss of fees which would otherwise have been paid by the employer. A penalty clause is an express provision in a contract. This is so that you have the documentary evidence to support your position later, whether you will pursue litigation, complaint, or some other action later. We'll do our best to work within your schedule. 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. Second, s 38 of the Employment Act actually provides that 44 hours are the maximum work hours per week for employees, not the minimum. Clause in Employment Contract. An employment contract is an agreement between the two parties (the Employer and the Employee) which govern their relationship and is enforceable by law. Most employment contracts contain an express termination clause, which states the required notice period that one party must give the other before terminating the contract. A penalty clause in a contract is a provision that obligates the defaulting party to provide some form of compensation to the innocent party in the event of a breach of contract. 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. In other words, if the stated sum in the clause is not a genuine pre-estimate of the employer’s loss should the employee terminate his employment, then it’s a penalty clause and not valid and enforceable. 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. Scope of the legislation As a Christian, I strive to live out my faith with integrity, with the grace of God. Should you require legal services on Singapore law, you may contact me at ron[at]ronaldjjwong.com. 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. Article: What if an expatriate dies in Singapore? 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. 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. Penalty clause. I’m a Singapore lawyer with commercial litigation & arbitration and corporate practices. The information is not legal advice, and should not be treated as such. This was an example given by the Ministry of Manpower (MOM) on Wednesday (Oct 30) in a statement addressing the issue of unfair clauses found in employment contracts in Singapore. The case determined that the key test in determining whether the clause is a “penalty clause” (i.e. The penalty rule applies only to secondary obligations, i.e. Inductive Bible Study Method Framework COMA. Accordingly, the Dunlop formulation remained the applicable test for penalties in Singapore. Whether a non-compete clause is enforceable under Singapore law depends on the context. obligations triggered by a breach of contract. The penalty clause of the Contract is twenty percent (20%) of the total value of the Contract, and shall apply as indicated in the General Conditions. Non-compete clauses are commonly found in employment contracts in Singapore. Therefore, the penalty rule kicked in and the court had to consider whether clause 4 was a legitimate liquidated damages clause. When would a contractual provision be considered a penalty clause not enforceable in courts? The contract provision you’ve described is a liquidated damages provision. Noble countered by contending that clause 3(c) could not be a penalty, because a penalty only arises where there is a breach of contract (i.e. Generally parties are free to contract as they choose subject to complying with the Employment Act and certain limits. If an employee does not agree to the changes but continues to work under the new conditions, the court may decide that the employee has agreed to the new terms. Continuing the discussion, assuming the Employment Act does not apply and further assuming the 2 months' compensation clause (the "Clause") is valid. These clauses are likely penalties, which are unenforceable as a matter of contract law. In one case, it said that she had to pay 2 years’ salary for terminating the contract before the 2 years are up. If an employee chooses not to complete the bond, they might have to pay the amount of liquidated damages provided in the contract. Under contract law, contract clauses which stipulate a pre-determined sum of money as damages, known as liquidated damages, may be valid. Getting compensation for a contract breach can sometimes be a difficult process that requires an arduous and costly legal battle. 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. 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. The Employment Act of Singapore is the principal statute governing termination of employment. 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. 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. 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. However, both parties must enter into the contract voluntarily for the contract to be enforceable. In Singapore, liquidated damages clauses may be enforced if they represent a genuine pre-estimate of loss and they aim to estimate in advance the loss likely to result from a breach of contract. An Employment Contract is a contract by which a company hires an employee. Yes. For an article I wrote in the Singapore Law Gazette on termination of employment contracts and dismissal, check it out here. I’m burdened about seeking the common good of society, building community and being a social justice advocate for marginalized people. 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, non-compete clauses that apply after the termination of the employment contract are only enforceable in Singapore if: The non-compete clause protects a “legitimate proprietary interest” of the employer, and; The scope of the non-compete clause is reasonable. One of the applicants had to do 7 ex-colleagues’ work; they all resigned. It is therefore advisable that European companies from civil … The Singapore Employment Act does not apply to all If that party later discloses this information, this will be considered a breach of contract which would allow the innocent party to claim damages or even seek an injunction to prevent future breaches of contract. I try to promote access to justice by volunteering pro bono. The rule does not apply to primary obligations. I’m Ronald JJ Wong / Ronald Wong Jian Jie / 黄健杰. 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. Should you require legal advice on any specific matter, you should engage a lawyer. I’m a Singapore lawyer with commercial litigation, international arbitration and corporate business advice practices. I was furious when I heard about such exploitative wrongdoing. I also enjoy culture and the arts,  dabbling in music, creative & non-fiction writing, theatre & film, creative media and producing podcasts. 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. It remains to be seen whether the Singapore courts will also adopt the Cavendish Square principle for this doctrine on penalty clauses. 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. However, this clause may not be found to be enforceable in court. Sample 1 Sample 2 unenforceable) is whether the … In fact, her contract stipulated that she had to work at least 44 hours a week. A contract may also be terminated by expiry once a specific task or project is completed. For example, if the employee quits after 3 months, he would be liable for a sum exceeding $9,000. If either of these parties wishes to terminate the employment, they must follow the terms of the employment contract or the minimum statutory period. 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.). ... the question was whether the relevant provision of a settlement agreement was a penalty. 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. Applying Cavendish Square, the court held that clause 1 was a primary obligation and clause 4, which stipulated the consequence of breach of clause 1, was in a substance a secondary obligation. Penalty clauses in employment contracts. The employment contract may include that the employee owes a penalty if he violates the agreed-upon conditions. 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. It may be determined that an employee who breaches the confidentiality obligation has to pay a certain amount in penalties for each violation. She was not allowed to claim overtime pay. Clauses 3 and 4 in the examples above are drafted to minimize the risk of those clauses being deemed to be "penalty clauses". If there is no clause in the contract explaining the termination process, the termination provisions of the employment act are applicable. 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. I also enjoy culture and the arts. 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). Failure to comply with a MOM order will constitute a criminal offence punishable by fines up to $5000, imprisonment of up to 6 months, or both. 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. In other words, if the stated sum in the clause is not … More importantly, this applicant’s case highlights the importance of keeping a copy of documents one signs. Receiving compensation is not as straightforward as it may seem and it may be very complex and difficult in certain situations. Employment contracts are also subject to other laws, such as the Employment Act, which requires that certain workers must receive salary payments at least once a month and are entitled to an additional one day’s salary if they are required to work on a public holiday. Employers may also include non-solicitation clauses to prevent former employees from soliciting clients or employees away from the employer’s business. 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. Question. In the other, it was 6 months. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. Employment in modern law is not, and does not condone, slavery. I also write on the law; some of my articles are published in academic journals. 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. She worked till 4 am on several days and was verbally abused for failing to meet ridiculous deadlines. Article: Can You Get Bail After Being Charged For A Criminal Offence? In the highly anticipated S… 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. 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. A recent decision from the Singapore Court of Appeal gives insight into the approach taken in that country. The Employment Contract sets out detailed provisions on various aspects of employment. Some employers include these clauses to discourage breach by … A penalty clause is an express provision in a contract. 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. 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. Sixth, in another applicant’s case, her employer kept her employment contract and her resignation letter. The terms of Mr Leiman’s employment contract 10 Mr Leiman’s contract with NRL is set out in a letter dated 6 December 2005 on NRL’s letterhead and signed by Mr Elman as adirector of NRL.10 11 The letter states that the agreement “contains the whole agreement” between Mr Leiman and NRL, and that Mr Leiman agreed to comply with When drafting an Employment Contract in Singapore, the employer should be aware of certain statutory provisions in determining the terms of employment, for example the amount of … Please choose a time during our office hours (9:30 - 18:00 weekdays). And the Act stipulates certain minimum conditions of employment terms which cannot be contracted out. The past few years have seen subtle but important shifts in how the concept of a penalty is defined. Penalty clauses such as clauses that restrict an employee from leaving employment although no training, upskilling, or upgrading cost was expended are also illegal. Every employment contract must contain a clause on termination, outlining both the employers and employees rights, duties and responsibilities on termination of employment. An important factor to consider in drafting an employment contract is whether or not the type of employment is covered by the Employment Act. Any contravention of such minimum conditions amount to an offence under the Act. Some important factors include how long the restrict lasts, how large an area the restriction covers, and which specific activities are restricted. Alternatively, a contract governed by the Employment Act may be terminated by payment of salary instead of notice. The Supreme Court recently examined the common law rule on penalty clauses in consumer and commercial agreements. Third, the so-called “bonds” or penalty clauses in their employment contracts are most likely unenforceable. 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. First, these applicants fell within scope of employees covered by the Employment Act. Unfair, Unlawful & Wrongful Dismissal in Singapore, Complying with Responsible Retrenchment in Singapore. Non-workmen covered under the Employment Act earning below $2,500 in basic monthly salary. Terms may be express (stated explicitly in the contract, either orally or in writing) or implied (not stated explicitly but taken to form part of the contract). The Employment Contract sets out detailed provisions on various aspects of employment. Fifth, in one applicant’s case, she said that when she tried to resign, her supervisor refused to accept her resignation. Contracts are made up of terms, which reflect the various aspects of the agreement. An Employment Contract is a contract by which a company hires an employee. I’m burdened about seeking the common good of society, building community and being a social justice advocate for marginalized people. Every employment contract must contain a clause on termination, outlining both the employers and employees rights, duties and responsibilities on termination of employment. Enter your email address to subscribe to this blog and receive notifications of new posts by email. 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. The Employment Act of Singapore is the principal statute governing termination of employment. 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). The next step is to deploy the law of contract and argue that the Clause is not a liquidated damages clause (enforceable) but a penalty clause (non-enforceable). However, it is not quite that simple. Learn how your comment data is processed. While this was a clause … As a result most penalty clause disputes tend to be settled by agreement. An employment agreement is a contract between your company and the employee that discusses both the employee's and your company's responsibilities and rights. The Act is a significant piece of legislation which governs employment contracts.

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