In Piattchanine, Iouri v Phosagro Asia Pte Ltd [2015] SGHC 259, the High Court had to determine whether an employer who had terminated an employee’s contract under specific provisions in the employment agreement could subsequently raise new grounds for termination in order to avoid making severance payments. The Court held that attention must be paid to the character of the termination of the contract and how a reasonable reader would interpret the termination. If an employer elected to terminate the employment agreement pursuant to its contractual rights under that agreement, the employer could not later rely on the common law right of termination as a result of repudiatory breach of contract.

This Update takes a look at the decision.

Facts

Provision for termination with and without notice

The Plaintiff was employed as the Managing Director of the Defendant pursuant to an employment contract dated 1 March 2013 (“the Contract”). The term of employment was for three years. The material terms of the Contract relating to termination 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 Plaintiff would be entitled to 100% annual salary as a one-off payment;
  • Clause 20, which provided that the Defendant 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.

Employment contract terminated pursuant to terms of contract

When a dispute arose between the Plaintiff and the Defendant, the Plaintiff’s employment was terminated with immediate effect by an email dated 28 February 2014 (“the Termination Notice”). The Termination Notice provided that the Plaintiff’s employment was “terminated pursuant to the terms of the employment contract dated 1 March 2013.” The termination notice also provided that the Defendant reserved the right to “withhold any payment which may otherwise be due to [the Plaintiff] on account of any breach of contract and/or any misconduct or non-observance of the Employment Contract and/or breach of any of [the Plaintiff’s] fiduciary duties…”

Subsequent letter terminating contract for serious misconduct

On 18 March 2014, the Plaintiff received a letter from the Defendant, accompanied by a large pile of receipts, referring to the Termination Notice and advising that, subsequent to termination of the Plaintiff’s employment, an investigation had revealed that the Plaintiff had been guilty of serious misconduct and/or had not acted in the Defendant’s best interest and/or had acted in breach of his fiduciary duties to the Defendant. The Defendant alleged that the Plaintiff 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 Defendant advised that the Plaintiff was not entitled to receive either payment in lieu of notice or payment of a lump sum under the Contract.

Proceedings

Plaintiff commenced proceedings

The Plaintiff commenced proceedings against the Defendant for:

  • Damages in the amount of S$1,946,400 for the Defendant’s breach of its contractual obligation to employ the Plaintiff for three years by terminating his employment with immediate effect on 28 February 2014 (“the Primary Claim”);
  • Alternatively, the sum of S$1,236,900, being sums due under the Contract as a result of the Contract being terminated by the Defendant before the end of the three-year term (“the Secondary Claim”)

Counter-claim by Defendant

The Defendant also counter-claimed for damages in the amount of S$499,719.20 arising from unauthorised expenses allegedly incurred by the Plaintiff in breach of his contractual, general and fiduciary duties to the Defendant.

Decision

No damages as contract provided for termination with notice

The High Court noted that, essentially, in the Primary Claim, the Plaintiff was bringing a suit for damages pursuant to the Defendant’s contractual breach, claiming the salary and bonuses he would have earned if he had been employed for the entire three-year term. However, the Court held that clauses 2 and 14 of the Contract expressly allowed termination by either party with three months’ notice, therefore the termination of the Plaintiff’s employment on 28 February 2014 was not a breach of contract and the Plaintiff’s claim for damages must fail.

Court had to look at character of termination

With respect to the Secondary Claim, the Court had to address whether the Defendant was allowed to adduce new grounds or reasons (i.e., the serious misconduct allegations in the letter of 18 March 2014) that were not relied upon at the time of termination, to justify the termination. To determine this, the Court held that it was important to look at the character of the termination of the contract, which should be seen from the point of view of a reasonable reader in the position of the recipient of the Termination Notice.

Employer must elect how to terminate contract

The Court drew a distinction between a situation where an employee was suing the employer for an accrued debt due under the employment contract, and where the employee was suing the employer for damages pursuant to a purported wrongful dismissal. Generally, in the latter situation, the employer may raise grounds not raised at the time of termination to justify the decision to terminate. However, once the employer has elected to terminate the employee on contractual grounds, it may not then resile from its choice after the termination has taken effect and retrospectively argue that the employment contract was terminated because of the employee’s repudiatory breach of contract. The character of the termination must be determined by the circumstances at the time of termination.

Contract was clearly terminated on contractual grounds

By having regard to the facts and circumstances at the time of termination in the present case, the Court held that it must consider whether the Contract was terminated by reliance on a contractual right, or on the basis that the Plaintiff was in repudiatory breach. Only in the latter situation would the Defendant be entitled to raise new facts as a defence to the Plaintiff’s claim. On this basis, the Court held that the Defendant had clearly terminated the Contract on 28 February 2014 in exercise of its contractual rights under the same. The Defendant was therefore bound by this election and could not subsequently rely on a common law right to terminate the Contract pursuant to the Plaintiff’s repudiatory breaches. Pursuant to the Contract, the Court found that the Plaintiff was entitled to one-year’s salary for termination before the expiry of the three-year term, as well as three months’ salary in lieu of notice. The Plaintiff was also entitled to his guaranteed bonus for the first year of employment.

Expenses claimed by Plaintiff not serious misconduct

The Court also allowed the Defendant’s counterclaim in part, awarding the Defendant some S$100,000 of the unauthorised expenses claimed. However, the Court noted that the Plaintiff accepted that most of the sum awarded was for expenses outside of his entitlement and which he had every intention of reimbursing to the Defendant. The Court held that whilst the Plaintiff had breached some of his fiduciary duties by making claims for personal  expenses  and  not  assuming  full  responsibility  for reimbursement to the Defendant, this did not constitute serious misconduct as the Plaintiff was using an expense-accounting practice that he believed he was entitled to use and that the Defendant had knowledge of.

Our Comments / Analysis

This case highlights how important it is for employers to properly craft a termination notice.

Grounds for termination must be clearly expressed

As the Court will take an objective point of view in considering the content of such a notice, it is important for employers to state clearly the grounds they are relying upon for termination and where necessary, refer to the relevant clause(s) in the employment contract. An employer may be bound by the language in a termination letter, so failure to properly specify the grounds for termination could prevent other issues in support of the termination being subsequently raised.

Internal inquiry for termination on account of misconduct

In the event an employer seeks to terminate on account of misconduct, it should consider whether it needs to have an internal inquiry. An internal inquiry is generally compulsory where this is provided for in the employment contract / policies. Even where it is not a contractual requirement, having an inquiry would accord with best practices, as set out in the Tripartite Guidelines for Fair Employment Practices. Further, upon the conclusion of such an inquiry, the employer would have a fuller picture of the facts, and the basis for the termination can be more clearly communicated.

This case also highlights the importance of having clear internal policies in place regarding such matters as expense claim procedures, leave application and encashability of unconsumed annual leave.