What is the proper measure of damages in a constructive dismissal situation?

Constructive dismissal occurs under circumstances where an employer’s conduct constituting a repudiatory breach of the employment contract compels or forces the employee to terminate the employment relationship. Although the employee is the party seeking to terminate the employment relationship, he is considered as having been “constructively” dismissed by the employer as a result of the employer’s conduct.

In Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] SGCA 43, the Singapore Court of Appeal (the court of final appeal in Singapore) affirmed the principle that the normal measure of damages in constructive dismissal claims is the amount which the employee would have received under the employment contract had the employer lawfully terminated the contract. The damages claimed are therefore restricted to the amount payable by the employer if the employment contract were terminated in accordance with the contract by paying the required notice in lieu of notice. However, the Singapore Court of Appeal recognized that separate heads of damages in respect of a breach of the obligation to maintain trust and confidence may arise in which case such heads would be separately assessed.

The Facts

The Appellant, Mr. Wee Kim San Lawrence Bernard, was employed by the Respondent, Robinson & Company (Singapore) Pte Ltd, which is the retailer that operates the "Robinsons" brand of department stores in Singapore, in the period from 9 October 2006 until the end of August 2012.

The Appellant resigned on 24 August 2012 and the Respondent paid him four months' salary in lieu of notice and his unconsumed annual leave, even though the Appellant's contract of employment only provided for payment of two months' salary in lieu of notice.

The Appellant subsequently commenced an action against the Respondent for, amongst other things, constructive dismissal. He claimed that he had been forced to resign as a result of persecution and unreasonable bias that had been directed towards him by the Respondent or its officers. In the alternative, the Appellant claimed that the Respondent had breached the implied term of mutual trust and confidence in the contract of employment between parties.

On 18 June 2013, the Respondent filed an application to strike out the Appellant's claims.

The Parties’ Position

The Appellant claimed that he was entitled to damages exceeding the amount of salary payable for his contractual notice period if such damages flowed from the breach of the implied term of mutual trust and confidence in his employment contract with the Respondent.

During the hearing before the Court of Appeal, the Appellant clarified that his claim was neither for loss of future employment prospects nor for other types of continuing or post-termination financial losses arising from his dismissal. In this regard, the Appellant was seeking damages in respect of the alleged financial loss arising from the premature termination of his employment with the Respondent.

In support of his position, the Appellant argued that there should be a difference in the calculation of the damages between a breach of the implied term of mutual trust and confidence and any other type of breach, even though the result of the two breaches was the same (the premature termination of the employment relationship).

The Appellant contended that where the premature termination was the consequence of a breach of the implied term of trust and confidence, the employee's loss should be measured by reference to what he would have earned had that breach not occurred. The Appellant's position was that there was no evidence that his employment with the Respondent would have been terminated if the implied term of mutual trust and confidence had not been breached by the Respondent. Therefore, the Appellant claimed he should be entitled to claim for damages assessed on the basis that he would have remained in the employment of the Respondent indefinitely, subject to the usual limiting principles such as mitigation of damages.   

The Respondent maintained that the Appellant's claim was legally unsustainable because he had already received more than his contractual entitlement of two months' salary in lieu of notice, which was the normal measure of damages for constructive dismissal claims.

The Court of Appeal’s Decision

The Court of Appeal held that the Appellant's claim for damages beyond the amount of salary payable for his contractual notice period was legally unsustainable. The Court of Appeal did not accept the Appellant's contention that breaches of different types of terms which resulted in identical consequences could nonetheless give rise to different measures of damages.

As damages are compensatory in nature, and where the consequences of breaches of different types of terms are the same, there is no obvious reason to compensate a plaintiff differently based on the particular type of term that has been breached.

The implied term of mutual trust and confidence in employment contracts is that, insofar as the employer is concerned, it shall not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of mutual trust and confidence between employer and employee. A breach of the implied term of mutual trust and confidence by the employer will constitute a breach of a fundamental term of the contract of employment, and an employee who accepts this breach as a repudiation of the contract would be treated as though he has been “constructively” dismissed by the employer.

A breach of this implied term may give rise to different consequences. In a case where the breach of the implied term of mutual trust and confidence results in constructive dismissal, it will give rise to a claim for what is known as “premature termination losses” which are losses that are causally connected to the premature termination of the employment contract. In such a situation, as a matter of principle, the damages awarded to the employee should be the same as the damages which would have been awarded if the employee had been actually (rather than constructively) dismissed unlawfully. The normal measure of damages in cases of wrongful dismissal is the amount which the employee would have received under the employment contract had the employer lawfully terminated the contract by giving the required notice or paying salary in lieu of notice, subject to mitigation.

This rule flows from the established principle that the breach in issue having occurred, damages are to be assessed on the basis of the defendant’s “least onerous obligation”.

In an employment context, this means that the employee is entitled to be put in the position he would have been in if the employment contract had been brought to an end lawfully. Where the defendant has the option of performing a contract in several ways, damages for his breach of contract must be assessed on the assumption that he will perform the contract in the way that is most beneficial to himself, and not in the way that is most beneficial to the claimant. Therefore, in a case of wrongful dismissal (including constructive dismissal), damages should be assessed on the basis that the employer would have exercised any power it might have had to bring the employment contract to an end at the earliest date at which it could lawfully do so.

However, the Court of Appeal acknowledged that a breach of the implied term is capable of giving rise to financial losses of a different nature which would then have to be assessed on a separate footing. This is only so where the consequence of the breach is something other than the premature termination of the employment contract. An example of this would be the “continuing financial losses” sustained and claimed as damages where the breach has affected an employee’s future employment prospects subject to proof of causation and the limiting principles of remoteness and mitigation. Another example would be financial loss stemming from psychiatric or other illness brought about by the employer’s breach of this implied term.

In this case, as the Appellant’s claim was only for financial loss arising from the premature termination of his employment with the Respondent, there was no reason to apply anything other than the normal measure of damages for wrongful dismissal.

Conclusion

This case affirms that the normal measure of damages for constructive dismissal would be the amount which the employee would have received under the employment contract had the employer lawfully terminated the contract, subject to mitigation.

However, in the event that the employee is able to establish that he has suffered any additional forms of damage or loss (for example, where the breach affected his future employment prospects or he suffered illness brought about by the employer’s breach), the employee may claim for such damage or loss over and above damages for constructive dismissal.