Introduction

When an employer wrongfully dismisses an employee by not giving him the requisite period of notice or salary in lieu of notice as stipulated in the employment contract, the employee is usually entitled to be compensated by damages equivalent to the amount of salary payable for the contractual notice period stated in his contract. Would the position be any different if the employee has been constructively dismissed because of the employer’s breach of an implied term of mutual trust and confidence in the employment contract?

The Singapore Court of Appeal decided in Wee Kim San Lawrence Bernard v Robinson & Co(Singapore) Pte Ltd [2014] SGCA 43 that damages would be assessed no differently in such a scenario. An employee can only recover additional damages if, as a result of the employer’s breach of the implied term, he had suffered losses other than the premature termination of the employment contract, such as financial losses due to impaired future employment prospects or psychiatric illness.

Facts

The plaintiff was an employee (the "Employee") of a retailer which operated the “Robinsons” brand of department stores in Singapore (the "Company"). On 24 August 2012, the Employee resigned from the Company. Although the employment contract stipulated that the Employee was entitled to payment of two months’ salary in lieu of notice if the Company terminated his employment, the Company paid the Employee four months’ salary in lieu of notice together with an additional sum for his unconsumed annual leave. 

Subsequently, the Employee sued the Company and sought damages for constructive dismissal. He claimed that he had been forced to resign as a result of persecution and unreasonable bias by the Company or its officers. He alleged that the Company had persecuted him because he was a homosexual.1 In the alternative, he claimed that the Company had breached the implied term of mutual trust and confidence in his employment contract, as the Company had professed to be an equal opportunities employer.

The Company then filed an application to strike out the Employee’s claim on the basis that it was legally unsustainable because even if the Employee had been constructively dismissed (which the Company denied), he would not have been entitled to anything more than two months’ salary as stated in his employment contract. Before an Assistant Registrar, the Employee argued, relying on a House of Lords decision (Malik v Bank of Credit and Commerce International SAll),2 that his claim against the Company for continuing financial loss beyond the contractual notice period stated in his employment contract was legally and factually sustainable if the Company had breached the implied term of mutual trust and confidence, resulting in a loss of future employment prospects. 

The Company’s application succeeded before the Assistant Registrar, who noted that the Employee had not pleaded any special damages for his alleged inability to seek employment following his alleged constructive dismissal by the Company. The High Court dismissed the Employee’s appeal, noting that the Employee had neither disclosed in his statement of claim any particulars relevant to establishing a breach of the implied term of mutual trust and confidence, nor particularised his claim for “stigma” losses or damages flowing from the alleged breach.

Decision

Before the Court of Appeal ("CA"), the Employee’s counsel clarified an important aspect of the Employee’s position: the Employee’s claim was only for damages for the alleged financial loss arising from the premature termination of his employment with the Company, and did not extend to loss for future employment prospects or for other types of continuing or post-termination financial losses arising from his alleged dismissal.

As the Employee’s claim was only for financial loss arising from the premature termination, the CA held that, assuming that the Employee had been constructively dismissed, he was only entitled to the normal measure of damages as if he had been wrongfully dismissed. Previous Singapore cases on wrongful dismissal established that the employee would be entitled to an amount which he 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, for instance, mitigation. The rationale for this rule was that the employer should only be held to his least onerous obligation, namely, that the employer would have terminated the employment contract at the earliest date at which it could lawfully do so. The CA therefore rejected the Employee’s argument that damages should be assessed on the basis that he would have remained in the Company’s employment indefinitely.

Hence, because the Employee’s claim was only for constructive dismissal, the CA held that compensation for the loss suffered would be confined to two months’ salary in lieu of notice, as stipulated in his employment contract. Since the Company had already paid the Employee more than his contractual entitlement, the Employee’s claim was legally unsustainable as he would not be entitled to claim for damages beyond the amount of salary payable for the contractual notice period stated in his contract. 

The CA also made other important observations including the following:

  • constructive dismissal refers to a situation where the employer breaches a fundamental term of the employment contract which entitles the employee to treat himself as discharged from the contract. In effect, although it is the employee who terminates the contract, it is as though the employer had effectively terminated the contract by manifesting an intention no longer to be bound by the contract, which is then accepted by the employee;
  • the implied term of mutual trust and confidence in employment contracts, as developed in England, requires an employer not to, 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 this implied term is a breach of a fundamental term of the employment contract and can give rise to a constructive dismissal;
  • a breach of an implied term of mutual trust and confidence can also have consequences other than a premature termination of the employment contract, such as continuing financial losses due to impaired future employment prospects or psychiatric illness. One example cited by the CA was Malik’s case where the court recognised “stigma” damages as a recoverable head of loss flowing from the breach of an implied but independently actionable term; and
  • under English law, based on the "Johnson exclusion" principle,3 claims for damages based on breach of the implied term of mutual trust and confidence cannot be brought in wrongful dismissal cases, unless the cause of action in question accrued before and existed independently of the cause of action for wrongful dismissal. Although the CA did not express a final view on whether or not the Johnson exclusion principle applied in Singapore, the CA noted the main rationale underlying the Johnson exclusion principle was "that to allow an employee to recover damages for loss arising from the manner of his dismissal would be inconsistent with the English statutory scheme for compensation for unfair dismissal". However, the CA clarified that the employee will only be able to claim damages for losses resulting from the employer’s premature termination of the contract (by either failing to give proper notice or pay salary in lieu of notice), if wrongful dismissal is the only consequence of a breach of the implied term of mutual trust and confidence.

Comment

While it is axiomatic that an employee is entitled to claim damages upon the employer’s breach of an employment contract, the CA’s decision has clarified "[t]he distinction between the damages recoverable for wrongful dismissal and the damages recoverable for an independent breach of the implied term of mutual trust and confidence". In wrongful or constructive dismissal cases, an employee can be awarded damages to compensate him for his losses, which can be divided into: (a) those resulting solely from the premature termination of the employment contract; and (b) those which continue from or follow the termination of the employment contract.

In the former case, if the employer has already paid to the employee an amount beyond the latter’s contractual entitlement, the employee cannot claim for additional damages. In the latter case, the employee would need to particularise the specific damages claimed, if any.  In September 2014, the High Court of Australia in Commonwealth Bank of Australia v Barker4 held that under the common law of Australia, a term of mutual trust and confidence could not be implied by law in employment contracts as it was "a step beyond the legitimate law-making function of the courts", in light of the "complex policy considerations involved". It would be interesting to see whether the High Court of Australia’s decision would have any impact on the principle of law set out by the CA in this case on the recoverability of damages in cases of constructive dismissal resulting from an alleged breach of an implied term of mutual trust and confidence.