Termination of employment is always a potentially risky situation. Where the relationship is contentious, there is the possibility of legal action for wrongful termination or contractual breach. Employers thus have to consider whether to terminate under common law or contract, whether the grounds of termination are valid, and the legal consequences of termination. The High Court in Piattchanine, Iouri v Phosagro Asia Pte Ltd [2015] SGHC 259 provided some guidance on these issues, in particular, whether the employer is allowed to raise new grounds after the time of termination to justify the termination.

Retrospective Reasons for Termination

When a letter of termination is issued, the employer usually lists at least some grounds of termination. However, if the employee subsequently brings legal action against the employer on the basis of the termination, is the employer entitled to then raise new reasons for termination not previously revealed? The court in this case clarified that such new reasons may only be raised in certain situations:.

Scenario 1 – The employer terminates the employee under common law because of the employee’s renunciation or breach of a condition of the employment contract. Whether or not the breached term is vital enough to constitute a condition depends on the facts of the case.

If the employee claims against the employer for wrongful termination, the employer is allowed to raise new reasons to justify the termination. The employer may thus rely on instances of the employee’s misconduct, even if it was not aware of the misconduct at the time of termination.

Scenario 2 – The employer terminates the employee under a term of the contract, such as a provision for termination upon notice, or termination upon certain acts or misconduct.

In such a scenario, certain rights may already have crystallised upon the employer’s act of termination – for example, the employee’s right to receive pay in lieu of notice, or to receive a severance sum. The employer cannot then raise new grounds of termination at trial to argue that it had terminated on the grounds of the employee’s repudiatory breach so as to avoid liability for the crystallised rights. This is so even if the employer only subsequently discovers the employee’s misconduct. Having chosen to terminate under contract, the employer cannot retrospectively argue that the termination was under common law.

As an example, an employer may have terminated an employee under a provision allowing for dismissal upon non-attendance. The employer cannot subsequently rely on a later-discovered act of embezzlement to argue that the employee had actually been dismissed under common law for misconduct.

Scenario 3 – The employer terminates the employee under a term of the contract, and the employee subsequently challenges whether the employer was in fact entitled to rely on that contractual term.

Here, the employer is allowed to raise new grounds, but only to justify reliance on that contractual term. This is because the employer is not seeking to change the legal grounds (i.e. common law or contract) on which it terminated the employment.

As an example, an employer may have terminated an employee under a provision allowing for termination upon serious misconduct, without actually providing specific reasons. The employer can subsequently raise previously unmentioned instances of the employee’s misconduct to justify its reliance on the provision.

Valid Grounds for Termination

In this case, the Plaintiff brought a claim against his former company, the Defendant, claiming sums that he asserted were due to him following the termination of his employment as managing director. The Defendant's primary position was that the Plaintiff was not entitled to payment upon termination because of his accounting practices. In particular, the Plaintiff had claimed reimbursement for personal expenses, relying on the auditor to point out such personal expenses, which  the Plaintiff  would then have to reimburse to the Defendant.

The Defendant had dismissed the Plaintiff under the terms of the employment contract. In particular, the Defendant sought to rely on a Clause 20, which allowed for dismissal upon “serious misconduct” or “wilful breach”.

The court first assessed whether the Plaintiff was in breach of his contractual duties.

  1. The Plaintiff was in breach of his express contractual duty to “well and faithfully serve the company” by claiming for personal expenses and relying solely on the Defendant's auditor to identify them to him at the end of the year.
  2. The Plaintiff was not in breach of the implied contractual duty to exercise reasonable care in the performance of his job.
  3. The Plaintiff was in breach of his implied contractual duty to serve the Defendant with good faith and fidelity, as he had used his employer’s property for his own purposes, and had not given due consideration to his employer’s interests.
  4. The Plaintiff was in breach of his fiduciary duty as managing director to act in the best interests of the Defendant by making claims for personal expenses and not assuming full responsibility for reimbursement.

However, the court held that this was not sufficient to constitute “serious misconduct” or “wilful breach”. The court  accepted the Plaintiff’s evidence that he believed he was allowed to use these accounting practices, and that he fully intended to reimburse the Defendant for his personal expenses at the end of the year. Therefore, the Defendant was not entitled to rely on Clause 20.

Concluding Words

Generally, employers seeking to terminate their employees should include all reasons for dismissal in their letters of termination. They should also be specific about what grounds they are relying on, be it a particular contractual provision or common law. One of the subsequent legal problems faced by the company in this case was that they had purported to terminate the employment of the Plaintiff “pursuant to the terms of the employment contract…” but failed to stipulate which contractual ground they were relying on.

Accordingly, if termination  is on the basis of contract,  the employer must carefully consider which provision it is relying on. Certain provisions may have legal consequences, such as payment for notice or severance. Employers must also assess whether any alleged misconduct on the part of the employee falls within the scope of the contractual clause relied on.

This case directly impacts a common practice of companies who choose to terminate their employees under a “no-fault” clause to perhaps help the employee “save face” or to avoid having to deal with the intricacies of the employee’s misconduct—but this practice may subsequently back-fire when the employee sues the company and, pursuant to Scenario 2 above, the company cannot raise new reasons to rely retrospectively on the employee’s misconduct to avoid making payments due to the employee upon termination.