Member Article

By this time next year, Singapore will have a rather different employment regime from any it has had since independence. One aspect of this needs to be carefully thought through.

About ten years ago, a distressed Norwegian client consulted me. His company’s Singapore office had a toxic employee who not only performed poorly and shirked responsibility, but was also habitually insubordinate to management and offensive to his peers. All attempts to get the employee to improve failed. He was causing a serious office morale issue, and the client felt helpless. “Is he employed under Singapore law?” I asked. The client nodded. “Then let him go,” I said. The client was incredulous: “We can do that?”

Norway is known to be relatively employee friendly, but it’s far from the only such jurisdiction. More recently, I advised an executive at a French multinational whose senior colleague in the Singapore office had manhandled her. The company swiftly packed the colleague off to Paris. It wasn’t even the first time he had to abruptly move offices either – the same thing had happened after he sexually harassed another female colleague in Hong Kong. Why wasn’t he fired after either incident? Apparently, because he was employed under French law, and the multinational feared having to compensate him in the millions.

These anecdotes, likely unsurprising for employers in other countries, will sound strange to Singaporeans who live and work in our largely at-will employment environment, where just cause for termination generally does not need to be shown, and there is relative ease of hiring and firing (and importantly, rehiring). Coupled with our atypically facilitative labour movement, this has consistently proven attractive to foreign multinationals looking to set up Asia-Pacific operations here. These investments have in turn helped transform Singapore from a struggling ex-colony to a thriving regional hub and global metropolis with very low unemployment, falling retrenchment and continuing strong growth rates (a healthy 3.6 per cent last year). This employment environment might soon change though.

Paradigm shift

Locals and foreigners employed here currently fall into two broad categories: those covered by the Employment Act (EA), and those who are not. Presently, the EA covers all private sector employees who are not Professionals, Managers and Executives (PMEs), as well as PMEs who earn up to S$4,500 a month. The employees not covered by the EA (PMEs earning over S$4,500) are essentially just covered by their contractual terms.

Come next April though, the EA salary cap of S$4,500 will not just be raised as was the case previously, but removed altogether in one fell swoop. The exact amendments are not presently known as the draft bill will only be tabled in Parliament this September, but what’s clear is that the revised EA will cover all employees in Singapore for the first time ever. Per the Ministry of Manpower (MOM), this will ensure that the EA “remains relevant and responsive to…changing labour market conditions and trends”.

These fundamental and far-reaching changes are welcome, removing the hitherto unusual dichotomy in EA coverage, and helping it stay relevant to the evolving face of work in Singapore. Greater statutory rights for more employees, within reason, is certainly a good thing. (Statutory rights for freelancers and gig economy workers would be better still, but that’s a separate conversation.)

So what’s the problem?

In his first speech as Minister for Trade and Industry, Chan Chun Sing emphasised maintaining a pro-business stance as a key priority. To help ensure this, an area that deserves some careful consideration is that of wrongful or unfair dismissal, the often nebulous concept of undeserved termination.

The current EA already allows terminated employees to claim compensation even where notice has been given or payment made in lieu of notice. This appears slightly at odds with the concept of at-will employment – indeed, the Singapore Courts have previously held that where an employment contract allows termination with notice, damages for wrongful dismissal should ordinarily be limited to the amount of such notice payment.

Assuming we wish to retain at-will employment, the EA definition of “compensation” for wrongful dismissal then becomes important. If it means payment of bonuses, wage supplements or other such ancillary sums that the wrongful dismissal has deprived the employee of, then this would still be consistent overall with at-will employment. However, if it means that the employee is entitled to damages equivalent to his or her wages for a notional period of continued employment, say another two years, then that becomes a concern for employers. Two years’ back pay is in fact what an employee can expect for wrongful dismissal in a neighbouring country, in addition to reinstatement (or a further month’s payment for every year worked with the company).

Aggrieved employees here might feel that even two years of salary compensation is not excessive. However, it should be remembered that, by and large, terminated employees can often be quite easily rehired elsewhere. Such ample employment opportunities may start to dry up though if employers begin to feel hamstrung and afraid of hiring employees whom they couldn’t then fire without hefty compensation, even if they turned out to be poor performers. This is why at-will employment, and the job mobility this allows, has served Singapore well for years.

As National Trades Union Congress (NTUC) Assistant Secretary-General Cham Hui Fong observed recently (in the context of rising overall union membership here), “executives today don’t stay very long”. While disruption could pose some danger to this job mobility and ease of rehiring, the active retraining and upskilling of employees the labour movement promotes and advocates has certainly helped – Singapore currently has just 2 per cent unemployment, and tops Asia with 48 per cent of adults in full time jobs.

Change is coming, let’s make it for the better

To be clear, this article is not advancing a “greater good trumps individual injustice” argument. But striking a balance is important, and the issue here is not with rank-and-file workers being fairly compensated for wrongful termination. After all, such lower-wage workers, who may be a bit less career-mobile, are already covered by the current EA. Rather, the issue is with poorly performing senior executives potentially holding employers ransom with unmeritorious dismissal claims once the EA salary cap is removed.

One area to look here at would be the relatively new Employment Claims Tribunals (ECT), which will soon hear wrongful dismissal cases. The ECT’s present claims limit of S$20,000 (or S$30,000 with union assisted mediation), effectively excludes top executives from bringing claims there. But the limits are expected to rise. Because the ECT was specifically structured for swift and economical employment dispute resolution, its decisions are procedurally difficult to appeal to the High Court. This makes it vital that the ECT gets its decisions right, to ensure fair outcomes for unfair dismissal cases. It would accordingly help the ECT if the revised EA, while doing away with salary caps, could also provide greater clarity on the nature and scope of compensation for wrongful dismissal.

These radical EA amendments are going to happen, that much is clear. And like the foreign labour restrictions, there are good reasons for these changes, and also good reason to think that Singapore’s economy and standing are now mature and developed enough to weather any initial teething difficulties and adapt for the better.

That said, statutory clarity on wrongful or unfair dismissal would certainly help as we enter this brave new world for Singapore employment. This will go a long way towards ensuring that, unlike Aldous Huxley’s book, it’s a story with a happy ending.