Singapore: Court of Appeal confirms employer-friendly approach to constructive dismissal damages

In the recent decision of Wee Kim San Lawrence Bernard v Robinson & Co (Singapore) Pte Ltd [2014] SGCA 43 the Court of Appeal considered the measure of damages that may be granted where there has been a constructive dismissal arising from a breach of the implied term of mutual trust and confidence.

The Background

The appellant, Mr Wee Kim San Lawrence Bernard (the "Appellant"), was employed by Robinson & Company (Singapore) Pte Ltd (the "Company") between 2006 and 2012. He resigned from the Company in August 2012 and was paid four months' salary in lieu of notice in addition to his accrued but untaken annual leave. His contract of employment only provided for two months' notice.

The Appellant brought two claims. The first was founded in constructive dismissal, namely that he had been forced to resign as a result of persecution and unreasonable bias that had been directed towards him by the Company or its officers on the grounds of his homosexuality. In the alternative, he argued breach of contract: by allowing such behaviour the Company had breached the implied term of mutual trust and confidence; a repudiatory breach which entitled him to resign.

The case was struck out at first instance on the basis that it was "doomed to fail"; even if the Claimant proved either of his claims, his entitlement to damages was limited to two months' salary which he had already received, plus extra.

The Appellant's Position

The Appellant appealed the decision to strike out, and the Court of Appeal was tasked with considering what the appropriate measure of damages was where there had been a breach of the implied duty of trust and confidence, and whether the nature of the breach affected the quantification of damages.

The Appellant accepted that where an employment contract was terminated as a result of a breach other than that of the implied duty of trust and confidence, the correct measure of damages was limited to the salary payable in respect of the period of notice which had to be given in order to lawfully terminate the contract. However, he argued that where the breach was of the implied term of trust and confidence, damages should be quantified based on normal contractual principles: ie, he should be put in the position he would have been in had the contract not been prematurely terminated. The Appellant argued that as there was no other reason for him to have resigned, the correct measure of damages would be equivalent to the wages he would have received had he continued in employment for the foreseeable future.

In effect, the Appellant was advocating the proposition that a breach of the implied term of mutual trust and confidence was so different in nature from any other type of breach that the damages ought to be assessed differently.

The Company's Response

The Company hotly contested the Appellant's case, arguing that if the effect of the alleged breach of the implied term of mutual trust and confidence was simply to bring the contract to a premature end, then this was exactly the same consequence as any other breach. Given that the two events would have identical consequences, the Company argued that it would be farcical to apply a different and more punitive test for damages for a breach of the implied duty of trust and confidence.

Issues in the Appeal

Three issues arose out of this appeal.

1. Whether, assuming the Appellant had been constructively dismissed as a consequence of the Company's breach of the implied term of mutual trust and confidence, his claim for damages beyond the amount of salary payable for the contractual notice period stated in his employment contract was legally sustainable (the "Measure of Damages Issue").

2. Whether the claim should not be struck out on the basis that the Appellant is entitled to declaration that the Company had breached the implied term of mutual trust and confidence (the "Declaratory Relief Issue").

3. Whether there was a conflict of evidence as to the nature and purpose of the Company's payment of four months' salary to him. (the "Settlement Agreement Issue").

Court of Appeal's Decision

The Measure of Damages Issue

The court decided that the action was legally unsustainable, noting that the Appellant contention "…that breaches of different types of terms which result in identical consequences can nonetheless give rise to different measures of damages seems suspect to begin with. 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 recompense the plaintiff differently based on the particular type of term that has been breached."

The implied term of trust and confidence was developed as a means of bringing employee dismissal cases within the scope of the doctrine of constructive dismissal. Where a breach of the implied term of mutual trust and confidence results in a constructive dismissal, as it allegedly did here, it will give rise to premature termination losses ie 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 lawfully. In this case: two months' salary.

Applied to these circumstances the court could see no justification for applying a separate test for damages when it had been accepted that the Appellant's claim was only for financial loss arising from premature termination of his employment. The Court noted that: "Moreover, if the parties have agreed that the employer has the right to terminate the employment contract upon notice or payment of salary in lieu of notice, it would be inconsistent with that contractual right to say that the employer nevertheless has to pay an employee who has been wrongfully dismissed damages that extend beyond the amount of salary payable for the contractual notice period."

The Declaratory Relief Issue

The Appellant's case for declaratory relief was also found to be without merit. The court noted that the Appellant had not argued this point from the outset; it was raised for the first time in the appeal. This was considered to be a "considerable obstacle" in itself.

Aside from this, the court ruled that even if the Appellant was granted declaratory relief, there was no outcome available which would make it a worthwhile claim, given the decision on damages. The court looked at the test for declaratory relief, which requires that there be a "real controversy" between the parties and found that as the Appellant had received all that he was entitled to receive, there was no controversy left to warrant pursuing any form of declaratory relief.

The Settlement Agreement Issue

The Court found that the Appellant's argument that his claim should not be struck out on the basis that there was a conflict of evidence as to the nature and purpose of the Company's payment of four months' salary to him was just as untenable as his position on the other issues. There was no reason to believe that the payment of four months' salary to the Appellant had not been in consideration of the termination of the Appellant's employment.

Caution

This case reaffirms Singapore's reputation as an employer friendly employment jurisdiction: when assessing damages for premature termination losses, the orthodox position of limiting losses to the salary payable for the relevant notice period still applies.

However, the Appellant in this case only made a claim for losses arising from the premature termination of his employment. As the court noted:
"The Appellant's pleadings asserted neither an independent breach of the implied term of mutual trust and confidence nor any "continuing financial losses" going beyond the premature termination losses that usually flow from a wrongful dismissal. There was no question of "continuing financial losses" such as those resulting from an impairment of future employment prospects, or separate and distinct injuries such as illness or mental or emotional distress. In truth, the Appellant's claim was simply one for constructive dismissal…"

Where a claim is made for losses other than premature termination losses, or where the breach results in an outcome other than a constructive dismissal, employees may well be able to claim damages beyond those limited to the salary due over their notice period.

If you wish to discuss, please contact Fatim Jumabhoy of our Employment, Pensions and Incentives team.