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In brief

In a recent action brought before the Singapore High Court, the summary dismissal of Wong Sung Boon by Fuji Xerox Singapore Pte Ltd (“FXS“) was found to be without basis and unlawful, and FXS was ordered to pay damages of SGD 1.4 million. In assessing the quantum of damages, the High Court re-affirmed the minimum obligation rule. This case illustrates the importance of ensuring that summary dismissals are carried out in accordance with the law and the decision to summarily dismiss an employee must be taken with due care.


Key Takeaways

  • This case serves as a cautionary tale for employers – it highlights the importance to ensure that dismissals are carried out in a lawful manner.
  • The High Court re-affirmed the minimum obligation rule in assessing the quantum of damages for wrongful dismissal claims.
  • The decision to summarily dismiss an employee should only be taken after due consideration – particularly where it is unclear if the employee’s conduct amounts to repudiation of the employment contract.
  • Due inquiry must be conducted before an employee can be summarily dismissed.

Factual background

Wong was the former Senior Managing Director and Chief Executive Officer of FXS. In September 2017, FXS conducted audit investigations in response to an anonymous whistle-blower letter, which pertained to allegations of serious misconduct by Wong.

On 21 December 2017, Wong was issued a termination notice by FXS (“Termination Notice“). The Termination Notice stated that FXS has been looking into Wong’s handling of several past transactions for FXS and finds that his actions gave rise to grounds for summary dismissal under his employment contract. The employment contract provided that FXS has the right to summarily dismiss Wong where he caused material damage to FXS, acted in a manner grossly incompatible with the due and faithful discharge of his duties, or is guilty of gross default or misconduct.

Thereafter, Wong commenced an action against FXS for wrongful dismissal. In response, FXS claimed that Wong’s dismissal was lawful and counterclaimed against Wong for alleged losses suffered by FXS. FXS argued that Wong had entered into transactions that had caused FXS to be unreasonably and unnecessarily exposed to liability because (1) such transactions were not within FXS’ scope of business, expertise or experience, and (2) Wong had not complied with the Credit Evaluation Process (“CE Process“), which was used by FXS to assess the creditworthiness of a potential customer.

The High Court Decision

The High Court held that FXS was liable for the wrongful dismissal of Wong. Upon reviewing the impugned transactions and relevant company policies, the High Court held that FXS had not made out its claims that Wong had been in breach of his duties or of FXS’ company policies, or that the breaches were subsequently rectified.

In relation to FXS’ assertion that the impugned transactions were not within FXS’ scope of business, the Court found that there were no internal company restrictions on FXS’ scope of business and Wong had complied with his duties owed to FXS and the relevant internal procedures in his handling of the impugned transactions.

The High Court also rejected FXS’ assertion that Wong had failed to comply with the CE Process. One of the arguments raised by FXS pertained to the alleged failure of Wong to secure personal guarantors (“PGs“) with the requisite creditworthiness for the impugned transactions. The Court noted that the relevant company policies and operations manual were silent on the requirement for PGs and held that there was no requirement to secure a PG in the first place, contrary to the submissions by FXS.

Contractual Interpretation of the Grounds for Summary Dismissal

The High Court also took this opportunity to address the approach in interpreting termination clauses which set out the grounds for summary dismissal. In interpreting what amounts to “gross default or misconduct”, the High Court applied the principles laid down by the Court of Appeal in Phosagro Asia Pte Ltd v Piattchanine, Iouri [2016] 5 SLR 1052 (“Phosagro“).

In Phosagro, the Court of Appeal had to interpret a clause in an employment contract which allowed the employer to terminate the employee’s employment if he was guilty of “serious misconduct”. The Court of Appeal held that “serious misconduct” must be a breach “that is so serious that it would justify [the employer] in terminating [the employee’s] employment without more”, and that principles relating to discharge by a repudiatory breach would be relevant to determine the issue of “serious misconduct”.

On the facts, the High Court held that the alleged breaches of the relevant company policies in this case did not entitle FXS to summarily dismiss Wong. The High Court stressed that while the employment contract provides that Wong must “strictly comply with” FXS’ company policies, this in itself does not mean that all clauses in the relevant company policies constitute “conditions” such that a breach of the relevant company policies would entitle FXS to treat the contract as repudiated or allow FXS to summarily dismiss Wong.

Measure of Damages

In assessing the damages arising from the wrongful dismissal, the High Court applied the minimum legal obligation rule, which seeks to limit the recovery of damages by assessing it in a manner which is the least costly or most beneficial to the employer.

In this regard, the High Court held that FXS would have given Wong three months’ salary in lieu of notice and terminated him immediately on 21 December 2017, as this was the least costly method to FXS. Consequently, the High Court ordered FXS to pay damages of S$ 1.4 million, which comprises of the following payments in accordance with the terms of the employment contract in this case: three months’ salary in lieu of notice, an end of term payment (i.e., one month salary for each year of service), loss of variable bonus and salary in lieu of accrued leave.

Conclusion

This case serves as a cautionary tale for employers and stresses the importance of ensuring that summary dismissals are carried out in a lawful manner.

The Tripartite Guidelines on Wrongful Dismissal provides that where misconduct or poor performance is cited as the reason for the dismissal, the employer bears the burden of proving that ground for dismissal. The dismissal is considered wrongful if the employer is unable to do so.

Following the amendment to the Employment Act, which came into effect in April 2019, employers are also required to conduct due inquiry for summary dismissals, regardless of the level of the employee. Due inquiry generally requires a formal process under which:

  • an investigation is carried out;
  • the employee is notified of the allegations against them and given an opportunity to defend themselves before the decision-maker; and
  • the persons involved in conducting the investigation and deciding on the disciplinary outcome are generally impartial (e.g., they have never worked directly with the employee).

Therefore, due consideration must be given before deciding to summarily dismiss an employee. This is particularly crucial where it is unclear whether the breach by the errant employee in question amounts to repudiation of the employment contract entitling the employer to summarily dismiss the employee. In this regard, this case illustrates the risks in summarily dismissing an employee where the conduct of the employee in question did not amount to the requisite threshold of misconduct that would entitle the employer to do so.

Author

Celeste Ang is a principal in Baker McKenzie's Singapore office. Celeste Ang’s practice encompasses corporate litigation and arbitration, both domestic and cross-border. She also has significant experience advising clients on compliance and regulatory issues in the context of investigations, and on a wide range of employment and employment-related issues. Celeste is ranked by Chambers Asia Pacific in the areas of litigation and employment and by Chambers Global in the area of litigation. She is described as "very smart, very innovative - a good example of someone who thinks outside the box" and "very technically competent, very thorough and very responsive" by clients.

Author

Zhao Yang Ng is a senior associate in Baker McKenzie's Singapore office.