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> Employment Law: Entitlement to Retrenchment Benefits
Where
the contract of employment is governed by Singapore law:
- there is no legal entitlement to
retrenchment benefits unless expressly
provided for in the employment contract or in respect
of employees who are members of a union that has a collective
agreement with the company, in the collective agreement.
- requirement
to pay retrenchment benefits cannot be
implied into a contract of employment by past practice
or policy of the company.
In
Bethlehem Singapore Pte Ltd v Ler Hock Seng and Others
[1995] 1 SLR 1, the Court of Appeal considered the issue of
whether the former employees of the company were entitled to
retrenchment benefits at the rate of one month's salary for
each year of service.
The
letters of appointment of the former employees contained varying
forms of "Other benefits" clause. One example of the
clause is as follows:
"You
will be entitled to all other benefits, including but not limited
to retrenchment benefits, applicable to your employment status
in accordance with the company's prevailing policies and practices
and subject to provisions of relevant law."
In
previous retrenchment exercises, the company had paid retrenchment
benefits of one month's salary for each year of service to all
employees who were retrenched whether or not they were union
members (union members had the benefit of a collective agreement
which made specific provision for payment of retrenchment benefits
in the event of retrenchment).
The
former employees argued that it was therefore the prevailing
policy of the company in relation to retrenchment benefits that
when an employee who had worked continuously for the company
for three years or more was retrenched, he should be paid retrenchment
benefits of one month's salary for each year of service.
The
Court of Appeal stated that payment of retrenchment benefits
is purely discretionary as there is no statutory provision compelling
an employer to pay such benefits. Reference was made to Section
45 of the Employment Act which provides as follows:
"No
employee who has been in continuous service with an employer
for less than 3 years shall be entitled to any retrenchment
benefit on the termination of his service by the employer on
the ground of redundancy or by reason of any reorganization
of the employer's profession, business, trade or work."
In
relation to Section 45, the Court of Appeal stated that:
"Section
45 disentitles an employee with less than three years' continuous
service with an employer from claiming retrenchment benefits
on the ground of redundancy or by reason of the employer's re-organisation.
Section 45 cannot be read to imply that in the case of employees
with more than three years' continuous service with an employer,
there is legal compulsion on the employer to pay retrenchment
benefits."
The
Court of Appeal found that from the wording of the "Other
benefits" clause in the letters of appointment, the amount
of the retrenchment benefits to be paid was discretionary. The
Court further stated that there is "no rule of law to
the effect that once a discretion has been consistently exercised
in a certain way it can no longer subsequently be exercised
in a different way."
The
Court also held that payment of one month's salary for each
year of service could not be implied into the contract of employment
of employees with at least three years continuous service as
it fails to satisfy the test of necessity for implying terms
into a contract and particularly so in this case where the express
wording of the "Other benefits" clause provided that
the amount of retrenchment benefits payable was in the discretion
of the company.
The
decision of the Court of Appeal was followed by the High Court
in the case of Loh Siok Wah v American International Assurance
Co Ltd [1999] 1 SLR 281.
In
this case, an employee (who is not a member of the union) claimed
for, amongst others, retrenchment benefits of 1 month or 1.25
months' salary for each year of service. There was no express
provision for payment of retrenchment benefits in his employment
contract.
The
employee had argued that it was an implied term of his contract
that he was entitled to retrenchment benefits based on the employer's
previous practice and the collective agreement between the union
and the company.
Following
the decision of Bethlehem above, the learned Chan Seng
Onn, JC, stated as follows:
"It
will be extraordinary and it will also cause much concern to
all employers in Singapore if I were to hold that employers
who have paid retrenchment benefits previously will be legally
bound to pay retrenchment benefits at the same rates or at reasonable
rates for all subsequent retrenchments. Unless
contractually or statutorily provided for, there is no legal
obligation for any employer in Singapore to provide retrenchment
benefits…. No matter how many times an employer
may have given ex-gratia retrenchment benefits in previous retrenchment
exercises, that per se, does not give rise to any legal obligation
to pay retrenchment benefits for the next exercise." [underlining
added]
[Note:
Section 45 of the Act applies only to those within the definition
of employees under section 2 of the Act. If a person is not
an "employee" under the Act, entitlement to retrenchment
benefits is determined by the employment contract.]
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