Article: Considerations When Drafting Employment Contracts

As a Singapore employment lawyer, I explain in this article various considerations an employer or human resource (HR) executive should consider when drafting or amending employment contracts / agreements.

Similar information may be found on my webpage here.

Not everything is determined by the contract

Many people assume that the employment contract contains all the relevant rules or terms regarding the employment relationship. That is not true.

Apart from the general contract law rules which may intervene to make certain contract terms invalid or unenforceable, there is also written statutory law (passed by the Singapore Parliament) such as:

  1. Employment Act

  2. Employment of Foreign Manpower Act

  3. Child Development Co-Savings Act

  4. Central Provident Fund Act.

Employee or Freelancer / Independent Contractor?

In the first place, it is important to be clear whether the person you are hiring is or should be considered an employee or a freelancer.

You should note that you may use labels or terminology like “freelancer” in the contract, but the law may objectively regard the relationship as employment.

The law distinguishes between an employee (under a contract of service) and a freelancer or independent contractor (under a contract for service).

There are legal consequences that follow from the distinction. E.g. employers and employees must contribute to the employees’ Central Provident Fund (CPF) account. Employers who fail to do so can be charged and convicted, as was in the case of Public Prosecutor v Jurong Country Club and another appeal [2019] SGHC 150.

Employees will also be given certain legal rights under the Employment Act. Independent contractors will not.

There is no definitive test or rule to distinguish between the two categories. The courts have considered multiple factors on the facts of each case, including:

  1. Extent of control by the organisation over the personnel;

  2. Personal service – whether the personnel is allowed to delegate or subcontract responsibilities to another person;

  3. Mutuality of obligations – specific obligation for fee;

  4. Financial risk, earnings, and ownership of assets;

  5. Renegotiation and renewal of the contracts – frequency and duration;

  6. Remuneration structure and commission;

  7. Working arrangements and benefits relative to other personnel/employees.

A detailed summary of the factors considered in the Jurong Country Club case is found in my case summary here.

It should also be noted that both part-time and full-time employees are considered employees under certain laws like the Employment Act.

Mandatory Key Employment Terms

Under the law, employers must issue key employment terms (KETs) to employees, which are the essential terms of employment contained in a contract of service between the employer and the employee.

Under the law, employers must issue KETs in writing to all employees who:

  1. Enter into a contract of service on or after 1 April 2016.

  2. Are covered by the Employment Act.

  3. Are employed for 14 days or more. This refers to the length of contract, not the number of days of work.

The KETs may be in any medium, whether digital or hard copy and must be provided to the employee within 14 days from the start of employment.

The list of KETs are set out below and found also on the MOM webpage here. MOM templates are found here.

1 Full name of employer.
2 Full name of employee.
3 Job title, main duties and responsibilities.
4 Start date of employment.
5 Duration of employment (if employee is on fixed-term contract).
6 Working arrangements, such as:

  • Daily working hours (e.g. 8.30am – 6pm).
  • Number of working days per week (e.g. six).
  • Rest day (e.g. Saturday).
7 Salary period.
8 Basic salary.

For hourly, daily or piece-rated workers, employers should also indicate the basic rate of pay (e.g. $X per hour, day or piece).

9 Fixed allowances.
10 Fixed deductions.
11 Overtime payment period (if different from item 7 salary period).
12 Overtime rate of pay.
13 Other salary-related components, such as:

  • Bonuses
  • Incentives
14 Type of leave, such as:

  • Annual leave
  • Outpatient sick leave
  • Hospitalisation leave
  • Maternity leave
  • Childcare leave
15 Other medical benefits, such as:

  • Insurance
  • Medical benefits
  • Dental benefits
16 Probation period.
17 Notice period.
18 (Optional) Place of work.
Used if the work location is different from the employer’s address.
Although optional, you are strongly encouraged to include this info.

Legal Principles and Rules Which May Make Some Clauses Unenforceable

If the Employment Act (“EA“) applies to an employee, there may be certain EA provisions which would override express clauses in the employment contract, rendering those clauses illegal, null and void to the extent they are less favourable than the EA provisions (section 8 of the EA).

For example, if an employee is entitled to overtime or rest day pay under the EA, an express clause that disentitles the employee may be illegal null and void. Overtime salary may be payable if an employee is made to work and falls within the specified category of employees. There are also restrictions on the maximum amount of working hours. The EA also provides for minimum amount of certain types of leave like sick leave and hospitalisation leave.

Deductions from an employee’s salary are generally not permitted unless authorised under the EA.

Another common clause which may be unenforceable is the non-compete and non-solicitation clause or restrictive covenant. These are known as restraints of trade. Generally, such non-compete clauses which apply after the termination of the employment contract are not enforceable under common law as a matter of public policy unless it can be satisfied to the court that the non-compete clause protects a legitimate proprietary interest of the employer, and the clause is reasonable. These have to be considered on the facts. Factors to be considered include: the employee’s seniority, employee’s work scope (including whether it is client-facing or influence over client), employee’s access to the employer’s sensitive confidential information or trade secrets, prohibited scope of activity, geographical scope of restriction, duration of restriction, industry, etc. There are various judicial cases which have applied these principles in different circumstances to either uphold or strike down such clauses. Further, sometimes the court may sever a clause which is too wide if the part so enforceable is clearly severable.

Yet another clause often found in employment contracts which have to be properly thought through is the confidentiality clause. The type of information to be deemed confidential should be properly and specifically particularised. It is plausible that such clauses which apply post-termination insofar as they apply to confidential information but not trade secrets must be deemed reasonable to be enforceable, especially if the confidential information in question is the employee’s skill and knowledge, depending on the nature of the information and how it is used (Clearlab SG Pte Ltd v Ting Chong Chai and others [2015] 1 SLR 0163 (HC) at [68]-[78]).

Similarly, restraint of trade principles also apply to garden leave clauses in employment contracts.

Some employers include clauses to penalise employees for terminating their employment before a certain duration. It is plausible that some of these clauses are unenforceable as penalty clauses rather than liquidated damages. A more extensive discussion can be found here.

If a class of employees are union members, then certain other laws and rules also apply. The union will negotiate with the employer for a collective agreement which will set out the employment terms of the protected class of employees.

It is common for employers to have employment handbooks or company policies which purport to bind the employee as well. However, it should be noted that if there is no clear express clause to incorporate the terms of such documents into the employment contract, it is possible that they are not binding on the employee. Care should thus be taken to expressly incorporate by reference and require the employee to actually acknowledge receipt of the document.

Another common issue is the variation or amendment of terms in the employment contract. Some employers include a clause which purport to give them the right to vary or amend the terms in their discretion. This may not necessarily be legally effective or enforceable. Generally, variation of contracts require all the fundamental elements of a (new) valid binding contract to be fulfilled, including in particular new consideration and not past consideration. See also my webpage on Contract Principles for an elaboration on this.

Do note that apart from express clauses in an employment contract, the law also implies certain obligations in employment contracts, including e.g. a duty of good faith and fidelity, duty of confidentiality, and duty of mutual trust and confidence (see also this).

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