In the recent case of Phosagro Asia Pte Ltd v Piattchanine, Iouri [2016] 5 SLR 1052 (Phosagro), the central question that arose for the Court of Appeal’s consideration was which guidelines should apply to determine whether there had been a ‘serious misconduct’ to warrant an immediate termination of employment.

Facts of Phosagro

The respondent was the managing director of Phosagro Asia Pte Ltd (the Company). The respondent had the practice of reimbursing his credit card expenses, both personal and corporate, out of the Company’s account. At the end of the year, the respondent would then reimburse the Company for his personal claims, as identified by an external accountant. However, as the receipts were unmarked, the respondent failed to reimburse the Company for several personal claims (Expense Accounting Practice).

Tensions arose between the parties, and the Company sent a letter to the respondent, purporting to terminate his employment contract immediately on the ground of ‘serious misconduct’ under Clause 20 of the employment contract.

One of the central issues before the Court of Appeal was whether the respondent’s Expense Accounting Practice would be regarded as a ‘serious misconduct’, which would entitle the appellant to terminate the contract with immediate effect. Immediate termination would preclude the respondent from claiming certain benefits under the contract.

The decision

In determining what was ‘serious misconduct’, the Court held that this referred to a breach of the employment contract that was so serious it justified the employer in terminating the employment immediately. The Court also stated that the general common law principles relating to breaches that entitle the aggrieved party to discharge the contract immediately (repudiatory breaches) would be relevant.

Examining the facts of the case, the Court of Appeal noted that Clause 3 of the employment contract, (which reads “the [respondent] shall…faithfully serve the [appellant] in all respects and use his best endeavours to promote the interests of the [appellant]”), would have been intended by the parties as a term of utmost importance. This was because the respondent was entrusted with a significant degree of authority, responsibility and independence in conducting the appellant’s affairs, and even had the sole authority to reimburse himself for the expenses of which he incurred.

Given that the respondent had breached Clause 3 by failing to reimburse the appellant for his personal expenses, and that Clause 3 was an important term to the contract, the respondent’s breach of Clause 3 constituted ‘serious misconduct’ within the scope of Clause 20.

In conclusion

While the case of Phosagro provides further guidance on the legal interpretation of ‘serious misconduct’, the case also reiterates that what constitutes ‘serious misconduct’ on the facts still depends on the specific circumstances of the case. Therefore, where the employment contract does not set out the scope of ‘serious misconduct’, employers may be left uncertain as to whether particular acts of misconduct committed by their employees would qualify as serious misconduct to justify a summary dismissal.

For certainty, when drafting an employment contract, employers should clearly and expressly set out the scope of serious misconduct. This would include setting out clauses which are so important that even a minor breach would justify summary dismissal. The employer may also consider listing factual categories of serious misconduct, such as theft or fraud, dishonesty, violent behaviour, gross negligence and insubordination. Finally, the employer may consider providing a similarly broad provision that imposes on an employee to act in the best interests of their employer, similar to Clause 3 in Phosagro. However, it remains to be seen how the courts would regard such a provision in a situation where the employee may not be in a senior executive or managerial role in the organisation, unlike the case of the managing director of the employer in Phosagro.

Benjamin Gaw and Elizabeth Tong are directors in Drew & Napier LLC’s corporate and finance department.

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