A contract of service is any agreement whether in writing or verbal, expressed or implied, whereby:
- One person agrees to employ another as an employee; and
- The other person agrees to serve the employer as an employee.
An apprenticeship contract or agreement is also considered a contract of service.
A contract of service can be in the form of a letter of appointment/employment.
The employer cannot change the terms and conditions of employment unless the employee agrees to it.
Any terms and conditions of employment, in a contract of service, that is less favourable than the relevant provision under the Employment Act is illegal, null and void. The provision in the Act will take precedence over a particular contractual term that is less favourable.
Contract for Service
In a contract for service, there is no employer and employee relationship. The person is usually self-employed or may provide his services on a free-lance basis at a fee. He is not an employee within the definition in the Employment Act
Difference between a Contract of Service and a Contract for Service
A contract of service is an agreement whereby one person agrees to employ another as an employee and the other agrees to serve his employer as an employee. The employer would need to contribute CPF and comply with relevant statutory benefits such as annual leave, sick leave etc. for its employees engaged under a contract of service.
On the other hand, a contract for services is an agreement whereby a person is engaged as an independent contractor, such as a self-employed person or vendor engaged for a fee to carry out an assignment or a project for the company. Under such a work arrangement, there is no employer-employee relationship, and the employee is not covered by the Employment Act.
There is no single conclusive test to distinguish a contract of employment from a contract for services. Some of the factors to be considered in identifying a contract of employment include:
i) Control
- Who decides on the recruitment and dismissal of employees?
- Who pays for the employees' wages and in what ways?
- Who determines the production process, timing and method of production?
- Who is responsible for the provision of work?
ii) Ownership of Factors of Production
- Who provides the tools and equipment?
- Who provides the working place and materials?
iii) Economic Considerations
- Does he carry on business on his own account or carry on the business for the employer?
- Does he involve in any prospect of profit or is he liable to any risk of loss?
- How are his earnings calculated and profits derived?
Essential Clauses of Contract of Service
- Commencement of employment;
- Appointment – job title and job scope;
- Hours of work;
- Probation period, if any;
- Remuneration;
- Employee's benefits (e.g. sick leave, annual leave, maternity leave);
- Termination of contract – notice period; and
- Code of conduct (e.g. punctuality, no fighting at work).
A party may terminate the contract of service without waiting for the required notice period to expire by paying to the other party a sum equal to the amount of salary which would have been earned by the employee during the required period of notice.
Under the following circumstances, an employment relationship can be terminated without giving notice to the other party:
- If the employer fails to pay the employee's salary within seven days after salary is due; or
- If the employee is called upon to do work that is not within the terms of the contract of service.
- If the employee is absent from work for more than two working days continuously without approval or good excuse; or without informing or attempting to inform the employer of the reason for absence.
The party who breaks the contract will have to pay to the other party salary in-lieu of notice.
Rejection of Employee's Resignation
An employer cannot reject an employee's resignation. The employee has the right to resign at any time by serving the required notice or by compensating the employer salary in-lieu of notice. Failure of the employer to allow an employee to leave his service is an offence. The employer shall be liable on conviction to a fine not exceeding $5,000 or to imprisonment for a term not exceeding six months or to both.
Offseting of Annual Leave
An employee can use his annual leave to offset the notice period for termination of contract. If an employee uses his annual leave to offset his notice period and to bring forward his last day of work, he would only be paid till his last day of work and the annual leave used to offset his leave will not be paid. By bringing forward his last day of employment with the company, he is no longer considered an employee of the company and hence he may start work immediately with his new company.
If an employee chooses to offset his leave during the notice period, it is different from situation where he applies to go on approved leave during the notice period.
If an employee applies for annual leave to cover all or part of his notice period and approval has been granted by the employer, he will be paid his salary for the full notice period. In this case, he is considered as an employee of the company until the last day of his notice period. If he wants to join a new company, he can do so only after the last day of his notice period.
Taking of Annual Leave during Notice Period
As the notice period is meant to be served, the employer cannot force his employee to go on leave during the period of notice, unless the employee consents to it. Any unconsumed annual leave can be encashed by the employee.
Taking Sick Leave during Notice Period
If the employee was on sick leave (whether paid or unpaid) during the notice period, the sick leave taken should be treated as part of the notice period. The employer cannot claim for any short notice from the employee.
Starting Work with New Employer while serving Notice of Termination with Current Employer
The employee serving the notice of termination is still considered an employee of his current employer. Unless his current contract of employment allows him to work with another employer before the date of termination, he has to seek written permission from his current employer to do so.
Using Reservist Period as Notice of Termination
As the notice period is meant to be served, the reservist training cannot be used to offset the notice period. However, both parties may mutually agree to waive the required notice.
Salary In-lieu of Notice (Notice Pay)
Salary-in-lieu of notice does not attract CPF contribution. However if an employee has fully served the required notice period, his salary for the notice period will be subjected to CPF. CPF contributions must be made by both the employer and employee for the salary earned if the employee was working during the notice period, or considered as an employee of the company and hence prohibited to join another company during the notice period.
Misconduct
An employer may, after an inquiry, terminate an employee's services without notice if the employee is found guilty of misconduct by failing to fulfil the expressed or implied conditions of employment.
Inquiry to follow the rules of natural justice:
- No man shall be a judge in his own cause
- No man shall be condemned unheard
Misconduct refers to a breach of duty or discipline which is inconsistent with the express or implied conditions of an employee's contract of service. Examples of misconduct are theft or dishonesty, disorderly or immoral conduct at work, willful insubordination etc.
If the employee has committed an act of misconduct, the employer should conduct an inquiry before deciding whether to dismiss the employee or to take other forms of disciplinary action.
Procedures of an Inquiry
The employer must hold an inquiry into the misconduct. If, after the inquiry, the employee is found guilty of the misconduct, the employer may:
(a) terminate the employee's service without notice; or
(b) instantly downgrade the employee (with no pay reduction); or
(c) instantly suspend him from work without payment of salary for a period not exceeding one week.
There is no prescribed procedure for conducting an inquiry into an act of misconduct. As a general guideline,
1) the person hearing the inquiry should not be in a position which may suggest bias; and
2) the employee being investigated for misconduct should have the opportunity to present his case.
Under the Employment Act, the employer may suspend the employee from work during an inquiry, for a period not exceeding one week. The employee should be paid not less than half his salary for the suspended period.
If the inquiry does not disclose any misconduct on the part of the employee, the employer must restore to the employee the full amount of salary that was withheld.
An employer cannot downgrade an employee with a pay cut if the employee has been found guilty of misconduct unless there is mutual agreement between both parties, or if the employment contract provides for it.
Appeals
Employees who feel that they have been unfairly dismissed* by their employers may appeal to the Minister for Manpower to be reinstated to their former employment.
Appeals must be made in writing within one month of dismissal.
If the employer has given notice and the contractual terms of termination are complied with, the onus would be on the employees to show proof that the dismissal is unfair. The Ministry of Manpower will continue to be stringent in assessing such appeals.
If it can be established that an employee was unfairly dismissed, the Minister may consider reinstating the employee in his former employment or ordering a sum of money as compensation, as the Minister deems fit.
* Dismissal means termination of the contract of service of an employee by his employer, with or without notice and whether on grounds of misconduct or otherwise.
Transfer of Employees
An employer has the right to transfer his employees to another employer. He may do so if there is a restructuring of the organisation. This may involve another company and can be a merger, take-over, sale of parts of the employer's operation or setting up a subsidiary company. The employees can therefore be transferred to a related company such as a subsidiary or associated company, or to a totally unrelated company.
Obligations of an Employer to his Employees in a Transfer
The employer is required to:
(a) notify the affected employees or their union within a reasonable time of the impending transfer;
(b) inform the affected employees about the terms of transfer so as to enable the employees or their unions to enter into consultations with the company; and
(c) ensure that there is continuity of the period of employment of the affected employees when they are transferred to a new employer and that their terms of employment are not less favourable than what they have been enjoying before the transfer.
Rights and Obligations of Employees in a Transfer
The rights of the employees are:
a) to be notified by the employer of the transfer and matters relating to the transfer;
b) to be given the opportunity to have consultation with the employer; and
c) to hold the period of employment and terms and conditions of employment with the original employer as continuing and preserved under his employment with the new employer.
The obligation of the employee is:
- On his transfer, he is to serve the new employer as if the latter is the original employer who had entered into the employment contract with him.
Obligations of Transferee (Employer who Takes over the Transferred Employees)
The transferee must inform the transferor (previous employer) of matters relating to the transfer which will affect the employee and the transferor must convey such information to the employee within a reasonable period.
On the completion of a transfer, the transferee shall take over from the previous employer all rights, powers, duties and liability which had been entered into in any contract of service or agreement with the employee's union before the transfer.
The transferee is not allowed to change any terms and conditions of employment of the transferred employee unless the transferred employee agrees.
Dispute or Disagreement between Transferred Employee or Transferee
Either party to the dispute or disagreement may refer the matter to the Commissioner for Labour for adjudication.
The Commissioner is empowered to:
(a) delay or prohibit the transfer of the employee concerned, or
(b) order the transfer of the employee and set such terms as the Commissioner considers just.
Dispute with Supervisor
The Ministry has no jurisdiction to intervene in any ‘personal dispute', e.g. management style or lack of sensitivity on the part of the employer. The employee is advised to approach the company's top management if he wishes to lodge a complaint against the behaviour of the supervisor. Nor does the Ministry intervene in cases of a criminal nature, such cases should be referred to the police or other relevant agencies.
