Unfair clauses in employment contracts: How can employees be better protected?

Unfair clauses in employment contracts: How can employees be better protected?

Office workers at Raffles Place in Singapore
Office workers at Raffles Place in Singapore. (File photo: Marcus Mark Ramos)

SINGAPORE: An employee who wanted to quit after less than three months on the job was told to pay the company a month's worth of salary as compensation. 

While this was a clause found in the employee’s contract, it was an “unreasonable” one.

This was an example given by the Ministry of Manpower (MOM) on Wednesday (Oct 30) in a statement addressing the issue of unfair clauses found in employment contracts in Singapore. 

Around 50 of such cases, with some involving a high financial penalty, had been lodged with the Tripartite Alliance for Fair and Progressive Employment Practices (TAFEP) since September 2018.

Employers involved in these cases were "generally ... cooperative" after being told to justify the contractual clauses imposed and to remove or not enforce those that were unfair, said MOM. 

The firm involved in the example cited by MOM had heeded TAFEP's advice to drop the demand for compensation after the latter said the clause was unreasonable. 

It also agreed to review the clause for future employees, said the ministry. 

MOM's statement was in response to media queries about a blog post by Member of Parliament (MP) Zainal Sapari. 

Writing on the labour movement’s blog on Wednesday, Mr Zainal, who is the assistant secretary-general of the National Trades Union Congress (NTUC), cited examples of “one-sided and unethical clauses” that take advantage of the “vulnerable position” of workers, and called for more to be done.

“Due to the challenging business environment, there are employers who may resort to underhand practices or tactics to address the problems they are facing, but to the possible detriment of the workers … (Including) unfair clauses is unethical as they abuse the vulnerable position the workers might be in,” wrote the MP.

READ: TADM recovers S$29m in owed wages; resolves 85% of salary claims within 2 months

MOM said it has been in “active discussion” with tripartite partners on such issues and will ensure that unreasonable contractual clauses do not become the norm in workplaces here.

“While there are legitimate reasons why employers include restraint of trade clauses in employment contracts (such as to protect trade secrets and trade connections) or impose liquidated damages for specific contractual breaches (such as breaking a training bond), excessive or unreasonable use of such practices cannot be justified.”

The ministry added that “clear principles and markers on when such clauses are not enforceable” have also been set by the Civil Courts.

“Other than intervening in such cases to help the employees, MOM will also not hesitate to take other actions, such as suspension of work pass privileges, against recalcitrant employers,” it said. 

WHAT AND WHO IS AFFECTED

Human resource and legal experts said the unfair terms found in some job contracts can range from illegal salary deductions when performance targets are not met and penalties for contract termination to excessive non-compete or restraint of trade clauses.

Some also contain “catch-all phrases” like “all the above terms and conditions are subject to changes”.

“Such catch-all phrases usually allow the companies to easily make changes to pay structure, work location or schedule, and benefits without having to consult all employees,” said Singapore Human Resources Institute’s (SHRI) president Low Peck Kem.

These experts added that unfair employment contracts affect not just vulnerable workers, such as those earning lower wages, but the professionals, managers, executives and technicians (PMETs) as well.

READ: Commentary: Tip of the iceberg, when ‘disguised PMEs’ don’t get overtime pay and fair treatment

For the former, these tend to be illegal salary deductions and clauses that exclude them from overtime pay, said Mr Ian Lim, partner and head of employment at TSMP Law.

Construction is one industry that has seen more low-wage workers, usually foreigners, falling victim to such unfair clauses, added Mr Lim.

Another is the outsourced services industry, where job contracts are found with clauses that require workers to pay liquidated damages incurred by the company, according to Mr Zainal.

“In the outsourced service industry, such as cleaning and security, it is quite a standard practice for service buyers to reflect the liquidated damages payable for non-performance issues in the contract.

“Given the narrow profit margins they are getting, these service providers may then resort to passing the cost of liquidated damages to the workers,” the MP wrote in his blog post.

The MOM website states that salary deductions for such liquidated damages should not be made, even if employees have given their consent. 

However, some low-wage workers may not be aware of their rights or are afraid to report their bosses for fear of losing their jobs, thus allowing errant firms to get away with these unreasonable practices, said Mr Zainal. 

READ: NTUC eyes new taskforce to protect workers at ‘pre-retrenchment’ phase, sets 1.5 million membership goal

For the PMETs, contractual disputes tend to involve excessive "non-compete" or restraint of trade clauses.

These typically involve non-solicitation clauses that seek to stop a worker from soliciting clients or staff away from a former employer. Non-compete clauses prevent people from working in the same industry for a certain period of time.

One excessive example, according to Mr Lim, is a contract that had a non-solicitation and non-poaching clause lasting five years, as well as a two-year non-compete clause.

There is currently “no bright-line test to determine reasonableness” of these clauses, he added, given the current lack of specific guidelines in this area.

Ms Amarjit Kaur, partner at Withers KhattarWong, echoed that: “The Employment Act provides basic legislative protection to employees and goes into the details for areas like overtime pay, but not everything is prescribed.”

Referring to the restraint of trade clauses as “some of the most onerous clauses” that can be found in job contracts here, she added: “A lot of it is left to the freedom of contract between the employer and employee.”

“When there is an imbalance of power, the employer will be able to dictate the terms and very often, employees will just sign the contract because they don’t feel they have the opportunity to negotiate it,” said Ms Kaur.

office workers raffles place singapore file photo 4
Office workers at Raffles Place in Singapore. (File photo: Marcus Mark Ramos)

Rank-and-file workers have not been spared, according to Mr Zainal, who raised the example of how one security agency used the restraint of trade clause on its security officers.

These contractual terms are typically aimed at preventing employees in senior management positions from competing with the firm after they leave, but this security agency stated in its contracts that it would take legal action against officers who join another agency within four months of resigning.

“The law is on the workers’ side in this aspect but the only thing is that workers must take it to the courts if challenged by their employer which, unfortunately, many low-wage or vulnerable workers are not prone to doing,” added the MP.

WHAT MORE CAN BE DONE?

Mr Zainal said there is an “urgent need” for tripartite partners to provide greater clarity and guidance on fair and proper contracting practices, given how workers who are not properly advised of their legal rights are more likely to succumb to the unreasonable demands of their employers.

There also needs to be greater education efforts to help workers understand employment contracts.

The MP also suggested a “cooling off period”, up to five working days for example, to allow workers to rescind an employment contract they have signed without penalty.

The MOM, or the Tripartite Alliance for Dispute Management (TADM), could also consider starting a watch-list of companies found to have unfair clauses in their employment contracts.

Administrative penalties should be imposed on them, added Mr Zainal.

READ: Enhancements made to Employment Act will see more workers protected

Mr David Leong, managing director of PeopleWorldwide Consulting, said authorities and unions can also draw up templates of employment contracts that are in accordance with the Employment Act for companies to refer to. 

More can also be done to protect migrant workers whose main recourse is to seek pro-bono help through charity help groups that have limited resources, suggested Mr Lim.

Migrant workers in Singapore file pic
Construction workers wait to cross a street in Singapore. (Photo: AFP)
 

HOW TO PROTECT YOURSELF

To be sure, experts said that the Singapore authorities have made strides in beefing up protection for workers with changes to the Employment Act, as well as the set-up of dispute management office TADM.

“The most effective way of resolving such disputes is usually amicable settlements, without going to the civil courts. With a mechanism like TADM that offers mediation services, it means that workers won’t be disadvantaged just because they don’t have lawyers to represent them,” said Mr Leong.

But experts also urged workers to be up-to-date with local employment laws and not rush into signing a job contract.

“Sign the contract with your eyes open," said SHRI’s Ms Low.

“Seek clarification and discuss with the HR staff or recruiter on the clause you are not comfortable with. If you think it is blatantly unfair, then one can always go to TAFEP and TAFEP will take up the case with the employer.”

In its statement, MOM said that any employee who feels that he or she has been the subject of an unreasonable employment clause in his or her contract should approach the union, TAFEP or MOM for assistance as early as possible.

Source: CNA/sk

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