Guide on Employment Contract
Employment contracts or agreements are necessary to keep the relationship between the employer and employee in check and in harmony. Without a well-drafted employment contract, employers and employees may find themselves embroiled in frequent employment disputes.
For employment contract to be enforcement, both parties must enter the contract voluntarily. Under the TAFEP (Tripartite Alliance for Fair & Progressive Employment Practices), the employment contract must be fair, clear and well-written, and provide both parties a common understanding of each other’s rights and obligations. Under the Employment Act, an employment contract or agreement with less favourable terms than any of the conditions of service prescribed by the Employment Act will be illegal, null and void.
This employment contract guide will help you to understand more about the employment contract or agreement and enable you to avoid committing errors while producing the contract for the employees.
Companies desire an employment contract system that is built on developing harmonious and stable employment relationships between the employer and employee and protecting the lawful rights and interests of both parties.
The terms in an employment contract shall comply with the principles of lawfulness, fairness, equality, free will, negotiated consensus and good faith. An employment contract that is lawfully concluded shall instantly become legally binding, and both the parties shall perform their respective obligations under the Employer-Employee relationship.
Hence, these guidelines have been prepared to provide and assist the local HR staff in administering an employment contract with a selected applicant for a position in the company and to minimize the risk of contravening any labor law or regulation, legal action and incurring financial penalties
Considerations to note of before administrating an employment contract
There are a few considerations that we need to take note of before administering an employment contract as such contract when entered become legally binding on both parties.
1. Contract of Service vs. Contract for Service
HR staff should establish that the relationship to be entered is one of employer-employee and not principal-contractor before administering the employment contract.
The legal test for distinguishing a contract of service and a contract for service can be complex and will depend on a range of factors, as well as the circumstance of each case. It is important to be aware that the courts will examine the contractual relationship in practice and will not be limited to the form of words used to give effect to the relationship
|Contract of Service
|Contract for Service
|Control over work||Skilled employees may have a high level of independence in the way they work, although the framework within which they work would be set with or by the employer.||Typically, a contractor has a higher level of independence in the way the work is performed, within the limits of the contract for the work.|
|Independence||Employees have a duty to perform work for the employer as directed or in accordance with an employment contract.||The contractor must perform duties in accordance with the contract, but not necessarily in other roles except by agreement.|
|Payment||Based on the period of time at work regardless of whether work is carried out.||Typically, payment is according to results without regard to the time taken.|
|Liability||The employer, not the employee is legally liable for the work.||The contractor is legally liable for the work performed under the contract.|
|Commercial risks||The employee generally bears no risks in respect of the work and is not liable to remedy any defective work at their own expense.||The contractor bears the risks and has the potential to make a profit or loss and is responsible to remedy any defective work at their own expense.|
|Integration in business||The employee works as part and parcel of the employer’s business.||The contractor works as part of their business and may be associated with the operations of another business.|
|Ability to delegate||The employer determines the employee’s freedom to delegate.||Typically, a contractor can delegate the work by agreement or otherwise.|
|Tools and equipment||Ordinarily provided by the employer, except when specifically agreed otherwise.||The contractor provides their own tools and equipment.|
|Basis of hiring||Hired on a continuous basis.||Hired for a specific task.|
2. Coverage and Issuance
All new employees, regardless of the type of employment, who’s intended employment period is one month or more, must be issued with an employment contract which is duly signed by both parties.
All employment contracts must be issued before the commencement of the new employee’s employment with the company. If this is not possible, then, the employment contract must be issued and duly signed by both parties within 14 days from the commencement date recommended by the Ministry of Manpower, Singapore, otherwise, the employment will be considered void.
3. Types of Employment Contract
There are two (2) types of Employment contract:
- Open or Open-ended: this is an employment contract for which the company and employee have agreed not to stipulate a definite ending time or the completion of a project.
- Fixed-Term: this is an employment contract for which the company and the employee have agreed upon an ending date or the completion of a project.
4. Authority Level
Only the Managing Director or local HR Manager is authorized to represent the company to enter and sign the employment contract on behalf of and for the company. It is important that the person representing the company must be in employment with the local company either as an employee or a director. If he/she is neither an employee nor a director, then, he/she should not be allowed to enter into or sign the local employment contract.
No other manager in the local company is allowed to represent the company to enter or sign an employment contract.
5. Legal Considerations
The general approach of the law towards contracts is that both parties are free to agree to whatever they like, provided it is legal. Contract law is not concerned with “fairness” or “reasonableness”.
However, where the terms of a contract of employment have been negotiated with the employee or are incorporated into the employee’s contract by reference, this must be drawn to the employee’s attention. Equally, where there is a particularly onerous clause in the contract, the party seeking to rely on the clause must make sure that the clause has been brought to the other party’s attention.
Contents in an Employment Contract
All employment contracts must contain provisions as required by the labor legislation in each country and its absence must contain the following standard provisions:
- The legal name of the employee and his/her identification number
- The company name and its address
- Job title or appointment being offered
- Job description (preferably to be attached as an appendix)
- Reporting supervisor or manager’s job title and location
- Duration of employment (only for fixed-term employment)
- Working hours and work location (state only the country and city as office address can be subject to change regularly)
- Remuneration offer including basic salary per month, commission, allowances and bonus plan
- Salary review
- Probationary period
- Performance review
- Types of paid leaves entitled as required by the law such as annual, sick and hospitalization, carer’s leave, etc. (not necessary to state all as those over and above the statutory requirements can be referred to in the employee handbook)
- Public holiday
- Medical and insurance benefits, where applicable
- Termination of employment
- Conflict of interest
- Privacy or confidential information
- Intellectual property
- Restraint & non-solicitation or non-competition clause
- Dispute resolution
- Governing law/legislation or award
- Acceptance page where both parties sign
For Singapore, all employment contracts or agreements must contain the Key Employment Terms as prescribed by the Employment Act. A sample of an employment contract is below.
Express and Implied Terms
“Express terms” are those which are agreed explicitly with the employee, and which are spelt out in the statement of terms and conditions. Express terms always take priority – an implied term will never be applied that conflicts with an express term.
“Implied terms” have not necessarily been agreed, but neither the company nor the employee can ignore them.
As an employer, we have the duty to observe the following implied terms:
- the duties to pay your employees
- care for the health and safety of your employees
- provide a safe system of work and a safe and suitable working environment
- provide proper and suitable equipment and keep it in a safe condition
- reimburse authorized expenses
- provide a grievance procedure
Employees must observe the following implied terms:
- to do the work themselves
- not to disclose confidential information
- to act in good faith
- to obey reasonable and lawful instructions
- to perform their duties with reasonable care and skill
- to give honest and faithful service
- not to be absent from work without good cause
- to take reasonable care of their health and safety and that of others
Both employer and employee have a duty to maintain a relationship of mutual trust and confidence.
Where written employment contracts refer to other documents, unless stated to the contrary, it will be assumed that these documents are a part of the contract – this is known as “incorporation by reference” and normally applies to such documents as disciplinary and grievance procedures.
It is advised that it must be clearly stated in the employee handbook that all policies and procedures in the handbook are non-contractual to prevent a breach of contract claims if the former are not followed precisely, and also to enable easier updating/changing – but in which case it should be made clear in both the contract which refers to them and the documents themselves, that they are non-contractual. Similarly, discretionary terms should be clearly identified as such in both the handbook/policy and the contract.
Updating the Contract
Employment contracts may include flexibility clauses which enable the employer to change some of the terms within the contract, e.g., job duties or title, location or work or shift arrangements. Any changes to the contract agreed between the company and employee must be confirmed in writing within one month of the change.
Employment rules and policies provided they are non-contractual, can be changed unilaterally by the employer without there being any breach of contract. Collectively agreed terms can only be changed by agreement.
If there is a need to change the current contracts of existing employees, bear in mind that consultation is the key here – you cannot simply force a unilateral change to the contract. If the employees have been properly briefed on the reasons for the changes, and understand the need for this, it is much easier to gain acceptance than if the changes are simply presented as a “fait accompli”.
A Few Tips
Here are a few tips to ensure that a new employer will have a good impression of the company and will feel welcome.
Each employee must be given the following during the contract signing:
- Employment contract
- Employee handbook
- Company’s corporate information
Do package them all together as it creates a professional impression and will tell the new employee virtually all he/she needs to know.
Issue two copies of the employment contract to the employee – the employee signs and returns one and keeps the other.
Always keep a copy of the employment contract that is duly signed by both parties in the employee’s personal file – you never know when you may need it particularly if unforeseen disputes arise.
The detail must be right, or we could regret it later. Take time therefore to carefully input the details relating to the employee and his/her terms. It’s more difficult to change a contractual term later than to get it right in the first place!
Sample of Employment Contract
<Date>14 July 2022
Dear Mr/Ms. ______________,
We are pleased to offer you employment with <Company Name> subject to and in accordance with the following terms and conditions.
- Appointment and Duties
You will be designed in the position and assigned duties of a ____<Job Title>______________ and shall be reporting directly to ________<Manager’s Job Title>_________, in Singapore.
In your position as ____<Job Title>_________, you will be responsible for:
- ______<summary of job responsibilities>_________________________
The Management reserves the right to re-designate, reassign and/or transfer you at any time. It is a specific condition of your service that you will agree to undertake any work assignments as and when assigned by the Management.
You agree to diligently and faithfully perform your work and to comply with all Company’s Rules and Regulations and not to engage in or be connected with any other business or enterprise during your period of employment, except with the prior written permission of the Company.
A copy of your job description will be given to you when you commence your employment with us.
- Commencement Date
You will assume duties with us on the agreed date of ________________________.
Your starting salary will be Singapore Dollars ____________________________ (S$________) per month.
Salary reviews will take place in _________ each year. The quantum of salary increase will depend on your performance with the Company.
Please note that salary matters are to be kept confidential.
- Variable Bonus
You will be eligible to participate in our variable bonus plan upon confirmation of your employment with us. The variable bonus will be determined on a yearly basis subject to the profitability of the company as well as individual’s performance.
In the event that you have not completed 12 months of continuous service with the Company, your variable bonus shall be pro-rated against the number of completed months of service in that year.
- Probation Period
You shall be required to undergo a probationary period of _____ (__) months from the date of your commencement of employment with the Company. On expiry of the probationary period, the Company will review your performance and may either confirm you in your appointment or extend it for a further period not exceeding three (3) months.
- Hours of Work
Your working hours shall be Mondays through Fridays, ____ a.m. to _____ p.m. with an hour for lunch break. However, the Company reserves the right to vary your normal hours of work subject to the provisions of the relevant law.
You will undertake to do any overtime work as and when required by the Company, and in your present position, you are not entitled to any overtime pay.
- Annual Leave
You will be entitled to ___ working days of annual leave per annum after completion of 3 months service with the Company. For any incomplete year, your annual leave entitlement shall be pro-rated against the number of completed months of service in that year.
- Fringe Benefits
You will be entitled to fringe benefits applicable to your employment status in accordance with the Company’s current policies and practices and subject to the provisions of any relevant law.
- Conflict of Interest
During the continuance of your employment, you shall unless prevented by incapacity, devote your whole time and attention to the business of the Company and shall not without the prior written consent of the Company:
- be engaged in any other business, or
(ii) be concerned or interested in any other business of a similar nature to or competitive with that carried on by the Company or any of its Group Companies or which is a supplier or customer of the Company or of its Group Companies.
You must not disclose any trade secrets or other information of a confidential nature relating to the Company or any of its associated companies or their business or in respect of which the Company owes an obligation of confidence to any third party after your employment except as required by law. For the avoidance of doubt, the following is a non-exhaustive list of matters which the Company considers confidential:
- Any invention technical data know-how or other techniques or trade secrets of the Company and its clients and customers
- Any information in respect of which the Company is bound by an obligation of confidence to third party
- The movement and whereabouts and all personal and private matters concerning senior employees and directors
- Marketing or Business development strategies and plans
- Customer, resellers, agents, partners lists and details of the contacts with or their requirements
- Pricing strategies
- Discount rates and sales figures
- Information which has been supplied in confidence by clients, customers or suppliers
- Information concerning any litigation proposed in progress or settled
- Any other information made available to you, which is identified to you as being of a confidential nature.
11. Termination of Employment
During your probationary period, either party may terminate your service by giving ___ days/weeks’ notice in writing or payment in-lieu of notice without any reason assigned thereof.
Upon confirmation, the notice of termination by either party shall be ___ month notice in writing or payment in-lieu of notice without any reason assigned thereof.
The Company will have the right at any time to terminate your employment without notice in the event of a breach of your Contract of Service or on the grounds of gross misconduct on your part.
If you accept this offer of employment, kindly sign and return a copy of this letter in confirmation of your understanding and acceptance of the foregoing terms and conditions of your employment. This will thereby constitute your Contract of Service with <Company Name>.
Human Resources Manager
I, _________________________ (NRIC No: ______________), hereby understand and accept the foregoing terms and conditions of my employment.
Signature: ___________________________ Date: _________________
Frequently Asked Questions
- Should every employee need to be given an Employment Contract or Agreement?
Yes, every employee should be given an Employment Contract or Agreement as this will enable each party to better understand their obligations and responsibilities. For junior or lower-level employees who do not understand English language, the company may issue a Key Employment Terms form (can be obtainable from the Ministry of Manpower’s website) as an addition to an Employment Contract or Agreement.
- What should be stated in an Employment Contract or Agreement?
An Employment Contract or Agreement should contain the Key Employment Terms as prescribed by the Ministry of Manpower. Some of the terms are:
- Name of parties – employer and employee
- Job title and responsibilities
- Commencement date
- Duration of contract – if the contract is a fixed term contract
- Place of work
- Probation period
- Working arrangements – working days per week, working hours per day and rest day
- Salary period and basic salary
- Fixed allowances and deductions
- Overtime payment
- Other payments – incentives and bonus
- Types of leave – annual, sick, etc.
- Other benefits – medical, insurance, etc.
- Termination notice
- Confidential information
- Conflict of interest
- Is there a difference between the contract for Contract of Service (Employment Contract) and Contract for Service?
Yes, there are some differences in the Employment Contract and a contract for Contract for Service. A contract for Contract for Service should not have any mention of terms or wordings such as:
- annual leave
If the contract for Contract for Service contains such wordings or terms, then, the relationship may be considered as an Employer-Employee by the Court.
- Do I need to issue an Employment Contract or Agreement to our employees transferred to work in Singapore as an expatriate from our company in other country?
Yes, there must be a new Employment Contract issued from the Singapore office to the expatriate. The Employment Contract of the expatriate from his/her home country will be temporary suspended until he/she returns home.
- Can we have a non-competition clause in the contract to prevent an employee from joining a competitor after leaving the company?
Generally, an employer cannot prevent an employee from working with other employers including the competitors unless there is some consideration given to the employee and it is also important that any restriction imposed must be reasonable. For example, if the company pays an ex-employee a monthly amount from joining competitor over a period of 6 to 12 months, then, such restriction is valid.
In most non-competition clause, the employer will state that employee must not try to solicit any customers or employees from or share any confidential information of the company over a period.
- Can one party decide to withdraw from the Employment Contract?
Yes, it is usually more common for the candidate to withdraw from the Employment Contract before the commencement date. Sometimes, the candidate will not turn up for work.
There are cases where employer decides to withdraw the Employment Contract due to change in business circumstances such as operation needs/requirements, poor financial performance, merger and acquisition, etc.
In such cases, the other party can seek legal action and sue for damages which may not be the best option due to the legal costs. However, most of the times, the other party will drop the case and move on.
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With our system, HR staff can prepare and issue job description and employment contract to employees. This will help save time of the HR staff and increase efficiency. It will also ensure confidentiality and consistency.