When can you break a job contract? Singapore court ruling clarifies when employees can exit fixed-term agreements without penalty

SINGAPORE: A Magistrates Court recently dealt with a case of an employee who quit before his contract ended, citing mental health problems. His employer demanded payment of the damages stipulated in the contract, but the employee demurred. The court had to decide whether the employee could indeed avoid paying the stipulated damages.

When resigning isn’t just quitting

According to the latest HRD Asia report, the case involved a Chinese language tutor who left his job at an education centre nine months before the end of his fixed-term contract. He was sued by his manager, who claimed three months of his remuneration in liquidated damages, based on a passage in the contract. It stated that he was allowed to resign early only if an “irresistible factor” existed, for example, a confirmed medical ailment making the employee incapable of work.

The Chinese tutor appealed that he had a major depressive disorder that diminished his ability to work. However,  there were inconsistencies. At first, he mentioned that he wanted to pursue further education in Traditional Chinese Medicine and only later attributed his resignation to medical reasons.

‘Irresistible factor’ – Lawful description

The court had to decide what constituted an “irresistible factor” that would allow the tutor  to avoid paying the stipulated damages. Merely having a medical ailment was insufficient, the judge explained; he clarified that the condition must make the worker truly incompetent to fulfil job responsibilities. A psychoanalyst established that while the Chinese tutor had been showing signs of misery and hopelessness at the time he quit his job, there was no irrefutable proof that he was incapacitated.

The tutor presented medical documentation showing his inability to work at the time, but he lacked records to prove his continuing or permanent incapacity. The court decided that the worker had failed to meet the requirements of the contract’s early resignation provision.

Liquidated damages – a fair estimate or a punitive clause?

While the Chinese tutor was found to have violated his employment contract, the court likewise studied the employer’s petition for liquidated damages, that is, the three months’ salary. The employer contended that this figure was based on the period necessary to train a replacement. But the court found discrepancies: a three-month training period wasn’t mandatory for all tutors; in fact, a number of them started tutoring as soon as they were hired.

Eventually, the court decided the damages clause to be extreme, retaliatory and unenforceable under contract law standards.

Instead, the court granted the employer minimal damages of $1,500, identifying that a contractual breach had taken place but rejecting the liquidated damages claim that the employee pay back three months’ salary.