WAGE CUTS AND THE LAW IN SINGAPORE AND MALAYSIA

• Date: 01 December 1999
• Published date: 01 December 1999
• Citation: (1999) 11 SAcLJ 211
• Author: AP Ravi Chandran

With the recent economic downturn in the region employers have resorted to cutting wages in an attempt to cut costs. The aim of this note is to see to what extent this is legally valid in Singapore and Malaysia.

Express Term

One possible situation is the case where the contract itself contains an express clause allowing the employer to vary any term of the contract unilaterally or more specifically a clause allowing the employer to vary the pay unilaterally. If there is such a clause, will it be upheld? The effect of variation clause in the context of an employment contract was considered in the recent English case of Wandsworth London Borough Council v D’Silva1. In this case the contract expressly provided that the terms and conditions of employment will be “supplemented by …..rules and other conditions as may be determined by the authority From time to time…. variations in your terms of employment may occur, and these will be separately notified to you or otherwise incorporated in the documents to which you have reference”. Wandsworth London Borough had a policy of reviewing and monitoring people on sick leave. If an employee was on sick leave for a certain period of time his case would be reviewed and depending on the outcome of the review, his services could be redeployed or terminated. However, the employee was given a right of appeal if he was not satisfied with the decision of the review board. In 1995, Wandsworth London Borough made certain changes to these terms the effect of which was that it was now easier for a case to come under review than before. This was against the interests of employees and two of them brought the matter to court. The Court of Appeal stated, “in the employment field an employer or for that matter an employee can reserve the ability to change a particular aspect of the contract unilaterally by notifying the other party …..However, clear language is required to reserve to one party an unusual power of this sort”2 and held that the variations in question were within the purview of the variation clause. However, the court went on to state in obiter that “In relation to the provisions as to appeals the position would be different. To apply a power of unilateral variation to the rights which an employee is given.…could produce an unreasonable result and the courts in construing a contract of employment will seek to avoid such a result”. Thus it would appear from this case that if there was a general variation clause, while some variations would be allowed, others would not.

Perhaps a way of rationalizing this decision is to draw an analogy to exclusion clauses. In the context of exclusion clauses, where one party tries to exclude liability for a fundamental breach, whether this can be done, would depend on the intention of parties at the time of contracting or in other words would be a matter of construction of the contract3. Similarly, in the context of variation clauses it is suggested whether the variation clause can be used to bring about fundamental changes would be a matter of construction of the contract. In this regard, if the employer unilaterally decides to pay the employee no wages at all, since the result would be unreasonable going by the dicta stated above, the court would be slow to find that it was within the contemplation of the parties for the contract to be so varied. Hence the variation clause would be ineffective. On the other hand, if the employer makes a cut which is in accordance to market practice or due to economic reasons, the court will be more inclined to hold that the variation is within the contemplation of the parties and hence covered by the variation clause.

Consideration

Another situation could be the case where the variation is supported by fresh consideration as in Hartley v Ponsonby4, where crew members of a ship who were promised additional amounts to perform more than their contractual obligations were able to enforce the promise.

Thus if in addition to the reduction in pay, the employee’s duties are clearly and noticeably reduced, then there could be consideration for the variation. However, the mere fact that generally there is less work as a result of the slow down in business is unlikely to be sufficient. This is because, in promising the original pay, the employer would not have stated the exact volume of work expected for that pay and parties would have understood that at times there may be a little more and at times a little less work for that same pay.

But where it can be clearly demonstrated the employee’s duties have been reduced as in the case of a manager whose responsibilities have been drastically reduced by the closing down of certain key divisions or operations, there could be consideration and if so the variation would also be upheld5.

Williams v Roffey

Even if there is no express clause, and the variation is not supported by consideration, it must next be determined whether the variation can be upheld by invoking the principle in Williams v Roffey6. In this case, the plaintiff was the sub-contractor of the defendants. The plaintiff got into financial difficulties because the agreed price for the sub-contract was too low for him to operate satisfactorily. As the main contract contained a penalty clause for delay and the defendants were worried that the plaintiff may not complete the sub-contract in time, the defendants promised the plaintiff additional sums. The court held...