Labour MP Zainal Sapari highlights 3 types of unfair employment contract clauses

TL;DR – Regardless of how excited you are, always read your employment contracts before signing anything.

Labour MP Zainal Sapari who is also NTUC’s Assistant Secretary-General (ASG) has penned a blog post ‘Sign die, don’t sign also die!’, highlighting three types of unfair employment contract clauses to look out for.

Perhaps due to to challenging business environment or even ignorance, there are employers who resort to underhand practices or tactics to address HR challenges, but these could be detrimental to workers.

NTUC ASG Zainal Sapari asserted that regardless of the reasons, it is unethical to include unfair clauses and inadvertently abuse the vulnerable position that workers may be in. In a blogpost he published yesterday (30th Oct), he highlighted three of such unfair contract clauses and gave real life examples for each:

• Liquidated Damages Borne by Workers
• Penalties and Conditions for Termination of Contract
• Non-compete / Restraint of Trade Clauses

Unfair contract clause #1

Liquidated damages borne by workers

Did you know that according to the Ministry of Manpower (MOM), a company cannot even make any salary deductions for liquidated damages even if consent has been sought from the employees? Here’s a case cited by MP Zainal Sapari.

Real Case: Illegal Salary Deductions for Liquidated Damages

A worker signed an employment contract to be a security officer, which came with a basic monthly salary of $1,100, but the contract came with a list of liquidated damages payable by the worker should there be any breaches. He had signed the contract since he needed the job.

Basically, if reported to the Tripartite Alliance for Dispute Management (TADM), the employer is likely to have to reimburse deductions arising from the list of liquidated damages to the employees.

The truth is however, some employers get away with it because some vulnerable, low-wage workers are unaware of their rights or are afraid to report their employers for fear of losing their rice bowls.

Unfair contract clause #2

Penalties and conditions for termination of contract

Sometimes, employees sign employment contracts with clauses that spell out certain penalties if they should leave the company before a stipulated timeframe.

Real Case: Penalty for Terminating Contract

In the case of a trainer earning a basic monthly salary of $2,000, a clause in his employment contract stated that if the contract was terminated within one year, regardless of whether the termination was initiated by the employee or employer, the employee was liable to pay the company a penalty of $50 per calendar day from the date of the termination notice till the one-year term.

This can potentially leave the employee trapped in a job that is not working out. And what is even more ridiculous is how the employee has to pay penalty by the day even if he or she has been terminated by the company!

Are these clauses unfair? Or heck, are these clauses even legal in the first place?

MP Zainal Sapari said, “Based on common law cases, it would seem that liquidated damages that are not a genuine pre-estimate of the losses incurred would be unenforceable – but this is not clear to employers and employees.”

He further suggested “the tripartite partners should come to an understanding or draw out some guidelines on the applicability and enforceability of such unfair clauses in employment contracts.”

Unfair contract clause #3

Non-compete / Restraint of trade clauses

This is a rather common clause in white-collar jobs. It all started when the bigger companies included this clause to protect their interest by preventing employees holding positions in senior management from competing with the company after they leave. However, this clause has found its way in many standard employment contracts, regardless of senior or junior positions and regardless of PMETs or rank-and-file.

Real Case: PMETs Are Not Spared

A fresh graduate PMET was excited to be offered a new job with a good salary, commensurate with her academic and professional qualifications.

The employment contract she was asked to sign contained a clause where she would be required to pay a liquidated damage of $100,000 to the company, should she resign and work for another company in the same industry. The employer, her future boss, seemed reasonable and assured her that it was a “standard” clause.

After working for the company for several months, she wanted to resign but the company wanted to invoke the clause.

According to MP Zainal, “If this case went to court, it is likely that the court would hold the clause invalid, as the amount of $100,000 seems excessive and may be deemed to be a penalty clause. Again, it is a painful process to go through the legal route and is mentally draining for the worker.”

More Education Needed for Both Employers and Employees

While there may be existing efforts to educate both workers and employers alike on fair employment contracts, more can be still be done. More education and engagement are definitely needed.

Here are some suggestions from MP Zainal Sapari.

1. MOM to consider a “Cooling off period’ (perhaps up to five working days) that will allow workers to rescind the employment contract they have signed, without penalty.
2. MOM to start a watch list of companies found or reported to have unfair clauses in their employment contracts.
3. Penalties should be imposed on companies on this watch list.

He ended his blogpost by reminding all of us this,

“Regardless of how excited you are in securing that much-needed job, you should always read your employment contracts and keep a lookout for key employment terms before signing anything.”

The Labour MP also went on to sell some “koyok” for the labour movement by reminding NTUC or union members that they can always look for NTUC@TADM or its affiliated unions for help if they run into problems.

Membership has its privileges!

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