Xuyi Building Engineering Co v Li Aidong and another and another appeal

Kan Ting Chiu J:

[1] The two appeals before me originated from claims by two employees, namely Li Aidong and Xu Yuecheng (collectively “the employees”), against their former employer, Xuyi Building Engineering Co (“Xuyi”) for non-payment of their salary in arrears, overtime pay, additional payments for work during work on public holidays and rest days, and unauthorised deductions of salary during their period of employment. In the same action, Xuyi counter-claimed that the employees had terminated their employment without adequate notice and claimed against them for payment in lieu of notice.

[2] The claims and counter-claims were dealt with under Part XV of the Employment Act (Cap 91, 2009 Rev Ed) (“the Act”) and were heard by an Assistant Commissioner of Labour (the “AC”). On the employees’ claims, the AC held that the salary system by which Xuyi was to pay the employees was time-based and consequently, the employees were entitled to additional payments for overtime work, and work on public holidays and on rest days. Conversely, the AC found that Xuyi was entitled to payment in lieu of notice as the employees failed to give sufficient notice before they left their jobs. Dissatisfied with the AC’s decision, both sets of parties appealed.

[3] On 1 March 2008, the China Shanghai (Group) Corporation for Foreign Economic and Technological Cooperation (the “China Agent”) signed an agreement with Xuyi whereby the China Agent was to recruit Chinese workers for Xuyi.

[4] The two employees were recruited by the China Agent, and they came to Singapore and to work for Xuyi. Under the employment agreements, Xuyi was to pay the employees under a “Job Value System” (“JVS”). The system which was set out in cl 3.1 of the employment agreement was that:

Xuyi’s explanation of the implementation of the system is set out in [10] hereof.

[5] After working for about a year, the two employees decided to leave their jobs, but they did not give sufficient notice of termination as required by s 10 of the Act. Instead, they lodged claims with the Commissioner of Labour for arrears of salary, and Xuyi counterclaimed from them payment in lieu of notice under s 11 of the Act.

[6] There are five main issues in these appeals before the court:

[7] In a time-based system, an employee is paid on an agreed amount for a period of work, e.g. $X an hour, and for task-based work, an employee is remunerated with an agreed amount for a specific task, e.g. $X for tiling a room. The distinction between the systems was important in the dispute between Xuyi and the two employees because an employee paid on a time-based system is entitled to additional payments for overtime work and work on rest days under ss 37 and 38 of the Act.

[8] However, s 39 of the Act exempts an employer from paying the additional payments for task-based work. The provision states:

Sections 37, 38 and 39 are within Part IV of the Act which applies to workmen and employees who come under s 35 of the Act. The effect of s 39 of the Act is that where a payment is agreed for a task, the worker shall be entitled to the agreed payment, but shall not be entitled to overtime or rest day payments.

[9] In the hearing before the AC, Xuyi contended that the JVS was akin to that of the task work regime under s 39 of the Act and as such it was exempted from making additional payments for overtime work and work on rest days. The employees, on the other hand, contended that they were remunerated on a time-based system, with an expected monthly salary of $1,250 to $1,500 referred to in cl 3.1 of their agreements, and that they were therefore entitled to additional payments for overtime work and work on rest days, and public holidays.

[10] Xuyi had argued that a task-based system was in operation. The evidence adduced by Xuyi was that:

but it did not produce record of any agreement between it and the employees whereby the latter agreed to perform a task for an agreed sum before work commenced.

[11] This absence of evidence lead to the AC to hold that:

[12] The AC was correct in this finding. In order to classify a remuneration system as task-based, the two essential elements must be identified: first, the task or job to be performed, and second, the amount of payment for the performance of that task. The system described by Xuyi did not show that the workers had the opportunity to agree on the payment for the task. For there to be a proper task-based agreement, the employees should be told in advance about the task involved, and the payment offered. It is not sufficient that they be informed at the beginning of the day; the employees must have the time to agree to the task and the payment. It is significant that Xuyi’s account of the system referred to notification of the task and the value, but not the employees’ acceptance.

[13] Employers are entitled to take advantage of the task work system to avoid having to make the payments prescribed in Part IV of the Act, but they must observe the letter and spirit of s 39 of the Act. In view of the disparity between parties in bargaining power, employers cannot contrive superficial task-based arrangements to deprive their employees of the additional payments. Task work systems should only be given effect to where the tasks and payments are clearly set out, and the employees have accepted them before undertaking the task.

[14] With the finding that the JVS was not task-based, Xuyi has to make additional payments for overtime work and work on rest days provided in Part IV of the Act.

[15] There is another form of additional payment which the employees had claimed, i.e. work on public holidays. Section 88(4) of the Act provides that:

[16] Section 88(4) is not within Part IV, and is in Part X of the Act which applies to all employees who come under the Act. This provision was previously s 44 of the Act and came under Part IV of the Act but moved out of it when the Act was amended in 2008.

[17] Mr Gan Kim Yong, Acting Minister of Manpower explained in the Parliamentary debates on the amendment that:

[18] It would appear that public holiday payments are due under a task-based system if an employee is required to work on a holiday. However, it is unclear how the payment is to be computed as “day’s salary” as contemplated in s 88(4) of the Act is set in a task-based system of payment. Perhaps the parties can circumvent this difficulty by agreeing on a “day’s salary” to be used for this purpose.

[19] Having established that additional payments are to be made to the employees, the two employees’ basic rate of pay has to be determined. The employees contended that the basic hourly rate should be calculated with reference to the range of $1,250 to $1,500 as set out in cl 3 of the employment agreement. The employees took the low end of the range, $1,250, multiplied it by 12 months, and divided the result by the 52 number of weeks in a year and the 44 hours of work in a week, borrowing the formula set out in s 38 (6)(a) of the Act. Under this formula, the basic hourly rate is $6.56 per hour.

[20] Xuyi argued that the formula cannot be used to compute the basic rate of pay because the $1,250 mentioned in cl 3.1 was the monthly salary on “a perfect work attendance record”, which would include overtime work and overtime payments.

[21] If the salaries of the workers were to be decided as time-based, another clause in the employment agreement, cl 3.2, should apply. Clause 3.2 states:

Although two rates were spelt out, only one could be applied. There were no obstacles to the parties agreeing that the basic hourly rate of pay is to be $2.50. However, the alternative rate of $3.50 computed on the “salary standard” that purported to be inclusive of overtime work and work during public holidays was inconsistent with s 38(4) and s 88(4) of the Act and was inapplicable.

[22] The AC did not use the prescribed $2.50 hourly rate and encountered difficulties in arriving at the basic salary. He stated in his grounds of decision:

(Section 38(6)(b) of the Act sets down the formula for working out overtime payment for employees employed on piece rates, and it takes into account the weekly pay the employee receives.)

[23] The AC modified the formula to use the agreed monthly pay instead of the weekly pay contemplated by s 38(6)(b) of the Act, and overlooked the fact that the payments of the two employees were not piece-rated. Well-intended as it was, the AC’s methodology was not acceptable. The payments must be worked out in accordance with the provisions of the Act. Extra-legislative improvisations cannot be employed. In this case, it was also unnecessary because the basic rate of pay of $2.50 an hour set out in the employment agreement should be used.

[24] After I made my finding that the employees are to be paid on a time-based basis at the basic rate of $2.50 per hour, I directed counsel for the parties to work out the amounts that were due to the two employees, including the additional payments. Ironically, it turned out that Xuyi had paid the two employees slightly more under the JVS than it would have paid on the time-based system.

[25] This issue arises from the half-hour safety meetings that the employees were required to attend before the start of work each day. The AC found that the employees were to be paid for their attendance at these meetings. Section 2(1) of the Act defines “hours of work” as:

As the employees were required by Xuyi to attend the meetings, the half-hours involved were working time. The AC’s finding was absolutely correct.

[26] There was another aspect of the AC’s ruling on the meeting hours that called for attention. After he found that the half-hour meeting time was working time, he added a half-hour to each day, although the half-hour was already clocked on the employees’ time cards and regarded as working time. The correct position is for the clocked times to be used, without the reduction of a half-hour as Xuyi proposed, and without adding another half-hour.

[27] In the proceedings below, Xuyi counter-claimed against the employees for payments of salary in lieu of notice. While Li indicated to Xuyi his doubts over continuing his employment, Xu left Xuyi’s employment without any word. If the employees were obliged to give notice, the full statutory period of notice was not fulfilled because s 11(1) of the Act provides that:

[28] The issue in this case was whether the employees were entitled to terminate their employment without notice. Section 11(2) of the Act provides that:

The employees argued on appeal that they were not required to give notice of termination under the Act since Xuyi committed a fundamental breach of their employment contract by refusing to pay them for salary for four months that was owed to them.

[29] In response, Xuyi stated that cl 3.4 of the agreement provided that the salaries were only paid to the workers after every three months of work, and were on every fourth month. Insofar as the payment periods were expressly spelt out and were not in contravention of the Act, Xuyi was not in breach of the contract in the scheduling of the payments.

[30] Xuyi’s breach was that it failed to compute the employees’ payments in compliance with the Act, and that can bring s 11(2) of the Act into play. The provision refers to “any wilful breach” of a condition of the contract of service. Counsel for the employees equated that to a fundamental breach. I do not think that was apt, and I would consider a wilful material breach would suffice. Sections 37, 38 and 88 of the Act apply to the employment agreements and operate as conditions of the agreements. A considered decision not to pay an employee in accordance to those provisions of the Act is a wilful material breach. Accordingly, the employees did not have to give notice of their resignation.

[31] I ordered that: