High Court rules on government grants in profit calculations while upholding termination
Singapore's High Court recently dealt with a profit-sharing dispute between an employer and its former director. The case highlighted the contentious interpretation of profit-sharing arrangements in employment contracts and the inclusion of government grants in such calculations.
The worker claimed entitlement to a share of various government grants under their profit-sharing agreement, arguing these grants should offset operational costs when calculating divisional profits. They also contested their summary dismissal, maintaining it was unjustified and potentially orchestrated to avoid paying what was owed.
The employer, meanwhile, not only denied owing additional payments but sought to recover sums already paid, claiming these payments were made by mistake and never should have been included in the profit calculations. This created a standoff about contractual interpretation with significant financial implications for both parties.
The worker was employed as the business development/operations director of a security services company from April 2015 until March 2021, when he was summarily dismissed. He ran the company's "Events" security business under a profit-sharing arrangement detailed in an Addendum to his Letter of Appointment.
According to this Addendum, gross operational profit would be split 65% to the employer and 35% to the worker, later adjusted to 60:40 from January 2017. The employer maintained separate profit-and-loss statements for its "Static" division and its "Events" division to implement this arrangement.
The dispute began when the employer claimed it had mistakenly included government grants in calculating the profits of the Events division. The employer sought to recover $111,550.12 paid to the worker from Wage Credit Scheme (WCS) grants and Special Employment Credit (SEC) grants received between 2016 and 2020.
The employer argued that government grants should not be included in revenue calculations for profit-sharing purposes. Their chartered accountant explained that under Financial Reporting Standards 20, the employer could reflect government grants as "other income" or as a set-off against wage expenses.
The court disagreed, finding that the worker was entitled to have those grants included in the profit-sharing arrangement. The judge reasoned that the grants should be properly apportioned between company divisions based on which employees entitled the company to receive them.
In his judgment, the judge stated: "However [the employer] chose to reflect the grants in its accounts, for the purposes of the profit-sharing arrangement I considered that the grants – all of which were given because of the employees [the employer] employed – ought properly to be apportioned between the Events division and the Static division."
The court ruled that the worker was entitled to additional payments for other government grants that the employer had received but not shared, including Job Support Scheme (JSS) grants introduced during the COVID-19 pandemic.
For the JSS grants, the court accepted the employer's calculation of $737,793.44 rather than the worker's higher claim. The employer's figure was based on an official breakdown from government authorities, with amounts correctly apportioned to the Events division based on employees in that division.
The court awarded the worker a total of $751,744.24 for various grants, which after deducting the worker's admitted share of division losses, resulted in a net award of $736,797.27 plus interest from July 2021 to January 2025.
Despite ruling in the worker's favour regarding profit-sharing, the court found his summary dismissal was justified. The employer had terminated employment based on multiple incidents where notice had not been given to the Police Licensing and Regulatory Department before security officers were employed, as required by the Private Security Industry Act 2007.
The worker did not dispute these compliance failures but suggested the employer would have terminated him earlier if truly concerned about these issues. The court was not persuaded by this argument.
The Letter of Appointment stated: "In the event of any breach of contract terms, you can be terminated form [sic] the contract without notice and you will not be entitled for any claim whatsoever."
Based on this clause, the court concluded: "On the evidence, I found that [the worker] had breached the terms of his Letter of Appointment. Accordingly, [the employer] was entitled to terminate [the worker's] employment summarily."
The worker had also claimed $31,271.62 for losses related to an aborted property purchase, arguing this loss resulted from the employer's failure to pay his share of government grants. However, the court found that the termination of employment was what actually caused him to abandon the purchase.
The judge pointed out the contradiction in the worker's claim: "[The worker] pleaded in his Counterclaim that 'with the sudden termination of his employment, he would have lost his primary source of income and hence he was unable to take on the financial burden of the Property.'"
The court explained: "In other words, it was the termination of [the worker's] employment, and not the non-payment of a share of further government grants, that caused him to give up the deposit and lose the conveyancing fees." Therefore, there was no causal link between the alleged non-payment and the property loss.
The final judgment ordered the employer to pay the worker $736,797.27 plus interest, representing his share of government grants minus his admitted share of losses in the Events division.
This substantial award came despite the dismissal being deemed lawful and the rejection of his other claims, including conspiracy allegations involving the employer and its chairman who was also a majority shareholder of the employer's parent company.
This case demonstrates how courts interpret profit-sharing arrangements in employment contracts and highlights the importance of clear documentation regarding what constitutes revenue and operational costs in such agreements.
