When are companies bound by their own internal policies?
The General Division of Singapore's High Court recently dealt with a case involving an employee's claims against their employer regarding internal investigations, implied contractual duties, and lost career opportunities.
The worker argued his employer breached implied duties of mutual trust and confidence when handling an internal investigation against him.
He claimed this mishandling caused him to lose career advancement opportunities and affected his bonuses and salary increments over a five-year period.
At the core of this employment dispute was whether employers are bound by their internal policies and the extent to which they must exercise discretion reasonably, even when contracts appear to grant absolute discretion over matters like bonuses and promotions.
The worker, a male employee of an insurance company since 2000, remained employed throughout the proceedings as head of client and distribution Asia.
The dispute stemmed from the employer's internal investigations against him in 2018, following harassment allegations by a female employee who reported to him.
After the Tokyo District Court dismissed these harassment allegations in February 2023, the worker raised concerns about the employer's handling of the internal investigation. When the company's internal audit department declined to uphold his complaints, he started legal proceedings.
The worker claimed the employer breached implied duties of mutual trust and confidence by mishandling the investigations. He also alleged he lost opportunities for career advancement and that the employer failed to exercise reasonable discretion when awarding him bonuses and salary increments between 2018 and 2023.
The court addressed whether the employment contract contained an implied term requiring the employer to comply with its internal company policies, which included the employee handbook, ethics code, and anti-harassment policy.
The court referred to a previous decision which found such a term would create too much uncertainty in employment contracts: "given that the [worker] had pleaded that the [employer] was obliged to comply with all of its internal policies, there was significant uncertainty over which of the [employer's] documents constitute such internal policies... even if all of the internal policies could be ascertained, it is uncertain which part of such policies should be regarded as statements which are contractually binding."
The court struck out the worker's claim that an implied term obliged the employer to comply with internal policies, finding it legally unsustainable. The employee handbook explicitly stated it "does not constitute a contract of employment or a guarantee that your employment will continue for any specified period of time," which supported this conclusion.
Regarding lost career opportunities, the worker initially claimed he was "unfairly sidelined and/or excluded from several opportunities for potential career advancements within the organisation." His pleadings were unclear about which opportunities he meant and who had sidelined him.
During the hearing, he clarified he was claiming for the loss of chance to secure career opportunities from three third-party entities related to the employer, not from the employer's own organisation. This distinction was important because different legal tests apply depending on the source of the opportunities.
The court cited legal principles explaining that "the loss of chance doctrine only applies where the chance alleged to be lost depends on the actions of a third party, and not the [employer]." Therefore, "a [employer] cannot be held liable for depriving the [worker] of a favourable outcome unless the [employer] was contractually obliged to provide such an outcome."
The court allowed the worker to pursue claims related to opportunities with third-party entities while striking out claims related to opportunities within the employer's organisation.
The court refused to strike out the worker's claims that the employer had failed to exercise discretion reasonably when awarding bonuses and salary increments. The employer had argued these claims should be dismissed because the employment contract stated the worker had no contractual entitlement to these benefits.
However, the court determined that "notwithstanding that the [worker] had no contractual entitlement to any bonuses or salary increments and the [employer] had the sole and absolute discretion to determine the same, the [employer] would nonetheless owe implied obligations regarding the manner in which such discretion is exercised. This would require the [employer] to exercise such discretion objectively reasonably, or not to exercise it irrationally, capriciously or arbitrarily."
The worker alleged that the employer had pre-judged his guilt in the 2018 internal investigations and failed to properly assess his work performance. The court decided these claims needed proper examination at trial with all relevant evidence and testimony.
When an employer investigates allegations against an employee, the court explained that the implied term of mutual trust and confidence requires a "minimum content of fairness" but "does not import all the obligations of natural justice, or due process obligations, that may apply in other contexts."
This requires the employer to "clearly put any allegations to the employee so that the employee has a chance to clarify his position, and to ensure that the procedures adopted and manner of investigations do not amount to a 'hatchet job'."
The court struck out most of the worker's claims relating to the employer's obligations of mutual trust and confidence, except for the claims that the employer failed to conduct the 2018 internal investigations and internal audit fairly.
In the final judgment, the court partially struck out the worker's claims. The court allowed the worker to pursue: (1) claims that the employer failed to exercise its contractual discretion reasonably in awarding bonuses and salary increments; (2) claims relating to the employer's failure to conduct internal investigations fairly; and (3) claims for loss of chance to secure career opportunities offered by third parties, but not those offered by the employer itself.
This decision clarifies the limits of implied terms in employment contracts and highlights when employers may be held accountable for how they exercise discretion, even when contracts appear to grant absolute discretion.
