Singapore ruling highlights employers’ duty to use contractual discretion reasonably

In the case between financial brokers BGC Partners (Singapore) Ltd and former employee Sumit Grover, BGC sought to recover unpaid amounts from Grover under a loan agreement between the parties. In a counterclaim, Grover argued that the termination of his employment had been unlawful and sought to recover unpaid bonuses that had been withheld by BGC during his employment.

While the court ultimately ruled in favour of the employer, it confirmed that, when interpreting a bonus clause, courts will always take a contextual approach and look at all relevant circumstances beyond the clause itself. Even in situations where an employment contract clearly states that bonuses are ‘discretionary’ or that the employer reserves an ‘absolute right’ to declare bonuses, these labels will not be considered definitive by the court.

Crucially, the ruling underscored an implied duty for the employer to act reasonably and in good faith when exercising their contractual discretion.

Mayumi Soh, an employment law expert at Pinsent Masons MPillay, the Singapore joint law venture between MPillay and Pinsent Masons, said the ruling held an important lesson for all employers and was a reminder that the court will intervene in situations where an employer has acted unreasonably.

“Employers should take note of this decision by the High Court which clarified that there is an implied duty for employers to exercise their contractual discretion reasonably. They should keep this in mind when preparing, managing and ending the employment relationship,” she said.

“The court may intervene in the exercise of judicial discretion if the exercise of contractual discretion is so outrageous in its defiance of reason that it can be properly categorised as perverse.”