The Everglory scam: productivity incentive shot to pieces

This is a story of how one branch of the government undermines what another branch is trying to do.

Low productivity in the construction industry has been a concern for years. Among the measures being tried is a push to get construction companies to have higher-skilled or more experienced workers. The Building and Construction Authority (BCA), on its webpage “Raising the Quality and Productivity of the Construction Workforce” laid down a rule that by 1 January 2017, ten percent of Work Permit holders must be of R1 category. This same rule also appears on the Ministry of Manpower’s website.

R1 can be achieved through four pathways, three of which are through additional training. The fourth pathway is termed “Market-based skills recognition framework”,  which provides for a Work Permit holder to be classed as R1 if he has at least six years’ construction experience in Singapore and  earns a fixed monthly salary of $1,600 or more.

As a sweetener, the monthly foreign worker levy is lower for an R1 worker. It is $300 per month compared to $650 per month for the lower category of R2 (to be increased to $700 per month from 1 July 2017). Link.

Five men from Everglory

Three men showed up in TWC2’s office in September 2016, all employees of Everglory Construction Pte Ltd. Two more showed up in December. They had come to Singapore and started work with this company between May and October 2015.  Through these months, they were paid less than their correct salaries. By August 2016, they had had enough and jointly lodged a complaint with the Ministry of Manpower (MOM).

Everglory Construction Pte Ltd’s sole  shareholder (paid-up capital $100,000) is Huang Guixing with a Jurong West address. It was incorporated on 14 July 2014.

The five men’s case went to the ministry’s administrative tribunal, known as the Labour Court, which, after hearings on the matter, issued an order in their favour. Everglory Construction was ordered to pay the five men a total of $18,000. The order was dated 30 November 2016, which meant that the due date for payment was 14 December.

TWC2 case officer Jason Lee was perplexed by the $18,000 figure (the total for all five men). “I calculated the amount that the company should be paying Bikas (one of the five men), and that alone came to around $14,100,” he noted. The latter figure was net of the partial payments Bikas had received through the course of the year. “But the Labour Court Order only awarded him a little over $3,300.”

Anu, another of the five men, had a similar mismatch between the claim amount and the award. His claim totalled $20,743 but the Labour Court only awarded him $4,515.

It is not clear how the Labour Court arrived at its figure. The frustrating thing is that no written judgement is issued by the Labour Court so the reasoning applied is opaque. However, based on the arguments presented at the court, Anu, for example, believed that the Assistant Commissioner for Labour (who presided over the hearings), based the award on a basic salary of $26 per day. The award was for the two months he had not been paid computed at this rate of pay, together with recovery of some unauthorised deductions.

It wasn’t long before TWC2 connected the dots;  the contours of the ‘scam’ began to emerge.

The ‘R1 scam’

It’s like this:  All the five men had been promised basic salaries of $1,600 or slightly more. This figure can be seen in their In-Principle Approvals for Work Permit (IPA) which is a letter that MOM sent them prior to their joining Everglory Construction. The IPA informed the prospective employee about the employment details that the employer had declared (to MOM) at the time of applying for a Work Permit for him.

But soon after starting work, their pay was adjusted down to a much lower figure, for example, $26 a day in Anu’s case. This is equivalent to only $620 a month, a far cry from the $1,625 per month declared in Anu’s IPA. This difference is the chief reason for the huge discrepancy between their claimed amounts and the Labour Court’s awards.

It’s not hard to wonder about the motive behind the employer’s behaviour.  Declaring to MOM that these workers — who each had over six years’ experience — would be paid at least $1,600 in basic salary, would mean that they would be classed as R1, thereby permitting the company to meet the ten-percent rule. The company would also enjoy lower levy rates for employing each of these men. But perhaps the company felt that they could save more money by not even paying the men the promised salaries?

Naturally, the workers were unhappy with the reduced salary. Having paid recruitment fees which are now unrecoverable, they stayed on in the job for at least the money they could get, all the while hoping that their employer would make up the arrears before long. After eight to ten months — some workers joined a little later than others — they gave up hope of getting those arrears and marched off to MOM.

Legitimising the scam

This is where they would be further disappointed. It is unclear what rationale the company gave to the Labour Court for slashing their salaries, but going by other cases that TWC2 has come across, it would likely have been something along the lines of poor business and inability to afford the initially agreed salaries. And this is the other frustrating thing about MOM and its Labour Court. It has a strong tendency to give the benefit of doubt to employers, accept their reasoning and then endorse the reduced salary rates. There are many cases like this one involving the five Everglory men, where the men can point out that their salaries were slashed right from the beginning. If the company had already been in poor shape then, why was it promising $1,600 basic salaries? Prima facie, this kind of behaviour is suspicious and should be read as an insincere promise, and a sign that it had no intention to honour the implicit employment contract.

Regretfully, the Labour Court decision did not reflect this degree of insight. Nor did it refer to the following guidelines and bylaws that MOM itself had set out:

In an FAQ sheet, MOM said:

If my WPH [Work Permit Holder employee] met the Market-Based Skills Recognition requirements and obtained a ‘Higher Skilled’ (R1) status, but due to unforeseen circumstances, his salary was reduced, will he still qualify for ‘Higher Skilled’ (R1)? If not, will he be downgraded immediately?

Employers are required to declare to MOM if their employees’ salaries are reduced. A failure to declare is an offence and may subject you to penalties. If the WPH’s salary is reduced to less than $1,600 per month, he will no longer qualify for ‘Higher Skilled’ (R1) under the MBF. The WPH will be considered ‘Higher Skilled’ if he meets the other skills upgrading pathways.

In the Employment of Foreign Manpower Act >> subsidiary legislation Employment of Foreign Manpower (Work Passes) Regulations 2012 >> Fourth Schedule (Conditions and Regulatory Conditions of Work Permits) >> Part IV >> Section 6A, it says:

6A.—(1) The employer shall not —
(a) reduce the foreign employee’s basic monthly salary or fixed monthly allowances to an amount less than that declared as such in the work pass application submitted to the Controller in relation to the foreign employee; or
(b) increase the amount of fixed monthly deductions to more than that declared as such in the work pass application submitted to the Controller in relation to the foreign employee,
except with the foreign employee’s prior written agreement.

(2)  Before implementing such reduction or increase, as the case may be, the employer shall inform the Controller in writing of the proposed reduction or increase, as the case may be.

(Emphases added by us)

As can be seen, the Labour Court does not even implement MOM’s own written bylaws. The Everglory workers never gave prior written consent to a reduced salary.

Considerable injustice is done to workers this way. They came on a promise of a certain salary only to be deprived of it and then this deprivation is endorsed by MOM’s own processes contrary to the ministry’s own rules.

Undermining State policy

If one looks at the bigger picture, it is even worse. On the one hand we had policy-makers in MOM and the BCA putting in a ten-percent R1 requirement to push contractors to upskill their workforces and improve productivity. Creating a salary floor at $1,600 is part of this aim as it will incentivise mechanisation. On the other hand,  this incentive is negated when the Labour Court legitimises the  lower salaries post-facto.

Another aspect of this aim — to use fewer, more experienced workers to improve productivity — is also negated: With the inflated-at-no-extra-cost number of R1 workers, this allowed the employers to hire more R2 workers (at a ratio of nine R2s to one R1).

Even more, the employers meanwhile would have gotten away with paying a reduced levy for these R1 workers which strictly speaking should have been classed as R2 since they weren’t paid at least $1,600. The government got cheated too!

In late March, TWC2 mentioned our observations to MOM. It appeared from officials’ reaction that they had not noticed this pattern of behaviour by employers. We also notified BCA that their policy was being undermined not only by employers, but by MOM’s Labour Court too. BCA said they’d look into it.

Meanwhile, the Everglory five waited for the employer to pay up on the pathetic amount that the Labour Court awarded them (due on 14 December 2016). In vain. The employer said it wouldn’t pay, and that, apparently, is the end of it. The men told TWC2 that MOM had advised them that there was nothing more the ministry could do to enforce their own Labour Court order, and that they would be repatriated.

See also Today Weekend carries out Everglory scam story