Retrenchment is sadly unavoidable
Retrenchment is sadly unavoidable in today’s modern world.
Singapore’s economy is constantly in flux: workers are under tremendous pressure to increase productivity and improve their employability by learning useful future skills, while employers must continuously find ways to stay one step ahead of their competitors and/or technological disruption. Even when they manage to do so, world events or natural disasters can cause a veritable tsunami of events that derail any progress made.
Thus, it is inevitable that there will be a time when even the savviest businessperson will be faced with the tough decision of cutting down on company staff. In such a situation, employers should know how to properly manage the retrenchment exercise and ensure that it is carried out responsibly and fairly.
Must-knows for employers in Singapore
How is retrenchment defined, and who does it apply to?
For the purposes of regulation, retrenchment is currently defined by the Ministry of Manpower (“MOM”) as “dismissal on the ground of redundancy or by reason of any reorganisation of the employer’s profession, business, trade or work”. At the moment, this definition applies to both local and foreign workers who are permanent employees, as well as contract workers with full contract terms of at least 6 months.
How do I give notice to my employees
The first port of call when determining how and when you should give notice to employees is the employment contract signed by both parties. MOM also recommends giving employees a longer retrenchment notice period, so as to allow the employee to prepare for and look for alternative arrangements.
If nothing has been stated in the contract, then the following will apply:-
| Length of service with company | Notice Period |
|---|---|
| Less than 26 weeks | 1 day |
| 26 weeks to less than 2 years | 1 week |
| 2 years to less than 5 years | 2 weeks |
| 5 years and above | 4 weeks |
Notice must be dated and given in writing. If parties agree that there is no need for a notice and/or expiration of the notice period, then the party who does not want to wait for expiry of notice must pay the other salary in lieu. For example, an employer who does not wish to give 4 weeks notice to an employer of 6 years standing will need to pay 1 month’s salary in lieu (unless otherwise provided in the employment contract).
On the other hand, if an employee is terminated for breach of his or her employment contract, notice of termination need not be given. Similarly, if an employee is absent from work for more than 2 days without prior leave or reasonable excuse or an attempt to inform the employer, notice of termination need not be given.
Mandatory Retrenchment Notifications
The Singapore Government has taken several interventionist measures to ensure that retrenchment exercises are carried out responsibly. The most recent of these has been the implementation of a mandatory retrenchment notification requirement.
With effect from 1 January 2017, all companies who employ at least ten (10) employees are required to notify the Ministry of Manpower (“MOM”) if they retrench five (5) or more employees within a period of six (6) months.
The notification must be made within five (5) working days of the notice of retrenchment to affected employees. Should employers fail to do so, they are guilty of committing a criminal offence and can be liable upon conviction to various penalties including fines of up to S$5,000. According to the specific guidelines given by MOM in respect of the requirements:-
| Example | Required Action |
|---|---|
| Company A retrenches four (4) employees between 03 January 2017 to 04 April 2017. | No action required at this point. |
| Company A retrenches a fifth employee, B, on 19 May 2017. | Company A must notify MOM within five (5) working days of its notifying B. |
| Company A retrenches a sixth employee, C, on 29 May 2017. | Company A must make another notification to MOM again within fie (5) working days of its notifying C. |
At the moment, smaller companies with less than ten (10) employees are exempted from this notification requirement. MOM has not made it mandatory for such companies so as to avoid placing an unnecessary administrative burden upon them. They are nevertheless strongly encouraged to do so, and may similarly make full use of the resources available to the larger companies.
If your company has only announced that there is a retrenchment exercise, but you have yet to identify specific employees, you are still encouraged to submit an early alert form to Workforce Singapore (WSG), so that they may provide employment facilitation assistance for affected workers as soon as possible. However, once you have identified which employees you wish to retrench, you will still need to notify MOM within five working days after informing your employee about their retrenchment.
What information should be included in the notification to MOM?
In the notification, employers will need to provide the following details:
- Company UEN
- Contact details of a person within your company whom the Ministry can liaise with;
- Size of workforce before retrenchment (including Singaporeans, Malaysians and foreigners);
- Details of the workers who are about to be retrenched, or have been retrenched, in particular:-
- Employee’s NRIC/FIN
- Residential Status
- Date of retrenchment
- Job Title
How do I make the notification?
The notification can be submitted online on MOM’s website. All you will need is your CorpPass or your SingPass. If you have any difficulties, MOM has helpfully made a user manual accessible online.
Why the notification requirement? Why is it important for MOM to know?
Notifying MOM of the retrenchment exercises (pending or otherwise) will allow the relevant statutory agency i.e. Workforce Singapore (WSG) to work together with its partners – MOM, the National Trades Union Congress (NTUC), and the Singapore National Employers Federation (SNEF) – and other relevant agencies to help retrenched workers find alternative employment, and/or identify new and relevant training opportunities to enhance the employee’s ability to find work (or ‘employability‘).
Employees retrenchment benefits
Must I pay my retrenchment employees retrenchment benefits?
As a general rule, retrenchment benefits are only paid out to employees with two or more years of service. Those with less than two years service are not entitled to retrenchment benefits under the Employment Act, but can be granted an ‘ex-gratia‘ payment out of goodwill. If employees are unionised, separate requirements may apply as a result of a collective agreement signed between the employer and the trade union representing those employees.
Keep in mind that it is always better to let employees go on good terms rather than bad (where possible) – you never know when your paths will cross again.
Based on MOM’s suggested guidelines, retrenched employees should be paid all salaries owed to them, as well as all retrenchment benefits, or payments that are given to employees to compensate them for the loss of employment. These payments should be made on the last day of work for such employees.
How much should I pay my retrenched employees as retrenchment benefits?
While MOM does not dictate the quantum of the retrenchment benefits, they do recommend that the quantum should be based on what is provided for in the collective agreement (between the employees, employers and unions), or the contract of service (i.e. the employment agreement). If there is no provision for this quantum, it should be negotiated between the employees (or the union, in the case of a unionised company), and the employer.
MOM has also noted that the normal quantum for retrenchment benefits is between two (2) to four (4) weeks monthly salary per year of service, depending on the industry’s norm and the company’s financial situation.
Generally, however, unionised companies have a collective agreement clause where retrenched workers are usually paid one month’s salary for each year of service. It must be noted that if the retrenchment exercise comes shortly after a wage cut, the salary prior to the wage cut should be used to compute the retrenchment benefit.
Moreover, neither the employee nor the employer would need to pay CPF contributions for the retrenchment benefits.
What do the courts say about retrenchment benefits?
The Singapore Court of Appeal has held that employers do not need to follow past practices when it comes to how much money should be paid out as retrenchment benefits. This means that current benefits during a previous retrenchment exercise do not generally set a precedent for any similar exercises in the future.
Ultimately, retrenchment should be the measure of last resort
As the saying goes: when the going gets tough, the tough get going. Retrenchment affects more individuals than just the employer and the employee, and should only be considered as a means of last resort. If your business is going through a difficult patch, MOM suggests three (3) other alternatives to consider instead of retrenchment:-
- Redeployment: if any employee’s previous job role has been expanded or restructured, then the employee may potentially be redeployed or rotated elsewhere within the organisation;
- Temporary Layoffs: In this method, you can ask employees to stop coming to work for a short period, but you still need to pay at least half of their gross salary during the days they are away from the company.
- Implementing a shorter work week: Employers can consider employees to work only a few days a week for a limited period of time. However, this shorter workweek should not be longer than three days a week, and it should not last for more than 3 months.
Other companies have also tried putting workers on No-Pay Leave. For example, Singapore Airlines offered Voluntary No-Pay Leave to its cabin crew in order to minimise expenses during off-peak seasons.
Need legal advice for your business?
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This article is written by Lau Kah Hee from Derrick Wong & Lim BC LLP and edited by Tang Chee Seng from Asia Law Network.
This article does not constitute legal advice or a legal opinion on any matter discussed and, accordingly, it should not be relied upon. It should not be regarded as a comprehensive statement of the law and practice in this area. If you require any advice or information, please speak to a practicing lawyer in your jurisdiction. No individual who is a member, partner, shareholder or consultant of, in or to any constituent part of Interstellar Group Pte. Ltd. accepts or assumes responsibility, or has any liability, to any person in respect of this article.
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