Employers! 3 things to look out for during a retrenchment exercise

In August 2016, the Ministry of Trade and Industry narrowed its forecast on how much Singapore’s economy would expand from 1-3% to 1-2%. Faced with what could be the slowest year of growth for Singapore since 2009, employers might find themselves having to manage excess manpower by conducting a retrenchment exercise.

This article assumes that employers have, in good faith, considered and took alternative steps to manage excess manpower, and are left with a retrenchment as a last resort. There are 3 things you need to look out for:

  • Informing employees early;
  • Employees of or above the retirement age of 62; and
  • Retrenchment benefits – eligibility and amount.

Informing Employees Early

Retrenchment is a difficult time not only for employers and affected employees, but also for the families of affected employees and employees that are unaffected. Families may not be mentally, emotionally or economically prepared to lose a substantial portion of income. Employees unaffected by the retrenchment exercise may suffer a of loss of morale should they perceive the exercise to be carried out irresponsibly.

It is thus important that employees are treated with dignity and respect during the process. This may involve giving them notice before the public notice of retrenchment is made. Notice may also be given earlier than what is (legally) required as stipulated in the employment contract, or in Employment Act (should the affected employees be covered under it). Notice should be given in the form of face to face meetings, and meetings not only with the middle but ideally upper management. Employers are encouraged to:

  • Explain the business situation faced by the company resulting in the need for a retrenchment exercise;
  • Outline how the retrenchment exercise will be carried out;
  • Elaborate on the factors that will be considered; and
  • Specify the assistance being offered to those affected.

Retrenching Employees Aged 62 or Above

When employees hit the retirement age of 62, employers are required to offer them re-employment until the age of 67 (to take effect on 1 July 2017, at the time of writing, it is 65 years), under the Retirement and Reemployment Act. If employers are unable to offer eligible employees re-employment, despite considering all available re-employment options within their organisation, employers are required to pay them a one-off Employment Assistance Payment (“EAP”).

This EAP is relevant as it must be paid to employees aged 62 or above should employers retire them. However, this is in the alternative to retrenchment benefits in their employment contract, or collective agreement, should the company be unionised.

The EAP is to help employees tide over a period of time while they look for another job. The Tripartite Guidelines for Re-employment of Older Workers suggest a sum equivalent to 3.5 months of salary, or a minimum of S$5,500.

Retrenchment Benefits – Eligibility and Amount

The first port of call would be the employment contract, failing which the employment handbook, or any other document referred to in the employment contract. Do note that in some employment contracts, there is an “other benefits” clause, entitling employees to “all other benefits applicable to their employment status in accordance with the company’s policies and practices”. This “other benefits” clause is likely to impose an obligation on the employer to pay retrenchment benefits. The amount however, is usually at the employer’s discretion, and is negotiable. In such a case, employers are also not bound by how much they paid in the previous retrenchment exercise, if any.

The next thing to look at would be whether the company is unionised. Collective agreements may specify the entitlement and the norm to be paid, which is usually 1 month of salary for every year of service.

Tripartite Guidelines state that employees with 2 years’ service or more are eligible for retrenchment benefits. Those with less than 2 years’ service can be granted ex-gratia payment.

Retrenchment is never a pleasant thing for employers and employees. Sometimes, it is helpful to remember that in a knowledge-based economy, employees are your greatest asset. It is thus important not only to consider alternatives to retrenchment, but also to look how one can increase productivity by upgrading employees’ skills. For more information, please refer to our guide on Employment Law.