Retrenchment in Singapore: Employer Obligations

Retrenchment is the termination of permanent or term contract employees (of at least 6 months) because of redundancy or reorganisation of the employer’s profession, business, trade or work. This process, when carried out, is known as a retrenchment exercise.

Retrenchment may also occur in situations where the employer’s company undergoes liquidation, receivership or judicial management, or any other winding up process.

When undergoing a retrenchment exercise, however, employers have certain obligations to take note of and employees have certain rights.

Selection of Employees for Retrenchment

As set out in the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (referred to as the “Advisory” in this article), the selection of employees for retrenchment should be based on objective criteria and conducted in a fair manner.

Although the Advisory is not legally binding on employers, it outlines progressive workplace practices that employers should adopt. This involves taking into account the following non-exhaustive factors when conducting a retrenchment exercise:

• Ability of employee to contribute to the company’s future business needs;
• No discrimination against a group on grounds of;
  • Age
  • Race
  • Gender
  • Religion
  • Marital status
  • Family responsibility (e.g. pregnant employees)
  • Disability
• No deprivation of employee entitlements or benefits (e.g. maternity leave); or
• No punishment for exercising employee rights (e.g. filing a salary-related claim).

Adherence to these objective guidelines is important to avoid liability in the event disgruntled employees commence legal proceedings against an employer for unfair dismissal.

Prior to Conducting a Retrenchment Exercise

Notification of TAFEP and/or the Relevant Union

It is not mandatory to inform the Tripartite Alliance for Fair & Progressive Employment Practices (TAFEP) of the retrenchment exercise. However, if you choose to do so, it will be able to provide advice on compliance with the Advisory.

Where the company is unionised, the company is recommended to inform and consult the union on the retrenchment exercise. In most collective agreements, the norm is to inform the union 1 month before notification of the employees (see below).

Early communication to employees

Employers should let employees know about the upcoming retrenchment exercise, and the reasons for it, before the exercise is made known to the public.

When informing employees, the employer could:

• Describe the dire economic situation resulting in the need for retrenchment;
• Outline how the exercise will be implemented;
• Specify the factors that were taken into consideration on selecting the employees to be retrenched; and
• Detail any assistance that will be offered to affected employees.

Notice period

As a minimum requirement, notice should be given as legally stipulated in the employment contract or the Employment Act (should the affected employees be covered by the Employment Act). The Employment Act specifies the following notice period schedule:

However, employers should ideally provide a longer notice period than what is legally required. This is because, the affected employees will require time to make alternative employment arrangements, especially if they have families to support.

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Mandatory notification of MOM

It is mandatory for employers with businesses registered in Singapore to notify the Ministry of Manpower (MOM) of the retrenchment exercise if the employer has:

• At least 10 employees; and
• Notified any employee of their retrenchment.

This notification must be done within 5 working days after the employer notifies the employee(s) of their retrenchment.

The employer may complete this procedure through a 24-hour online service on MOM’s website within 10 to 15 minutes. Do note that a CorpPass account is required to use this service.

The information required in the procedure includes:

• Company name and Unique Entity Number;
• Company contact person details;
• Name of union (if the company is unionised), and whether union was consulted;
• Number of employees prior to the retrenchment exercise;
• Details of employees to be retrenched (i.e. name, NRIC or FIN, residential status, job title, date of effective retrenchment, date of notification of retrenchment to employees);
• Payment of retrenchment benefits and amount; and
• Provision of employment facilitation assistance.

If the employer is a small company with fewer than 10 employees, notification to MOM is not compulsory.

However, you are still encouraged to notify MOM because doing so would allow tripartite partners to help the affected employees find employment and/or relevant training. Where any labour issues arise, MOM can also assist with advising the employer on such issues.

During the Retrenchment Exercise

Payment of retrenchment benefits

Employees with 2 years’ service or more are eligible for retrenchment benefits while those with fewer than 2 years’ service may only be granted ex gratia (out of goodwill) payment at the employer’s discretion.

If retrenchment benefits are not paid out, the employee may file a claim or go through mediation at the Tripartite Alliance for Dispute Management (TADM), which helps employees resolve employment disputes.

If the dispute remains unresolved despite the assistance of TADM, the claim can be resolved at the Employment Claims Tribunals. The tribunal may make orders requiring the employer to pay retrenchment benefits (possibly including costs) to the employee.

Employees of a company that is undergoing a winding up process should note that they cannot file a claim with the TADM. Instead, such employees can file a claim directly with the Insolvency Office or appointed judicial manager or liquidator of that company.

Amount of retrenchment benefits

The amount of retrenchment benefits depends on whether it is provided for in the employment contract or in the collective agreement (for unionised companies). If there is no provision, the amount is to be negotiated between the employer and the employee, or the employer and the union.

The Advisory suggests that the prevailing norm for retrenchment benefits varies between 2 weeks to 1 month’s salary per year of service, taking into consideration the company’s financial position and industry.

If the retrenchment comes shortly after a salary reduction, the salary before the reduction should be used to determine the amount.

Neither employers nor employees have to make CPF contributions for the retrenchment benefits.

EAP for retrenching employees aged 63 and above

When employees hit the retirement age of 63, employers are required to offer them re-employment until the age of 68.

If employees aged 63 and above are retrenched, employers are required to pay them a one-off Employment Assistance Payment (EAP).

The EAP is to help employees tide over a period of time while they look for another job, and receive some payment where retrenchment benefits have not been provided for in the employees’ employment contract or collective agreement.

The Tripartite Guidelines for Re-employment of Older Workers suggest a sum equivalent to 3.5 months of salary, or a minimum of S$6,200.

For employees who have been re-employed for at least 30 months since age 63 before being retrenched, a lower EAP of 2 months of salary could be considered (subject to a minimum of $4,000 and maximum of $8,500).

The MOM can take action against employers who do not comply with these tripartite guidelines, so employers are advised to do so.

Ensure payment of employee’s salary

Employers should also ensure payment of all the affected employees’ salary, which includes unused annual leave, notice pay and maternity leave, on their last day of work.

Alternative job placements

In addition to the payment of retrenchment benefits or the EAP, employers are encouraged to provide outplacement assistance to help affected employees find alternative employment. This could be done with the help of intermediaries such as employment agencies (e.g. Workforce Singapore).

Additionally, supporting documentation such as referral letters should be provided when needed to facilitate employees’ alternative arrangements.

Alternatives to Retrenchment

Ultimately, retrenchment should be a last resort. Employers should first consider other alternatives such as redeployment and temporary layoffs.

Redeployment

To combat redundancy, employees can be redeployed within the company instead of retrenchment. Relevant training should be provided to facilitate the redeployment.

Temporary layoff

Alternatively, employees could be requested to stop coming to work for a short period of time as a temporary layoff. However, employers will still have to pay at least half their gross salary on the days that they are temporarily laid off.

Shorter work week

Employers could also consider implementing a shorter work week. However, the reduced duration should not exceed 3 days in a week or last more than 3 months, and employees should also be paid at least half of their salary on the days they do not work within the week.

For example, where an employee’s work days are reduced from 5 to 3, the employee must be paid at least half of his salary for the remaining 2 days even though he does not have to show up for work then.