Things to Consider in a Retrenchment Exercise

Last updated on August 30, 2016

Consider Alternatives to Retrenchment

Generally, conducting a retrenchment exercise should be the last resort to manage excess manpower (which often is the result of a restructuring exercise). The Ministry of Manpower (“MOM”) encourages employers to consider alternatives such as redeploying employees to other jobs within the company while providing them with the relevant training. Employers may also want to consider temporary layoffs or implementing a shorter work week.

Employers may also contact MOM regarding government assistance schemes to support their restructuring exercise.

Did Your Company Sign the Employers’ Pledge with TAFEP?

The Employers’ Pledge of Fair Employment Practices is a voluntary pledge undertaken by employees to, among other things, adopt and implement the Tripartite Guidelines on Fair Employment Practices. These guidelines are promulgated by the Tripartite Alliance for Fair Employment (“TAFEP”). If the pledge was signed, employers should keep themselves updated on and implement the latest guidelines.

The latest guidelines on managing excess manpower and responsible retrenchment (the “Guidelines”), as at the time of this article, is May 2016. Click here to check if your company has signed the Employers’ Pledge.

Informing MOM or TAFEP and/or the Relevant Union

Informing MOM or TAFEP about your upcoming (or even ongoing) retrenchment exercise has its benefits. Tripartite partners and the relevant agencies can work with employers to help affected local employees find employment and/or relevant training. TAFEP can also advice employers on compliance with the Guidelines.

However, employers should be aware that although such notifications will be kept confidential, in notifying TAFEP, there is a risk that TAFEP may want to review the retrenchment exercise to ensure that the employer does not engage in any discriminatory practices.

Where the company is unionised, the company has to inform the union of the retrenchment exercise.

Justification of Selection Process for Retrenchment

The selection of employees for retrenchment, as set out in the Guidelines, should be based on objective criteria and conducted fairly. This involves taking into account the following non-exhaustive factors:

  • 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; or
    • disability

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

Retrenchment Benefits: Eligibility and Quantum

The 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.

If the quantum of retrenchment benefit is not provided for in the employment contract or any documents referred to in the employment contract, it is to be negotiated. The Guidelines suggest that the prevailing norm is to pay a retrenchment benefit varying between 2 weeks to 1 month salary per year of service, depending on the financial position of the company and taking into consideration the industry norm. For unionised companies, the quantum would be stipulated in the collective agreement.

The quantum of retrenchment benefits is usually not specified in any employee contract or handbook and thus is discretionary. The Court of Appeal has held that in such a case, the employer is not bound by past practices relating to the quantum of retrenchment benefits. In other words, the payment of 1 month for each year of service as retrenchment benefits for a current retrenchment exercise will not set a precedent for future retrenchment exercises.

Retrenching Employees Aged 62 or Above

Under the Retirement and Reemployment Act (which covers employees aged 62 and above), employers may only terminate such employees if, by their assessment, the employee does not have at least satisfactory work performance and/ or is not medically fit to continue working. If such employees fulfil this very low threshold, 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).

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.