How to Comply with Retrenchment in Singapore

When a company restructures, reorganises, or liquidates, retrenchment may occur. While this may be a painful and uncomfortable option, businesses sometimes have no other option available.

Due to the COVID-19 pandemic, numerous Singapore companies have begun to explore retrenchment measures in order to keep their businesses afloat. According to Singapore’s Ministry of Manpower (MOM), the number of retrenched workers has increased since January 2020. The Monetary Authority of Singapore, along with other economists, foresee more than 45,000 retrenchments—possibly up to 100,000—in this year alone. That translates to a spike in unemployment rates of more than 4 or 5 percent.

According to MOM’s guidelines, businesses should see retrenchment as the absolute last resort, as they should exercise all other measures first. The National Wage Council 2020/2021 (NWC) enumerates numerous steps for business to take before they are to consider retrenchment.

Clearly, businesses should analyse and implement all other alternatives. If, however, retrenchment continues to be the only practical option, then the process should be executed responsibly and fairly. Any business found to violate the indicated requirements will be charged by the Ministry with administrative penalties.

To ensure that retrenchment is executed properly, employers must consult with an experienced and knowledgeable lawyer. Employees undergoing retrenchment or who believe they have been retrenched under the guise of termination, on the other hand, should also consult with a lawyer if they feel they have been wrongfully dismissed.

In this article, we briefly outline the suggested alternatives to retrenchment. We also outline the requirements for companies engaging in a retrenchment exercise*.

*Numerous retrenchment cases are being disguised as termination in order for businesses to avoid paying retrenchment benefits. The MOM dictates that notification of retrenchment must be given if a company comprised of more than 10 employees reduces its headcount by at least five individuals within a six-month period. Unless proven otherwise, retrenchment may be presumed in such scenarios. 

Alternatives to Retrenchment

Before exercising retrenchment, businesses should first examine the following alternative measures:

• The training and upgrading of employees’ skills as there are grants and subsidies provided’;
• The redeployment and rotation of employees within the organisation so as to adapt to structural changes;
• The employment of a shorter work week with a corresponding pay reduction* (for a period less than three months);
• The laying off of employees temporarily with a pay reduction*, not exceeding one month at any instance;
• Wage adjustment, including monthly variable component, wage increment, or other allowances*;
• The implementation of a no-pay leave for a short period of time;

*MOM should be notified if employees’ salaries are affected in some of these cases. The NWC has also echoed and restructured such measures due to the COVID-19 pandemic, thus formulating training and wage guidelines effective April 01, 2020 until June 30, 2021. These guidelines indicate that the last resort should be no-pay leaves and retrenchment, and that if they are necessary, should be implemented in a manner that is responsible and fair.

Salary Reductions

The guidelines provided are, for the most part, consistent with the recommendations of the MOM. However, they also discuss the considerations to be taken for salary reductions. These include reducing variable wage components first, keeping to minimum salaries, and treating both foreign and local workforces justly.

Due to the pandemic, the Ministry of Manpower issued an advisory in April, which they updated after the Circuit Breaker’s extension. This advisory included a guide on both salary and leave provisions for both the local and foreign workforce. It also explained that salary payment and reductions could be enforced for workers who worked from home, as well as those who were unable to return to work.

Exercising Retrenchment

In Singapore, numerous advisories and guidelines ensure that retrenchment is exercised responsibly and fairly. Among these advisories and guidelines include:

• Employment Act;
• Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment;
• Tripartite Guidelines on Mandatory Retrenchment Notifications;
• Tripartite Guidelines on Fair Employment Practices

These advisories and guidelines were created by the MOM, Singapore National Employers Federation (SNEF), and the National Trades Union Congress (NTUC). Employers who fail to follow such documents may possibly face administrative penalties, including enforcement action. They may also possibly be taken to task in the Tripartite Alliance for Dispute Management, which may lead to a financial penalty to all employees affected.

Singapore employers who are retrenching employees are obliged to do the following:

• Notify the authorities, including the union and government;
• Notify all employees affected, including the allowance of a longer retrenchment notice or making a payment in the absence of a notice;
• Provide eligible employees with retrenchment benefits; and
• Provide employment facilitation.

Employee Retrenchment Benefits

All non-paid wages and retrenchment benefits should be paid on the employee’s last day of work, with the collective agreement for unionised companies or labor agreement defining the total amount of the retrenchment benefit. When such provisions are absent and the employee is eligible for retrenchment, the employer must negotiate the amount to be paid with the employee or with the union.

According to MOM guidelines, the standard amount to be paid is between two weeks’ to one month’s salary for every year of service rendered. The exception is for older workers covered by special regulation, which dictates for at least two to three and a half months’ salary–or S$3,5000 to S$5,500—with the total amount dependent on the re-employment period before 62 years of age.

The standard for unionised companies is typically one month’s salary for every year of service.

Considerations

To fulfill the retrenchment guidelines above, all employers should utilise objective criteria. They should also avoid discrimination against an employee based on factors such as gender, age, marital status, disability, religion, and family responsibilities.

Should an employee be considered for retrenchment, the company should first assess whether the employee can contribute to future business needs. Other objective criteria must also be applied.

Summary

In summary, employers considering retrenchment due to changing business situations must be responsible and fair.

It is urged that businesses provide retrenched employees with timely notifications, assistance, and employment facilitation. Employers must also adhere to any guidelines and advisories when considering salary reductions or retrenchment.

Numerous additional measures have been advised or recommended as an alternative to retrenchment. Note that salary reductions and extended no pay leaves should be avoided unless employers have engaged them fairly and are practiced only as a last resort.

Employers who are resorting to cost-saving measures or who are considering retrenching their employees during this economic downturn are urged to consult with an experienced lawyer as soon as possible. A knowledgeable lawyer will be able to ensure that your business is complying with all filing requirements and labor regulations.

Similarly, all aggrieved employees must also consult with an experienced lawyer so that they may be guided on their employment rights.