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Best Practices when Terminating an Employee’s Contract in Good Times and During Covid-19

Even during good economic times, there are best practices employers should adhere to when terminating an employee’s contract.

Notice Periods

A typical employment contract would stipulate the length of notice an employer or employee is required to serve before terminating the contract of service. However, in the absence of a mutually agreed timeframe between employer and employee, the Ministry of Manpower has provided guidelines as to the length of notice required; depending on how long an employee has worked for the company:

Length of employment	Notice required
Less than 26 weeks	1 day
More than 26 weeks but less than 2 years	1 week
More than 2 years but less than 5 years	2 weeks
5 years or more	4 weeks[1]

The notice must be served in writing and may be given at any time.[2] The notice period also begins the very day it is served.[3]

A company can terminate the services of an employee when the work specified in the contract has been completed or when the period specified in the contract has expired.[4]

A company can also terminate a contract due to misconduct, poor work performance,[5] or on the grounds that the employee has been made redundant, especially in difficult economic times.

Termination due to misconduct

In order to terminate the services of an employee for misconduct, the employer should do the following:

inform the employee of the alleged misconduct,
allow the employee to respond to the allegations, and
organise unbiased parties to conduct an inquiry into the matter before deciding whether to dismiss the employee.[6]

Should you suspend your employee during the inquiry for more than a week, the Commissioner for Labour’s approval must be sought at this website.

If the employee is found guilty of the misconduct, his/her services can be terminated without notice. Misconduct is the only legitimate reason an employee can have his/her services terminated without notice.

Termination due to poor work performance

An employee’s poor work performance should be well-documented in writing so that it can be provided as evidence should there be an inquiry into their dismissal. The employee should also be informed of their poor work performance during performance reviews so that they are given the opportunity to improve.

If there is no improvement or overall poor work performance, the employee’s services can be terminated with the requisite notice stipulated in the employment contract, or as per the MOM guidelines above if the contract does not provide any guidance.[7]

With the Covid-19 pandemic, what should companies do with redundant manpower they cannot afford to keep?

Due to weak economic performance stemming from the Covid-19 pandemic, it is inevitable that employers would seek to make redundant or retrench their employees.

In March 2020, the tripartite partners – the Ministry of Manpower (MOM), National Trades Union Congress (NTUC), and Singapore National Employers Federation (SNEF) – issued an advisory for employers to look beyond the Covid-19 pandemic and take a “long-term view of their manpower needs.”[8]

Retrenchment should be seen as “the last resort,” and only after the following alternatives have been considered:[9]

Send employees for training to upgrade their skills and employability
Redeploy employees to alternative areas of work within the company
Implement flexible work schedule, flexible work arrangements, shorter work-week, or temporary layoff
Adjust wages in line with tripartite norms
Implement no-pay leave

Termination on the grounds of redundancy

MOM advises that employees must be made redundant “responsibly and fairly”[10] as it affects not just the lives of the affected employees, but also their families.

Responsible and fair retrenchment involves good communication, paying out of retrenchment benefits for those who are eligible as stipulated in the employment contract, and where possible, assistance with finding alternative employment.

The selection of employees for retrenchment should also be conducted based on objective criteria such as the ability of employees to contribute to the company’s future business needs. Complaints of discriminatory practices will be investigated by MOM and strong enforcement actions for businesses found guilty of discriminatory practices can be expected.

Good communication

Employees should be informed early and before public notice of retrenchment is given. When issuing the retrenchment notice, employers may include the following:

Explaining the business situation faced by the company resulting in the need for a retrenchment exercise
Outlining how the retrenchment exercise will be carried out
Elaborating on the factors that will be considered
Specifying the assistance being offered to those affected

MOM recommends that retrenched employees should receive a longer notice period so that they might find other employment. Otherwise, companies should observe the notice period provided in the contract, or the minimum notice periods provided by MOM, or pay in lieu of such notice.

Paying retrenchment benefits

Employees who have been in service for more than 2 years should receive the quantum provided in the employment contract.[11] The norm would be to provide 2 weeks to 4 months of salary for every year in employment but this could differ according to industry norms or contractual obligations. Should there have been a recent salary cut, employers are expected to provide the quantum of retrenchment benefit based on the salary prior to the cut.[12]

Employees who have been in service for less than 2 years could be provided an ex-gratia payment that is voluntary and provided as a show of good intention.[13]

Affected employees should be paid all wages due and their retrenchment benefits on their last day of work.

Assistance with finding alternative employment

Employers are encouraged to help affected employees find employment in associate companies, in other companies, or through outplacement assistance programmes.

Employers are also encouraged to work with national initiatives that assist with job-seeking and re-employment, such as Workforce Singapore, NTUC’s Employment and Employability Institute (e2i), Job Security Council, and U PME Centre, to facilitate affected employees re-employment.

Under what circumstances is it mandatory for a company to notify MOM?

According to the Employment Act, [14] it is mandatory for employers with businesses registered in Singapore with at least 10 employees to submit a Mandatory Retrenchment Notification if they have retrenched 5 or more employees within any 6-month period.[15]

Employers who do not comply with the requirement on Mandatory Retrenchment Notifications may be guilty of an offence, for which strong enforcement action may be taken.[16]

If the business employs less than 10 employees or has retrenched less than 5 employees, the employer is still strongly encouraged to submit a notice of retrenchment.

***

Employers are encouraged to review employment contracts and practices alongside the tripartite guidelines provided regarding termination of employment, especially in relation to retrenchment exercises and any cost-saving measures as a result of the Covid-19 pandemic.

Please note that this article does not constitute express or implied legal advice, whether in whole or in part. If you require legal advice, please contact me at walter@silvesterlegal.com.

[1] Employment Act (Cap 91, 2009 Rev ed) s 10(3).

[2] Employment Act s 10(5).

[3] Employment Act s 10(5).

[4] Employment Act s 9.

[5] Employment Act, s 14 and https://www.mom.gov.sg/employment-practices/termination-of-employment/termination-due-to-misconduct

[6] https://www.mom.gov.sg/employment-practices/termination-of-employment/termination-due-to-misconduct

[7] https://www.mom.gov.sg/~/media/mom/documents/employment-practices/guidelines/tripartite-guidelines-on-wrongful-dismissal.pdf?la=en, p 2.

[8] https://www.mom.gov.sg/-/media/mom/documents/employment-practices/guidelines/tripartite-advisory-on-managing-excess-manpower-and-responsible-retrenchment.pdf?la=en&hash=FED5FC78385A29DE079C113C4DBB0871, p 1.

[9] https://www.mom.gov.sg/-/media/mom/documents/employment-practices/guidelines/tripartite-advisory-on-managing-excess-manpower-and-responsible-retrenchment.pdf?la=en&hash=FED5FC78385A29DE079C113C4DBB0871, p 1.

[10] https://www.mom.gov.sg/employment-practices/retrenchment/responsible-retrenchment

[11] https://www.mom.gov.sg/-/media/mom/documents/employment-practices/guidelines/tripartite-advisory-on-managing-excess-manpower-and-responsible-retrenchment.pdf?la=en&hash=FED5FC78385A29DE079C113C4DBB0871, p 4.

[12] https://www.mom.gov.sg/-/media/mom/documents/employment-practices/guidelines/tripartite-advisory-on-managing-excess-manpower-and-responsible-retrenchment.pdf?la=en&hash=FED5FC78385A29DE079C113C4DBB0871, p 4.