Insights

Legal Obligations and Best Practices During a Retrenchment Exercise

Due to weak economic performance stemming from events such as the Covid-19 pandemic, employers may have to consider retrenching or making employees redundant. A retrenchment exercise is a difficult endeavour even in good times. To assist, we highlight the legal obligations employers have during such an exercise.

Firstly, Observe Best Practices where Possible

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.”[1]

While MOM guidelines are not legally binding, they will help employers avoid employee disputes should they arise

Retrenchment should be seen as “a last resort,” after the following alternatives have been considered:[2]

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

MOM advises that employees must be made redundant “responsibly and fairly”[3] as it affects not just the lives of retrenched employees, but also their families.

The selection of employees for retrenchment should also be conducted based on objective criteria such as the ability of employee to contribute to the company’s future business needs instead of age, race, gender, religion, marital status, disability and/or family responsibility.

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

Some of these best practices go hand in hand with your legal obligations.

Minimum notice period in the employment contract must be followed

When notifying employees of the retrenchment exercise, companies are legally obliged to observe the notice period provided in the contract, or pay their salaries in lieu of such notice. If there is no notice period stated in the employment contract, there are minimum notice periods provided by MOM that need to be observed.[4]

Employees should also 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

Where possible, MOM recommends that retrenched employees should receive a longer notice period so that they might find other employment.

Pay retrenchment benefits as stated in the employment contract, or be prepared to prove you are not able to

Retrenchment benefits should be paid by employers who are in a sound financial position.

Employees who have been in service for more than 2 years should receive the quantum provided in the employment contract.[5] Employees who have been in service for less than 2 years need not be paid any retrenchment benefit but could be provided a voluntary ex-gratia payment, and provided as a show of good intention.[6]

MOM recommends that 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.[7] If there is no stated retrenchment benefit, this should be negotiated and agreed upon by employer and employee in writing.

Employers who have difficulty paying retrenchment benefits must be prepared to show proof that they are not able to pay such benefits to retrenched employees and/or MOM in the event of a dispute.[8] Please see below for more information about the Jobs Support Scheme which can be utilised should you face such difficulty.

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

Where possible, provide 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.

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

It is mandatory[9] 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.[10]

It is an offence not to do so and strong enforcement action may be taken. [11]

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.

Final Comments

Employers who are retrenching or making workers redundant have been warned against terminating employment contracts under a “disguised” retrenchment exercise to avoid paying retrenchment benefits. Such employers face possible administrative sanctions such as the withdrawal of work pass privileges or the government’s Jobs Support Scheme.[12]

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Employers are encouraged to review employment contracts alongside existing legislation and the tripartite guidelines provided regarding termination of employment to determine what are your legal obligations. Let our skilled team of experts provide you employment law services with timely, relevant advice. We offer a broad range of solutions that can be customised to the unique needs of an individual or business. Leave the legal worries to us so that you can focus on your business.

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] 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.

[2] Id.

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

[4] Employment Act (Cap 91, 2009 Rev Ed) s 10(3)

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^[4]