Complying with Responsible Retrenchment in Singapore

Complying with Responsible Retrenchment in Singapore

Retrenchment may occur in cases where a company undergoes a reorganization, restructuring, or liquidation. Although it can be painful, it is sometimes the only available option when a business is in a downturn.

With the outbreak of the COVID-19 pandemic, more and more Singapore companies may be considering retrenchment measures in an attempt to keep afloat. The Ministry of Manpower of Singapore (MOM) has reported an increased number of retrenched workers since January 2020 and economists including the Monetary Authority of Singapore expect more than 45,000 retrenchments (up to 100,000) this year or more than a 4 – 5% spike in unemployment rates.

According to the guidelines of MOM, retrenchment should be taken as the last resort after all other measures have been exercised. The National Wage Council (NWC) 2020/2021 has further provided additional guidance as to steps that should be taken before a retrenchment exercise should be considered.

If after analyzing and implementing all the alternatives, the cutting of staff remains the only viable option, it should be implemented in a responsible manner observing relevant requirements and done in a fair manner. Companies violating these requirements will face administrative penalties and may be taken to task by the Ministry.

Employers who are considering a retrenchment situation should seek further assistance with the authorities and turn to a lawyer for a consultation to ensure that it is done properly. Similarly, employees who are undergoing retrenchment exercise or believe they have been retrenched under the disguise of termination should seek assistance with the authorities and turn to a lawyer for a consultation to consider if they have been unfairly dismissed.

This article briefly outlines the recommended alternatives to retrenchment as well as requirements for Companies who need to engage in a retrenchment exercise*.

*As there are many cases of retrenchment being disguised as a termination to avoid paying retrenchment benefits, the Ministry provides that notification for retrenchment must be provided if a Company of more than 10 staff reduces its headcount by 5 persons or more within 6 months. Retrenchment may be presumed in these cases unless otherwise proven.

Alternatives to Retrenchment

Alternative measures that should be considered before exercising retrenchment include:

  • training and skill upgrading of employees as there are subsidies/grants provided;
  • redeployment and rotating the employees within the company to cater to structural changes;
  • employing a shorter work week (for a period not exceeding 3 months) with the corresponding reduction in pay*,
  • temporary layoff not exceeding 1 month at any one instance with a reduction in pay*,
  • adjustment to wages, including wage increment, monthly variable component, or other allowances*.
  • implementing a short no-pay leave*

*MOM must be notified if salaries are affected in some of these cases

NWC has further reiterated and restructured these measures in light of the COVID-19 pandemic, formulating wage and training guidelines valid from April 01, 2020, until June 30, 2021. The Guidelines also mention that no pay leave and retrenchment are a last resort and if needed, must be implemented in a fair and responsible manner.

Salary reductions

The guidelines are largely consistent with the Ministries’ recommendations but also mentions that considerations to be taken in salary reductions. This includes reducing variable wage components first and keeping to minimum salaries as well as treating your local and foreign workforce fairly.

In light of the COVID-19, MOM has also issued an advisory in April which was updated when the Circuit-Breaker was extended. The advisory contained a guide on salary and leave arrangements for local and foreign workforce and provide guidance as to salary matters. The advisory provides light as to salary payment and reductions which can be enforced for workers who continue working from home as well as workers who are unable to continue working.

Exercising Retrenchment

Fair and responsible retrenchment in Singapore is guided by several advisories and guidelines, including but not limited to:

The advisory and guidelines are developed by MOM, National Trades Union Congress (NTUC), and Singapore National Employers Federation (SNEF). These documents are important and employers who fail to abide by them may face administrative penalties including enforcement action as well as being taken to task in the Tripartite Alliance for Dispute Management which includes a financial penalty to affected employees.

The obligation of employers who are retrenching employees in Singapore would include: –

  • notifying the authorities including the government and the union;
  • notifying affected employees including allowing a longer retrenchment notice or making payment in lieu of notice;
  • providing retrenchment benefits for eligible employees; and
  • providing employment facilitation.

Retrenchment Benefits to Employees

The retrenchment benefit and non-paid wages are to be paid on the last day of employees’ work. The amount of the retrenchment benefit is defined either in the labor agreement or collective agreement for unionized companies. In the absence of such provisions, the employer should negotiate the amount with the employees or with the union if the employee is eligible for retrenchment.

In practice and according to MOM guidelines, the standard is between 2 weeks up to 1-month salary per each year of service, with the exception of older workers who are covered by special regulation which demands a minimum of 2 – 3.5 months’ salary or $3,500-$5,500, with the amount depending on the period of re-employment before the age of 62.

In unionized companies, the standard is one month salary per year of service.

Fair Considerations

In fulfillment of the above retrenchment guidelines, employers should use objective criteria and avoid discriminating against any employee based on age, gender, religion, family responsibility, disability, or marital status. When considering employees for retrenchment, companies should evaluate if such employees can contribute to future business needs as well as apply other objective criteria.

Summary

Employers are urged to engage in fair and responsible retrenchment should they consider cutting their staff due to changing business situations. The challenges of the COVID-19 pandemic further increases moral and other responsibility for fair retrenchment practice, as well as for providing timely notifications, assistance, and employment facilitation to retrenched employees. The Employer must also abide by various advisory and guidelines when considering retrenchment or any salary reductions.

There are a number of other measures recommended/advised as an alternative to retrenchment. Even extended no pay leave and salary reductions are to be avoided unless employers have engaged in them in a fair manner and as a last resort.

Employers who need to retrench their staff or resort to other cost-saving measures to keep their business viable during the economic downturn are advised to consult with experienced lawyers to provide for compliance with labor regulations and filing requirements.

Similarly, aggrieved employees are advised to consult with experienced lawyers who may guide them as to their employment rights.

About the author

Muntaz Binte Zainuddin
Muntaz Binte Zainuddin

Partner

Muntaz is a partner in I.R.B. Law and oversees the work of associates as well as manages the firm with the Managing Partner. She holds two degrees from the National University of Singapore.

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