Retrenchment Practices In Singapore – A Balance Of Employer And Employee Interests – Redundancy/Layoff

I. Introduction

1. The recent layoffs in Singapore by major tech companies,
   including Lazada, Shopee, Grab and Google, has caused much
   trepidation among workers in Singapore. This has been compounded by
   the recent labour market estimates released by the Ministry of
   Manpower (MOM), which reported that retrenchments
   in Singapore in 2023 were more than double that of 2022.




2. While employers have the right to lay off redundant workers due
   to changing workforce requirements and technological advancements,
   employees too have the right to be retrenched in a fair and
   responsible manner. In this article, we will discuss the
   retrenchment practices which should ideally be followed by
   employers in Singapore to achieve a fair balance between the
   interests of employers and employees.

II. Definition of retrenchment

3. As a starting point, there is no statutory definition for the
   term “retrenchment”. Instead, the Tripartite Alliance for
   Fair & Progressive Employment Practices
   (TAFEP) provides that retrenchment is a
   “reduction of an organisation’s workforce, usually due to
   business or economic reasons”. The Tripartite Advisory on
   Managing Excess Manpower and Responsible Retrenchment (the
   Retrenchment Guidelines) further provides that an
   employee is presumed to have been retrenched if the employer cannot
   show a plan to fill the vacancy any time soon.




4. Unlike the termination of employment on grounds such as poor
   performance or misconduct, retrenchment occurs when employees are
   discharged due to reasons of excess manpower or redundancy.

III. Obligations of employers and rights of employees during
retrenchment

5. In Singapore, there is no legislative framework for the
   retrenchment of employees. The Employment Act 1968 (the
   Employment Act) provides that an employee who has
   been in continuous service with an employer for less than two (2)
   years is not entitled to any retrenchment benefit in the event that
   such employee is retrenched. The Employment Act does not specify
   when an employee will be entitled to any retrenchment benefit, or
   what such retrenchment benefits will be.




6. As retrenchment benefits are not mandated by law, the amount of
   retrenchment benefit depends on what is provided for in the
   employment contract, memoranda of understanding or collective
   agreement (for unionised companies). If there is no contractual
   provision, it is to be negotiated between employees (or their
   union) and the employers.




7. Notwithstanding that the employee is being terminated as part
   of a retrenchment exercise, with respect to the termination
   process, this will usually be provided for in the employment
   contract. For the termination of employment without cause, what is
   typically required is for the employer to issue a termination
   notice to the employee, giving the employee either the agreed-upon
   notice period (at the conclusion of which, the employment will
   terminate) or by payment of salary in lieu of notice (in
   which case employment is terminated upon the making of the
   payment).




8. However, with the growing focus on making sure that employers
   act with fairness and responsibility when undergoing a retrenchment
   exercise, TAFEP has issued guidelines and best practices to help
   employers achieve this.

A. Responsible retrenchment and fair selection of employees for
retrenchment

9. To retrench workers in a responsible manner in accordance with
   the Retrenchment Guidelines, employers must ensure the
   following:

1. When faced with excess manpower, retrenchment should always be
   the last resort, after other feasible options have been considered
   and exhausted. In the event that retrenchment is inevitable despite
   having considered or implemented the necessary cost-saving
   measures, the tripartite consensus is that companies should
   retrench employees in a responsible and sensitive manner.




2. Employers must ensure objectivity in the selection of employees
   for retrenchment. Selection should be based on objective criteria
   such as the ability, experience, and skills of the employee to
   support the company’s sustainability, workforce transformation
   and/or future business needs. Employers must apply the criteria
   consistently and not discriminate against any employee(s) on
   grounds of:




3. 1. age;

   
   

   2. race;

   
   

   3. gender;

   
   

   4. religion;

   
   

   5. marital status and family responsibility; or

   
   

   6. disability.




4. Employers should also take a long-term view of their manpower
   needs, including the need to maintain a strong Singaporean core.
   Retrenchments should generally not result in a reduced proportion
   of local employees. This can be achieved by retaining
   proportionately more locals during a retrenchment exercise.




5. Employers should communicate early to their employees, the
   efforts to manage business challenges and the intent to retrench,
   before the public notice of retrenchment. This should precede the
   serving of retrenchment notice to any individual employees.
   Employers should also provide a longer notice period where
   possible, beyond contractual or statutory requirements.




6. As far as possible, employers should pay a reasonable sum to
   enable the affected employees to move on to new employment
   opportunities. Responsible employers should help affected employees
   look for alternative jobs in associate companies, in other
   companies or through outplacement assistance programmes.

B. Notice period to employees

10. While employers should ideally provide a longer notice period
    during a retrenchment exercise than what is legally required, the
    notice of termination of employment must, at least, be given to the
    retrenched employee as legally stipulated in the employment
    contract or the Employment Act (whichever is the higher). The
    Employment Act provides for the following notice period schedule
    for termination of employment as a minimum requirement:

C. Notifying the Ministry of Manpower of retrenchment

11. Under the Tripartite Guidelines on Mandatory Retrenchment
    Notifications, employers with businesses registered in Singapore
    who employ at least ten (10) employees are required to notify the
    MOM if they retrench any employee (including dismissal on the
    ground of redundancy). The notification must be submitted within
    five (5) working days after the employee is notified of his or her
    retrenchment.

D. Retrenchment benefit

12. As highlighted above, employees with two (2) years’ service
    or more are eligible for retrenchment benefit. Those with less than
    two (2) years’ service could be granted an ex-gratia
    payment. The quantum of retrenchment benefit depends on what is
    provided for in the collective agreement or contract of service,
    and, if there is no provision, the quantum is to be negotiated
    between the employees and the employer.

IV. Situations which require further procedures to be
followed

13. We would highlight that although employers are generally able
    to retrench employees in a fair and responsible manner, legislation
    and guidelines may regulate terminations of employment in specific
    types of situations, whereby certain specified procedures would
    need to be followed. For instance:




14. 1. the Tripartite Guidelines on the Re-Employment of Older
       Employees requires employers to pay a one-off Employment Assistance
       Payment to employees aged 63 and above who are retrenched; and

    
    

    2. the Employment Act provides that it is unlawful for an employer
       to give a female employee notice of dismissal during her maternity
       leave of absence or on such a day that the notice will expire
       during her maternity leave of absence. If the employee has served
       the employer for a period of three (3) months or more, no notice of
       dismissal given to a female employee by her employer on the ground
       of redundancy shall have the effect of depriving her of any
       maternity benefits payment to which, but for that notice, she would
       have been entitled to under Part IX of the Employment Act.

V. Concluding thoughts

14. The recent multi-sector layoffs have revealed the sobering
    truth that job security is not guaranteed. With the emergence of
    new technology (such as generative Artificial Intelligence), we can
    expect the workplace to experience even more disruptions and
    transformations in the coming years. When in doubt, employers
    seeking to terminate the employment of employees should seek legal
    advice to ensure that the termination is in line with regulations
    and best practices.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.