Singapore: Retrenchment Practices In Singapore – A Balance Of Employer And Employee Interests

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.