What you need to know about layoffs and retrenchment

5 December 2022

The recent spate of widespread layoffs by tech behemoths such as Twitter and Meta marks a drastic shift away from the rapid and aggressive hiring in the tech sector during the pandemic.

Most recently, Google’s investor, TCI Fund Management issued a missive that it will take “aggressive action” to rein in headcount and reduce salary expenses in the throes of an economic downturn.

With indiscriminate hiring comes inevitable firing as the world braces for macroeconomic headwinds of a global recession and mounting inflation.

As revenue growth is slowing across many industry sectors, this could well be the beginning of a ripple effect which spreads more widely than the tech industry.

What should employees in Singapore understand about retrenchment with potentially more layoffs looming on the horizon?

What is a retrenchment?

First off, let’s understand how retrenchment is defined in Singapore. Retrenchment is the termination of a permanent or contract employee’s (minimum six-month term) employment due to redundancy or reorganisation of the employer’s profession, business, trade or work.

This typically occurs when a company undergoes major structural changes which could result in downsizing or restructuring, leading to diminishment or transformation of existing roles. Retrenchments could also be the result of mergers, liquidation or judicial management.

There is a presumption of retrenchment if the employer has no plans to back-fill the vacancy in the near future.

A protection that the Ministry of Manpower (MOM) put in place to protect retrenched employees is the requirement that companies with at least 10 employees are obliged to notify the MOM of the retrenchment of every employee, within five days of notifying each employee of the retrenchment. This mandatory notification compels employers to furnish information on whether retrenchment benefits were paid and whether other forms of non-monetary assistance were provided.

No mandatory retrenchment benefits

Alas, there is no mandatory retrenchment payment regime in Singapore. The Employment Act states that employees who have worked with an employer for less than two years are not entitled to retrenchment benefits, thereby implying that employees who have served at least two years or more may be eligible for such retrenchment benefits. In any event, the Employment Act does not specify the quantum of such benefits.

If the employment contract (or collective agreement with Unions) stipulates the quantum of retrenchment benefits, the employer would be bound by it. In the absence of such provisions, the employer and employee are to negotiate the quantum.

The Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment urges companies to pay employees retrenchment benefits benchmarked at two weeks to one month per year of service. This guideline may be departed from, depending on a company’s financial position and industry practice.

The Tripartite Advisory also provides that employers may provide employees with less than two years’ service with retrenchment benefits out of goodwill, as an ex gratia sum.

While the Tripartite Advisory does not constitute binding legislation, employers are strongly recommended to abide by it. Non-compliant employers may face administrative penalties such as fines and curtailment of work pass privileges.

Disguised retrenchments and quiet firings

One of the more insidious forms of retrenchments are those which are designed to look like anything but what they are in substance. Retrenchments are disguised with the intention to avoid reporting (and thereby attracting MOM’s scrutiny) and/or paying out retrenchment benefits. Examples of disguised retrenchments are:

  • “quiet firing” is a “cheap” retrenchment tactic where companies create an intolerable work environment such that employees quit on their own accord.
  • mischaracterising a retrenchment as a sacking for misconduct or poor performance, in particular, where no such concerns have been expressed by the employer prior
  • mischaracterising a retrenchment as a straightforward contractual termination by only providing notice or salary in lieu of notice and failing to address the issue of retrenchment benefits.

If a company is found to have disguised their retrenchments, the MOM may impose administrative penalties, including having their work pass privileges withdrawn.

What should retrenchment look like?

While retrenchments might be inevitable from a commercial perspective, employers should take care to ensure that they are conducted in a manner that is sensitive, non-discriminatory, and fair to the employees.

This would include ensuring that retrenchment is a last resort by exploring other options such as redesignation to other roles, transitioning the employees to part-time work or even job sharing.

If retrenchment is unavoidable, where possible, employers should provide extended notice to employees that is longer than the contractual notice period to allow affected employees a runway to seek alternative employment.

Unfortunately, it’s common for companies to avoid giving any notice whatsoever and they get around this by paying salary in lieu of notice. Another alternative is for companies to put them on garden leave for the notice period which allows them to remain in employment while they search for new roles.

The Tripartite Advisory strongly encourages companies to provide employees with support in finding alternative employment, whether by way of providing outplacement support, positive references, CV writing services, and/or working with agencies such as the Employment and Employability Institute (e2i) and Workforce Singapore.

Finally, what recourse is available to retrenched employees?

Employees who have been deprived of retrenchment benefits should, in the first instance, attempt negotiations with their employers, where possible. It is often in the interests of all parties to arrive at an amicable outcome.

If parties are unable to resolve this matter privately, aggrieved employees may escalate a salary-related claim to the Tripartite Alliance for Dispute Management (TADM). Employees who believe they might have been wrongfully terminated under the pretext of a disguised retrenchment may explore the option of filing a wrongful dismissal claim at TADM.

If either the salary-related or wrongful dismissal claim cannot be resolved at TADM, the matter may be escalated to the Employment Claims Tribunal. The option of a civil suit is also available.

Affected employees should seek legal advice to explore these options, including to review the terms of separation agreements (if any) proposed by their employers.

As the world braces itself for economic uncertainty, it would serve employees well to be informed of the retrenchment landscape in Singapore.

This article was first published by The Business Times here.

This document (and any information accessed through links in this document) is provided for information purposes only and does not constitute legal advice. Professional legal advice should be obtained before taking or refraining from any action as a result of the contents of this document.


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