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Retrenchment

Introduction

Retrenchment refers to the termination of an employee’s employment due to redundancy, restructuring or for cost saving reasons, as opposed to termination for poor performance or misconduct. In Singapore, the Employment Act (EA) refrains from being overly prescriptive towards employers’ retrenchment practices, lending employers a level of flexibility. Nonetheless, employers are still expected to uphold fair and progressive retrenchment practices by following the Tripartite Alliance for Fair Employment Practices (TAFEP) fair retrenchment guidelines.

Legal Requirements

The Employment Act provides some legal requirements for companies when carrying out a retrenchment exercise. The following are the requirements under the EA:

  1. Notice of Termination. Sections 10 and 11 of the EA require employers to notify employees prior to termination. The requisite length of time depends on how long they had been working for the employer prior to termination.
    Length of Service Notice Period
    Less than 26 weeks 1 day
    26 weeks or more but less than 2 years 1 week
    2 years or more but less than 5 years 2 weeks
    5 years or more 4 weeks

    However, the employer may terminate without notice if they compensate the worker with a sum equivalent to the salary they would have earned during the notice period.

  2. Notice to MOM. It is mandatory for any company with ten or more employees to inform MOM about a retrenchment exercise. MOM must be informed within five days of the first employee being given their notice.
  3. Retrenchment Benefits. The entitlement and amount of retrenchment benefit are based on the terms of the employment contract. Without such terms, it would have to be negotiated between the employee and the employer. Usually, the rate is between 2 weeks to 1 month’s salary per year of service with the employer.
  4. Maternity Protection. If an employer retrenches a pregnant employee, they must continue to pay for the employee’s maternity leave.
  5. Discrimination. Workplace Fairness Legislation (WFL) is expected to be passed in the second half of 2024. This codifies into law that decisions in the workplace such as retrenchment must be based on merit and must disregard factors such as age, race, sex, religion etc.

TAFEP Guidelines

TAFEP has published guidelines for employers considering a retrenchment exercise. The guidelines include both general principles to consider, as well as prescriptive recommendations. While TAFEP Guidelines are not legal requirements, they are comprehensive suggestions for employers. The guidelines also contain useful resources and checklists to structure the retrenchment exercise.

  1. General Principles. TAFEP recommends that employers only practice retrenchment as a last resort. Employers should ensure that retrenchment is conducted with an objective selection criteria, prioritises retaining locals, and is clearly and respectfully communicated to employees.
  2. Retrenchment Benefits. TAFEP recommends that employees who have worked for an employer for over two years be given a retrenchment package. They suggest that employees who have worked for less than two years may also be granted an ex gratia payment. TAFEP highlights that the prevailing norm is to provide the employee with, at minimum, two weeks to one month of salary for every year the employee has worked for the company.
  3. Support for Affected Employees. Employers are also encouraged to take practical efforts to help employees look for alternate jobs. This includes providing the employee with supporting documentation, and working with unions, Singapore National Employers Federation, Singapore Business Federation (SBF) and agencies such as Workforce Singapore (WSG), NTUC’s Employment and Employability Institute (e2i), Job Security Council and U PME Centre.

Lazada Case Study

In January 2024, the e-commerce platform Lazada conducted a retrenchment exercise for nearly 100 of their employees. Although Lazada was unionized under the Food, Drinks and Allied Workers Union (FDAWU), NTUC and FDAWU were not informed prior to the retrenchment. Employees were initially given two weeks of salary per year worked at the company. The retrenchment process was criticized for being held during the festive period and could reportedly have been handled more “humane[ly]” as well.

NTUC and FDAWU spoke out against Lazada’s practices, and ultimately negotiated better terms for the retrenched workers. This included an “enhanced support package” and a dedicated fund for employment and employability training and support by FDAWU in partnership with with NTUC’s Employment and Employability Institute (e2i). Lazada also issued an apology for the poorly handled retrenchment exercise.

This case study highlights the need for thorough understanding of the expectations for retrenchment and more generally, for employment practices in Singapore. While Lazada’s retrenchment exercise met all the legal requirements, it was deemed unsatisfactory when compared expectations laid out in TAFEP’s guidelines, as well as the industry standard. Retrenchment is seen as a sensitive and serious issue in Singapore. As expectations are not explicitly prescribed under law, companies who are considering retrenchment should consider reaching out to the unions and experts in the field to ensure fair and progressive practices.

Facing the challenge of retrenchment?

Ensure your practices are not just legally compliant but also fair and supportive. Let us guide you through the complexities of Singapore’s Employment Act and TAFEP guidelines to uphold the best standards for your employees. Contact us today for expert advice and navigate retrenchment with confidence and care.

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