New Requirements for Retrenchment Notifications – What Must Employers Do When Laying Off Workers?

The Ministry of Manpower (MOM) has just mandated new changes to the filing of mandatory retrenchment notifications. Previously, companies were only required to inform the Ministry when retrenching five or more employees within six months. Following these new changes, companies with at least 10 employees will have to file a notification for any single retrenchment from 1 Nov 2021.

Dr Koh Poh Koon, Senior Minister of State for Manpower, also urged companies with fewer than 10 employees to notify MOM voluntarily so that help can be extended to their retrenched workers.

This change is expected to “allow the tripartite partners and relevant agencies to provide timely support and assistance to workers who are retrenched” but is also meant to simplify the requirements for employers as some of them have had trouble tracking if they had retrenched five or more workers over six months.

In the same spirit of helping our towkays understand their obligations when retrenching employees, here is a comprehensive guide on everything that needs to be considered.

Mandatory retrenchment notifications

The purpose behind notifying MOM of retrenchment exercises is to enable Workforce Singapore (WSG), the tripartite partners – the Ministry of Manpower, the National Trades Union Congress (NTUC) and the Singapore National Employers Federation (SNEF) – and other relevant agencies to help affected employees find alternative employment and/or identify relevant training to enhance employability.

An employer who terminates an employment contract with no plan to fill the vacancy any time soon is presumed to have retrenched the employee. This includes situations where companies undergo liquidation, receivership, or judicial management.

The requirement to notify MOM of retrenchment applies to permanent employees, as well as contract employees with full contract terms of at least six months.

Failure to comply with the requirements on the mandatory retrenchment notifications under the Employment Act will be a civil contravention, for which administrative penalties can be imposed.

How to notify MOM of retrenchments?

Employers can submit a notification online using their Singpass. The information that one needs to provide are as follows:

·         Company name and UEN

·         Company contact person details

·         Name of union (if company is unionised), and whether union was consulted

·         Number of employees on the date of submission of the retrenchment notification to MOM. This includes all employees, i.e. Singaporeans, PRs and foreigners.

·         Details of employees to be retrenched (i.e. name, NRIC or FIN, residential status, job title, date of effective retrenchment, date of notification of retrenchment to employees)

·         Payment of retrenchment benefits and quantum

·         Provision of employment facilitation assistance

For any additional information, an online user manual can be fund on MOM’s website here.

Retrenchment Considerations

According to the Ministry, employers should do the following before they carry out any retrenchment:

·         Take a long-term view of their manpower needs, including the need to maintain a strong Singaporean core.

·         Inform MOM before carrying out any retrenchment exercise, to find out about government assistance schemes and about how to apply the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment.

·         Consult with the union if one’s company is unionised.

·         Not discriminate against employees or groups of employees and make the selection based on factors such as the ability to contribute to the company’s future business needs.

·         Treat the affected employees with dignity and respect.

·         Consider having a longer retrenchment notice period for all affected employees.

Naturally, during the retrenchment itself, employers are expected to notify the employees of their retrenchment according to the terms for termination of employment in their contract of service. They must also pay all salaries, including unused annual leave, notice pay, etc., to said employees on their last day of work.

Retrenchment benefits

Retrenchment benefits are payments given to employees to compensate them for the loss of employment. Employees who have served the company for at least 2 years are eligible for retrenchment benefits. Those with less than 2 years’ service could be granted an ex-gratia payment out of goodwill.

The amount of retrenchment benefit depends on what is provided for in the employment contract or collective agreement (for unionised companies). If there is no provision, it will have to be negotiated between the employees (or their union) and the employer.

The prevailing norm is to pay a retrenchment benefit of between two weeks to one month salary per year of service, depending on the company’s financial position and the industry.

In unionised companies where the amount of retrenchment benefit is stated in the collective agreement, the norm is one month’s salary for each year of service.

Do note that If the retrenchment comes shortly after a salary cut, the salary before the cut should be used to determine the amount of compensation.

Both employee and employer don’t have to pay CPF contributions for retrenchment benefits.

Below are some frequently asked questions regarding retrenchment benefits

Is it compulsory for employers to pay retrenchment benefits?

While retrenchment benefit is not mandated by law, MOM strongly encourages employers to adhere to the advisories, including providing retrenchment benefits to help affected employees while they search for employment.

MOM and the tripartite partners expect employers to follow the advisory when conducting retrenchments. Employers who conduct retrenchment irresponsibly (e.g. employer is in a sound financial position but chooses not to provide any retrenchment benefit) may be denied future government support or have their work pass privileges suspended.

What if the business is in severe financial difficulties due to Covid-19?

MOM did release an advisory back in 2020, advising that employers whose operations and business prospects are adversely affected should work with the union or the employees to renegotiate for a fair retrenchment benefit linked to the employee’s years of service.

If the company is really in dire straits or on the brink of ceasing operations altogether, employers that are unionised should negotiate with their unions for a mutually acceptable retrenchment benefit package, while non-unionised employers should support their retrenched employees by providing a lump sum retrenchment benefit.

Instead of linking retrenchment benefit to employees’ years of service, a lump sum of between one and three months of salary could be provided.

How does the employer prove that the retrenchment benefit is reasonable?

If there are disputes, the employer should be prepared to provide relevant information, such as evidence of the company’s financial position, to show that the retrenchment practices adhere to the tripartite advisories.

Can an employment contract be terminated without paying any retrenchment benefit?

Retrenchment benefits are payable if an employee was actually retrenched. However, if an employer is undergoing a cost cutting exercise and the majority of the employees have agreed to fair wage reductions to preserve their jobs, then those who disagree can have their employment contract terminated. This is not considered retrenchment.

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