MOM Responsible Retrenchments – Guideline For Companies To Be Fair And Decent

This article was first published on 9 October 2020 and has been updated with additional reporting.

We are in the middle of a recession – with the Ministry of Trade and Industry (MTI) forecasting Singapore’s worst economic contraction on record.

For some business owners, you may have fallen on hard times and need to do the painful inevitable after exhausting all other options – retrench staff. Already, 11,350 employees have been retrenched in the first half of 2020, with another 81,720 at-risk after being put on shorter work-weeks or temporarily laid off. 

On 17 October 2020, the Tripartite Partners – comprising the Ministry of Manpower (MOM), National Trades Union Congress (NTUC) and Singapore National Employers Federation (SNEF) provided an update to their advisory on managing excess manpower and responsible retrenchment.

Read Also: 5 Business Sectors Offering The Most Job Openings In Singapore During COVID-19

It’s not going to be comfortable for any party and, with livelihoods at risk, emotions can run high during a retrenchment announcement. That said, businesses must uphold decent and fair practices while carrying out your retrenchment exercise.

Responsible Retrenchment Practices

#1 Inform MOM before carrying out any retrenchment exercise.

Under the Employment Act, it is mandatory for employers Singapore-registered employers with at least 10 employees, who have retrenched 5 or more employees within any 6-month period to notify MOM of the retrenchment exercise. This must be done within 5 working days after affected employees are notified of their retrenchments.

Employers or company representatives can inform MOM of their retrenchment exercise via CorpPass. 

#2 Consult with the union if your company is unionised.

In unionised companies, management is required to consult the union before undertaking your retrenchment exercise. MOM’s latest advisory also states that companies should consider having HR personnel and union representatives onsite to address queries from retrenched employees.

#3 When issuing the retrenchment notice, employers should pay attention to the emotional needs of affected employees. 

If not already clear, MOM also reminds employers to treat their retrenched employees with empathy and dignity. As the business owner, try to control your emotions and empathise with employees facing the uncertainties of retrenchment.

MOM’s latest advisory calls for managers to notify employees of retrenchment in a sensitive manner, such as in person unless it is impractical. Businesses should also give employees time and space to absorb the news before requesting them to vacate their workplace.

Where necessary, counselling support should be offered. If counselling support cannot be offered, referrals for such support could be given instead.

The latest advisory also incorporates NTUC’s Fair Retrenchment Framework (FRF) for companies to maintain a strong Singapore core, reminding employers to take a long-term view of their manpower needs.

#4 Do not mask retrenchments as dismissals OR firings as retrenchment exercise

In an article contributed to DollarsAndSense by Patrick Tay, a Member of Parliament and Assistant Secretary General of NTUC, he noted that an “employee is considered to be retrenched if the company cannot show a plan to fill the vacancy any time soon regardless of what the termination of employment is called”. This also means that the company may be perceived as trying to evade retrenchment guidelines and providing retrenchment benefits.

In the same manner, companies should not use COVID-19 hardships to dismiss employees only to fill the role with another hire. Because companies stand to benefit from government grants such as the Jobs Growth Incentive (JGI), this could be scrutinised closely in the coming months.

#5 Pay all salaries, including unused annual leave, notice pay, CPF, retrenchment benefits etc., to your employees on their last day of work. 

Make an effort to ensure that your employees receive these payments on time. Give them the details of a contact person if there is any delay or dispute.

Read Also: Complete Guide To Employer CPF Contributions In Singapore

#6 Pay Retrenchment Benefits

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

MOM also states that companies should be “prepared to provide relevant information” to show that your retrenchment practices adhere to the tripartite advisories. 

Under the advisory, employees with 2 years of service or more are eligible for retrenchment benefits. The amount of retrenchment benefits depends on what is provided for in the employment contract, memoranda of understanding or collective agreement (for unionised companies). In the situation that there is no contractual provision, it is to be negotiated between employees (or their unions) and employers.

The advisory also states that the prevailing norm is to pay retrenchment benefit varying between 2 weeks to one month salary per year of service, depending on the financial position of the company and taking industry norms into consideration.

For retrenchment that happen after a recent pay cut, the salary prior to the cut should be used to compute the retrenchment benefit, to protect employees.

Read Also: Singapore Employment Act: 10 Statutory Requirements To Pay Employees

#7 Consider having a longer retrenchment notice period for all your affected employees. 

As a minimum requirement, the Employment Act provides a schedule of notice period for the termination of employment. 

Length Of ServiceNotice Period
Less than 26 weeks1 day
26 weeks to less than 2 years1 week
2 years to less than 5 years2 weeks
5 years and above4 weeks

The latest advisory urges businesses to give employees more than the contractual or statutory minimum notice period. This will help with their psychological distress as well as give them more time to look for a new job while still being employed.

#8 Help your affected employees look for new jobs in associate companies, other companies or through job fairs.

You can also work with unions, the Singapore National Employers Federation (SNEF), agencies such as Workforce Singapore (WSG), NTUC’s U PME Centre and the Employment and Employability Institute (e2i) to help affected employees find alternative employment.

Singapore National Employers Federation (SNEF) 7633
Workforce Singapore  (WSG)  6883 5885
U PME Centre 8008
Employment and Employability Institute (e2i) 6474 0606

#9 Employers should communicate early, the intention to retrench staff and before public notice of retrenchment is given. 

The communication could:

  • Explain the business situation which the company faces, which has led to a need to retrench staff.
  • Outline how the retrenchment exercise will be carried out.
  • Explain how the factors for retrenchment were decided on
  • Specify the assistance being offered to those who are affected.

#10 To facilitate the job search of affected employees, supporting documents such as referral letters, service records and past training certificates, should be provided.

By making these documents available to your employees, you reinforce the point that you are committed to helping them continue to earn a living, even though you are unable to provide them with a job at this time.

Retrenchments are not easy business decisions to arrive at. Nevertheless, they don’t have to be nasty affairs. By handling retrenchments well, the current difficult period could offer you a new way to build up your company’s reputation, even when your business’ profitability is in question. 

Responsible Retrenchment Practices – Checklist

Businesses can also refer to this checklist in the latest advisory for responsible retrenchment practices.

1Does the business situation warrant a retrenchment? 
2Did the company tap on government support, put in effort to reskills and deploy employees where possible, before embarking on a retrenchment exercise? 
3Did the com company implement other alternatives before embarking on a retrenchment exercise? Examples include, but are not limited to: flexible work  schedule, shorter work-week, no-pay  leave. 
4Did the company use objective criteria to identify employees to be retrenched and that the criteria used do not discriminate against any employee on the basis of age, race, gender, religion, marital status and family responsibility, or disability? 
5Did the company ensure that the proportion of local employees is not lower, after retrenchment? 
6If company is unionised, were the selection criteria and retrenchment benefit discussed and agreed to with the union? 
7Did the company communication its business situation and retrenchemtn plans clearly and in a sensitive manner with compassion to employees? 
8Did the company adhere to the notice period for retrenchment in accordance with the employment contract, collective agreement, or the Employment Act? 
9Did the company provide retrenchment benefit in accordance with Tripartite  Advisory on managing Excess manpower and Responsible Retrenchment? 
10Did the company put in place measures to support the affected employees to move on to new  jobs, e.g. engaging WSG or e2i for employment facilitation? 

Source: Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (Updated 17 October 2020)

Why It’s Important To Be Fair And Decent When You Retrench Employees?

It doesn’t just allow entrepreneurs to sleep better at night, but also makes practical business sense and ensure your business doesn’t fall afoul of the law. You can take a leaf out of Airbnb CEO Brian Chesky’s book, managing to gain positive media coverage on international media despite cutting 25% of its workforce.

Staff morale will be affected during retrenchments, so you need to get your remaining staff to see that the company is suffering but still trying to do its best. Businesses also need employees to focus on navigating the tough times ahead rather than looking over their shoulders or plotting a move away at the earliest opportunity. 

Your retrenched employees may take some time to get back on their feet. When they do, they will likely stay in the industry, and may take a role with your clients, suppliers or regulators – you don’t want to burn bridges with these stakeholders. 

When the economy turns, and you want to pursue growth, these existing relationships with your employees can also help you hire quickly.

Apart from financing a responsible retrenchment exercise, there’s really no other downside. 

(Additional reporting by Dinesh Dayani)

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