How to Handle Retrenchment in Singapore: Questions and Answers

Retrenchment Singapore rules regulations and obligations

In Singapore, retrenchment could be defined as the termination of a permanent or contract employee’s employment due to redundancy or reorganization of the employer’s business.

This most often occurs when a company undergoes significant structural changes that may result in a reduction of the workforce. In addition, some downsizing may also result from a merger, liquidation, or receivership.

Obligations to the MOM when retrenching employees

The Ministry of Manpower (MOM) has put in place a safeguard to protect dismissed employees. The latter imposes an obligation on companies with more than 10 employees to notify MOM of the dismissal of each employee within five days of the notification of the dismissal to each employee.

Employers are thus obliged to indicate whether redundancy payments have been made and/or whether other forms of non-monetary assistance have been provided.

If the employer is a small company with fewer than 10 employees, notification to MOM is not compulsory. However, employers are still encouraged to notify MOM because doing so would allow the Tripartite Advisory on Managing excess Manpower and Responsible Retrenchment to help the affected employees find employment or relevant training.

Are retrenchment benefits mandatory in Singapore?

In Singapore, unlike most Southeast Asian countries, retrenchment benefits are not mandatory.

The Employment Act merely states that employees who have worked for an employer for less than two years are not entitled to any severance payment. This provision thus allows for the assumption that employees who have worked for at least two years or more may be entitled to retrenchment benefits. Unfortunately, the Employment Act does not specify the amount of the retrenchment benefits.

If the employment contract expressly provides for the amount of severance pay, the employer is obliged to comply with it. If the employment contract does not contain such details, the parties involved must negotiate the amount.

The Tripartite Advisory on Managing excess Manpower and Responsible Retrenchment is increasingly encouraging employers to pay employees retrenchment benefits.

The common practice is to pay two weeks to one month of seniority. This guideline can be deviated from, depending on the company’s financial situation and industry practice.

The Tripartite Advisory encourages employers to offer employees with less than two years’ service a retrenchment payment out of goodwill.

Although the Tripartite Advisory is not legally binding, employers are strongly advised to comply with it. Employers who refuse to do so are subject to administrative sanctions such as fines and reduction of work card privileges.

How should retrenchment be conducted?

If redundancies are economically necessary, employers must ensure that they are carried out in a way that is sensitive, non-discriminatory and fair to employees.

In this case, employers should, where possible, allow employees to serve their notice period to allow the employees concerned to seek alternative employment. In addition, employers could also consider extending the notice period to give the employee more time to find a new position.

Alternatively, employees can be placed on garden leave during the notice period, allowing them to remain in their jobs while they look for new employment.

The Tripartite Advisory encourages employers to help their employees find alternative employment, whether by providing positive references or outplacement.

Recourse for retrenched employees

In any case, employees who have been dismissed without retrenchment benefits should try to negotiate with their employers.

Otherwise, they have the possibility to file a claim or go through mediation at the Tripartite alliance for Dispute Management (TDAM), which helps employees resolve employment disputes.

If the dispute remains unsolved despite the assistance of TADM, the claim can be resolved at the Employment Claims Tribunals or to the civil courts.

If you appreciate our content, you will also appreciate our other articles:

MyBusiness in Asia can assist you in your next career plans that involve setting up your next company in Singapore! Discuss with us now of the options available for you to continue stay, live and work in Singapore.

KYC regulations due diligence requirements for your business Singapore