Singapore: A Changing Paradigm in Redundancy and Reductions in Force

September 20, 2017

Recent changes in the notification and oversight process for redundancy and RIF exercises show the Ministry of Manpower’s strengthened commitment to employee rights.

Singapore has been ranked as one of the top three economies for “‘ease of doing business” for the past 11 years, according to the World Bank Group’s annual Doing Business reports. This is partly due to employer-friendly laws in Singapore; unlike some Asian countries, employment in Singapore is “at will,” and entitlement to severance or retrenchment benefits is not the norm.

However, this trend is slowly changing, beginning with the implementation and increased enforcement of guidelines on responsible retrenchment practices that came into force in 2008, and continuing with recent changes and revised guidelines from the Ministry of Manpower (MOM).

Mandatory Notification of Reductions in Force (RIF)

Since January 2017, companies with 10 or more employees retrenching 5 or more of their number have been required to inform the MOM within five working days from the time they inform employees of a planned RIF. This notification enables groups such as Workforce Singapore or the Tripartite Partners to become aware of a company’s planned RIF so that they might reach out to offer aid to affected employees. The notifications also make it mandatory to engage with the MOM once a retrenchment exercise is imminent—thereby quickly bringing the RIF under the MOM’s oversight. Companies that fail to comply with these mandatory notifications face penalties, including a fine not exceeding $5,000.

Retrenchment Benefits Not Legislated but Enforced

Since April 1, 2015, an employee who falls within Singapore’s Employment Act and who has been employed for at least two years can request retrenchment benefits if he or she is retrenched. However, there is no statutory basis prescribing the amount or calculation of such retrenchment payments/benefits.

The Tripartite Guidelines on Managing Excess Power and Responsible Retrenchment introduced in 2008 were revised in May 2016 to place stronger emphasis on responsible retrenchment practices. The policy underlying the guidelines seeks to strike a balance between employer needs and employee benefits.

While these guidelines are based on the prevailing market norm (with employers typically paying a released employee retrenchment benefits of two weeks’ to a month’s salary per year of employment), companies may choose to pay retrenchment benefits of any amount depending on industry norms and the company’s financial position. Per the Employment Act, employees with less than two years of employment are not entitled to any benefits. Of course, companies with retrenchment benefits stipulated in their employment contracts must still abide by such contract conditions.

In a survey released by the MOM last year, 90.6% of companies that underwent retrenchment exercises in 2016 paid out benefits. Minister for Manpower Lim Swee Say touted these figures in Parliament in April 2017, stating that 9 in 10 companies in Singapore had the “standard practice” of paying retrenchment benefits. However, the minister stopped short of advocating mandatory retrenchment benefits on the basis that it would rather have “flexibility to negotiate. . .rather than prescribing [mandatory retrenchment benefits] in the law.” This statement could be said to encapsulate the Singapore government’s recent thinking on retrenchment benefits.

Conduct of RIF Exercises Is Important and Overseen

In the aftermath of recent changes to the employment landscape, we have seen certain RIF exercises that have been better received by the general public and the MOM. Such RIF exercises were characterized by due care being paid to the multifaceted aspects of the RIF exercise—including timely notification to the MOM, valid justification for the exercise, payment of retrenchment benefits, efforts to re-deploy workers or support them with training, or other outreach efforts to enhance re-employability of employees affected by the RIF.

The MOM’s strengthened commitment to employee rights can be seen from its recent public censure of multinational and local firms that released workers under the guise of misconduct or poor performance rather than via a proper RIF exercise with notification to and oversight by the MOM. Mischaracterizing a RIF exercise as being the result of misconduct or poor performance by the individual employees is viewed as an improper, “back-door” means of trying to avoid paying out retrenchment benefits, providing adequate notice, or avoiding other obligations an employer may have to the released employees. The MOM views this approach as unfairly jeopardizing the affected employees’ chances of reemployment.

Employer Considerations

Companies considering RIF exercises should reach out early to legal counsel to assist in structuring a considered and responsible approach that is in line with the prevailing industry and regulatory expectations. Such considerations extend to deciding the quantum of retrenchment payouts; having strong exit procedures in place, including a release letter with key confidentiality and non-disparagement terms; and other aspects of the exercise, including the planning of the workforce to include no-pay leave and a communications plan for interacting with the authorities, with the press, and on social media.