27 May 2020

On 20 May 2020, the Tripartite Partners, comprising the Ministry of Manpower (“MOM”), the National Trades Union Congress (“NTUC”) and the Singapore National Employers Federation (“SNEF”), issued the “Advisory on retrenchment benefit payable to retrenched employees as a result of business difficulties due to Covid-19” (“Advisory”). With the Covid-19 pandemic causing business difficulties for many employers and putting employees’ livelihoods at risk, the Advisory provides guidance for employers and employees on the retrenchment benefit payable if retrenchment is inevitable. The Advisory also highlights the support available for retrenched employees and employers planning to undergo a retrenchment exercise.

1. Retrenchment should always be the last resort to manage manpower costs

The Advisory emphasises that retrenchment should always be a last resort for employers seeking to manage manpower costs. Manpower costs can be managed in the following ways:

  • Training grants and financial support from the Government: The Government provides a wide range of support measures, including training grants and financial support, to help employers manage their manpower costs. Under the Jobs Support Scheme (“JSS”), employers would receive four pay-outs in April, May, July and October 2020, with enhanced pay-outs in April and May at 75% of monthly wages. It was further announced as part of the Fortitude Budget on 26 May 2020 that the JSS will be extended by one month to cover wages paid in August 2020, bringing the total wage support under the JSS to 10 months. Employers should tap on the Government’s JSS to retain employees and provide them with baseline wages even when they are not working. This baseline wage, which may vary from company to company, should be mutually agreed upon between employers and their employees or unions, taking into consideration the level of Government support available and the financial position of the company.
  • Implementing cost-saving measures: Instead of retrenching employees to manage manpower costs, employers should consider implementing cost-saving measures as outlined in the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (“Tripartite Advisory on Managing Excess Manpower”) to save jobs.

Notwithstanding the various Government support measures, some employers may still have to carry out retrenchments to manage costs in the current economic climate, or to restructure their businesses. If retrenchment is inevitable, employers should provide retrenchment benefit depending on their financial position, as follows:

  • Employers in sound financial position: Employers who are in a sound financial position should continue to pay retrenchment benefit according to their existing employment contracts, collective agreements, memoranda of understanding, or the prevailing norms for retrenchment benefit (between two weeks’ and one month’s salary per year of service) stated in the Tripartite Advisory on Managing Excess Manpower.
  • Employers whose businesses are severely affected: 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.
  • Employers in severe financial difficulties: Where employers face severe financial difficulties and/or are on the brink of ceasing business, retrenchments may be necessary to keep their business afloat and to preserve some jobs. In such cases:
  • Employers that are unionised should negotiate with their unions for a mutually acceptable retrenchment benefit package.
  • 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, taking into consideration the JSS pay-outs that employers have received and their financial position.

2. Consideration for lower wage employees

In all cases of retrenchment, employers are urged to be more generous towards their lower wage employees (e.g. employees eligible for the Workfare Income Supplement), such as providing them with more weeks of retrenchment benefit pay-out per year of service or additional training grants.

Employers should also consider and assess all relevant factors carefully, including the impact of retrenchment on the livelihoods of the affected employees.

3. Support for retrenched employees

Employers should support their retrenched employees in seeking new employment, either through their business networks, or by referring them to Workforce Singapore (WSG) or Employment and Employability Institute (e2i) for employment facilitation.

Employers planning to undergo a restructuring and/or retrenchment exercise should also join NTUC’s Job Security Council (“JSC”), which offers support to both employers and displaced employees, such as outplacement services that match displaced employees to other employers within the JSC network.

Retrenched Singaporean and Permanent Resident employees who meet the eligibility criteria can also apply for the Covid-19 Support Grant and tap on the various training support grants.

4. Reminder to all employers

The Advisory reminds employers to ensure that their employees are treated with empathy and dignity and the retrenchment exercise is conducted in adherence to the Tripartite Advisory on Managing Excess Manpower, i.e. fair selection of employees for retrenchment, early consultation with unions, early communication to affected employees and employment facilitation for affected employees.

An employer must also notify MOM of the retrenchment exercise if the employer has at least 10 employees and retrenches five or more employees within any six-month period.

Reference materials

The Advisory is available on the MOM website www.mom.gov.sg or by clicking here.

Further information

Allen & Gledhill has a Covid-19 Resource Centre on our website www.allenandgledhill.com that contains knowhow and materials on legal and regulatory aspects of the Covid-19 crisis.

In addition, we have a cross-disciplinary Covid-19 Legal Task Force consisting of Partners across various practice areas to provide rapid assistance. Should you have any queries, please do not hesitate to get in touch with us at covid19taskforce@allenandgledhill.com.


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