It was recently alleged that Surbana Jurong had failed to observe “due process” when carrying out its purported poor performance firing on 14 January 2017 affecting about 50 employees, with widespread suggestion that the “poor performance firing” was in reality a retrenchment exercise 1. Surbana Jurong is currently being investigated by the Ministry of Manpower ("MOM") following complaints against it by the affected employees, some of whom are members of the union. The Surbana firings draw attention to the growing pitfalls faced by companies when effecting employee terminations.
Disguising retrenchments in the name of poor performance
Companies in Singapore have frequently relied on their right to terminate under the employment contract; employment can generally be terminated by a company for any reason (whether it is the employees’ poor performance or cost-cutting), as long as it gives employees the notice required under the employment contract. A retrenchment exercise could, therefore, possibly be characterised as a termination for poor performance – for which no additional compensation beyond the employee’s notice period salary is payable.
However, as seen in the case of Surbana Jurong, companies may expect to face greater regulatory scrutiny over their reasons given for the termination. A company’s inability to justify its purported reason for termination may result in potential breaches of the Employment Act (e.g. dismissal without just cause or excuse). A company that erroneously characterises a retrenchment as “termination for poor performance” may also fall foul of the mandatory retrenchment notification requirement 2, which attracts penalties, including a fine of up to S$5,000.
This presents practical challenges for companies; for example, there may be situations where the reasons for termination are mixed, or where there is a lack of documentary evidence of the reasons for termination. The outcome of any MOM investigations in this regard is also likely to have an impact on employees not covered by the Employment Act ("non-EA employees") but who were affected in the same bout of “poor performance firings”; while non-EA employees do not generally have recourse to the MOM for employment-related claims, a finding by the MOM that the poor performance firings were, in reality, a retrenchment exercise may, in appropriate circumstances, give non-EA employees a legal basis to independently assert financial claims against the company.
The “due process” required in a retrenchment exercise
The case of Surbana Jurong is a reminder of the regulator’s firm expectation – despite the lack of retrenchment legislation – that any retrenchment exercise must be carried out in a fair, sensitive and responsible manner, in accordance with the updated Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment. Given the emphasis on “responsible retrenchment”, the concern is with the procedures leading up to and during retrenchment. This means that it would be advisable for companies not to trigger the termination clause in employment contracts on the grounds of retrenchment without first:
- applying fair and objective criteria in the selection of employees for retrenchment;
- communicating to employees their intentions for retrenchment as early as possible; and
- offering reasonable retrenchment benefits to the affected employees and/or outplacement assistance.
In light of recent regulatory and economic trends, companies in Singapore must ensure that their termination procedures are adequate and well-managed, in order to mitigate legal and reputational risks.
1. "Surbana says workers' dismissal 'could have been better managed'", The Straits Times (25 January 2017).
2. W.e.f. 1 January 2017, companies who have employed at least 10 employees and retrench 5 or more employees in any 6-month period must notify the MOM within 5 working days after they notify the affected employees.