Singapore: What happens in a retrenchment?

By Seow Hui Goh, Natasha Cheng


This article discusses some of the viewpoints set out in the FAQ published in the Straits Times on 23 August 2020 on the subject "What happens if you are retrenched?" The FAQ has generated much interest among Singapore HR practitioners on the subject, as companies are increasingly compelled to tighten their belts in the current downturn.

"Is it really a retrenchment?"

The author of the FAQ cites the Employment Act for the definition of a retrenchment. 

Strictly speaking, the Employment Act does not contain a definition of "retrenchment". The author may have been referring to section 45 of the Employment Act, which provides that "No employee who has been in continuous service with an employer for less than 2 years shall be entitled to any retrenchment benefit on his dismissal on the ground of redundancy or by reason of any reorganisation of the employer’s profession, business, trade or work."

Although one could possibly extrapolate the meaning of "retrenchment" from section 45, it is actually not a definitional clause; rather, it concerns the question of eligibility for retrenchment benefits. In particular, the phrase "redundancy" used in section 45 remains, unhelpfully, undefined.

In our view, both employers and employees would benefit from a clear statutory definition of "redundancy". For example, in the UK, the statutory definition of redundancy is found in section 139 of the Employment Rights Act 1996 which states:

"For the purposes of this Act an employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is wholly or mainly attributable to-

(a)     the fact that his employer has ceased or intends to cease-
(i)     to carry on the business for the purposes of which the employee was employed by him, or
(ii)     to carry on that business in the place where the employee was so employed, or
(b)     the fact that the requirements of that business-
(i)     for employees to carry out work of a particular kind, or
(ii)     for employees to carry out work of a particular kind in the place where the employee was employed by the employer, have ceased or diminished or are expected to cease or diminish."

A statutory definition of "redundancy" will eliminate, or at least, mitigate the problem of disguised retrenchments.

"What happens to workers who refuse to take a pay cut to keep their jobs?"

The author of the FAQ also suggests an employer cannot retrench a worker who refuses to take a pay cut - to let the worker go, the employer has to abide by the conditions of the contract or the Employment Act, or both.

This is an unusual perspective for several reasons. First, it means that an employer has no incentive to avoid retrenchment by implementing pay cuts. Notably, the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (TAMEM) encourages employers to adjust wages in line with tripartite norms as an alternative to retrenchment. Second, such a worker may be worse off in the sense that he may not receive any retrenchment benefits if he is let go pursuant to contract.

In our view, an employer should not retrench the employee out of retaliation and solely on the basis that he refused a pay cut. 

In practice, workers who refuse to take a pay cut may reasonably expect retrenchment to follow, if after having assessed the employee's performance and role in the company and considering alternative cost-saving measures, the employer is still unable to keep up salary costs and avoid retrenchment altogether.

"Am I entitled to retrenchment payments?"

The author suggests that employees who are retrenched are statutorily entitled to retrenchment benefits if they have worked for more than two years with the employer.

The author may have been relying on section 45 of the Employment Act for his view.

On a strict interpretation of section 45, it does not provide that employees who have worked for more than two years are entitled to retrenchment benefits – it merely provides for the opposite scenario i.e. employees who have worked for less than two years are not entitled to retrenchment benefits. We do not think that one may infer from the wording of section 45 that employees who have more than two years' service have a statutory entitlement to retrenchment benefits. In our view, if Parliament meant to confer such a retrenchment benefit on this class of employees, it would have stated its intention in more direct terms.

Although it cannot be said that employees statutorily entitled to retrenchment benefits, employers are still encouraged to provide retrenchment benefits. The Tripartite partners have released and updated several advisories relating to the payment of retrenchment benefits in view of COVID-19. Most recently, the National Trades Union Congress (NTUC) also released a Fair Retrenchment Framework which will be incorporated into the TAMEM. The Bird & Bird employment team would be happy to work with you in navigating these issues and to develop best practices for managing retrenchments.

This article is produced by our Singapore office, Bird & Bird ATMD LLP, and does not constitute legal advice. It is intended to provide general information only. Please note that the information in this article is accurate as at 27 August 2020. We will continue to monitor the situation and provide updates on any changes as soon as these are communicated to us. Please contact our lawyers if you have any specific queries. 

COVID-19 English Read more