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Labor and employment law challenges in business transformations

Singapore

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

The Employment Act (Cap. 91) of the Singapore Statutes (“EA”) is the main labor law in Singapore. It covers all employees who are under a “contract of service” with an employer except seafarers, domestic workers, managers and executives with a monthly basic salary of more than SGD4,500 and those who are employed by the Government or a statutory board. Foreigners who satisfy the criteria above will also be protected by the EA.

There is, however, no specific legislation in Singapore governing collective redundancy. The company must comply with the Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment (“Guidelines”). Although these do not have the force of law, there are still significant adverse consequences for breach.

Required legal justification

Legal justification for collective redundancy is strongly encouraged. However, there is currently no mandatory requirement for employers to justify any collective redundancy exercise that they wish to undertake.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

If the company is unionized, it is mandatory to notify the union in accordance with the terms of the collective bargaining agreement (CBA). Where it is provided in the CBA, the Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment state that the norm is that consultation should be done one month before notifying the employee.

The information provided to the relevant union will pertain to, among others:

  • The approximate number of employees being made redundant
  • The date of the intended redundancy exercise
  • Whether other alternatives to redundancy had been explored

The consultation aims at negotiating alternative employment or redeployment measures to limit the negative impact of the termination.

Further, under the Industrial Relations Act (Cap. 136) of the Singapore Statutes (“IRA”), the negotiations between the employees’ representatives and the employer must be undertaken in accordance with the IRA.

Consultation requirements with other employee representatives

There is no such requirement under the Singapore law apart from consultation with the relevant union.

Consultation requirements with employees

There is no legal requirement to consult with employees beyond their statutory notice period.

However, the consultation requirement will depend on the terms of the collective bargaining agreement (CBA). If the CBA requires a consultation process, under the Industrial Relations Act (Cap. 136) of the Singapore Statutes (“IRA”), negotiations, in the context of consultation, must be taken in accordance with the IRA between the employees’ representatives (and/or with the employees themselves depending on terms of the CBA) and the employer.

Further, companies are strongly encouraged to communicate the intentions for redundancy to their employees early and before the public notice of redundancy is given. This may include:

  • Explaining to the employees the business situation faced by the company resulting in the need for a redundancy exercise
  • Outlining how the redundancy exercise will be carried out
  • Elaborating on the factors that will be considered
  • Specifying the assistance being offered to those affected

Approval/notification of the labor authorities or other government authorities

It is mandatory for companies to notify the Ministry of Manpower (MOM) prior to any redundancy exercise. Notification to the MOM must be done within five working days after the impacted employees are notified. Employers who employ at least 10 employees are required to notify MOM if five or more employees are made redundant within any six-month period beginning 1 January 2017. The following information must be provided to MOM:

  • Redundancy dates
  • Reasons for redundancy
  • Number of Singaporean, permanent resident (PR) and foreign employees made redundant
  • Profile of Singaporean and PR employees retrenched, such as age, occupation and education level
  • Details of severance benefits

This information must be disclosed as soon as possible prior to the redundancy to allow for time for the MOM to respond and dispense any advice if necessary.

This will enable Workforce Singapore and the tripartite partners (MOM, National Trade Union Congress and Singapore National Employers Federation) to do more for impacted employees, particularly in employment facilitation and support.

Employee selection criteria

There are no statutory requirements relating to the criteria for selecting employees. However, the Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment encourages that the selection of employees for redundancy should be based on objective criteria such as the ability of the employee to contribute the company’s future business needs and conducted fairly. There are also other guidelines that prescribe the need for fair and progressive workplaces that the company is encouraged to adhere to.

The following categories of employees benefit from a specific protection in case of termination:

  • The employment of pregnant employees may not be terminated during the pregnancy without sufficient cause.
  • Subject to certain criteria, employees nearing or above the age of 62 may not be terminated solely because of their age.

Actions required to limit the negative impact and social plan

Internal alternative employment/redeployment

  • Redeployment or rotation when the job scope is enlarged, enriched or restructured: There is no obligation to search for other available jobs within the organization for the impacted employees. This is merely a leading practice. When there is no other available job for them within the organization, companies can consider outplacing the impacted employees to suitable jobs in other companies, taking into account each employee’s physical and mental conditions, skill and experience.
  • Shorter work week, temporary layoff or other work arrangements: If a consultation is required by a collective bargaining agreement, workers and trade unions (if workers are unionized) should be consulted on the implementation of a shorter work week, temporary layoff, flexible work schedule or other flexible work arrangements, in any appropriate order, as well as the level of payment to be given to the affected workers. The performance and financial position of the company shall be taken into consideration for such arrangements.
  • Flexible wage system: If the company has in place a flexible wage system and a reduction in manpower cost is required to avoid redundancy, the company may consider adjusting the various wage components in consultation with the union or workers concerned.

Other measures
Employers can work with the unions, Singapore National Employers Federation (SNEF) and other agencies such as Workforce Singapore and the Employment and Employability Institute to provide employment facilitation services to assist the impacted employees.

Estimated timeline

The start of the process is the first legally required step (excluding preparation time) and the end of the process is the day the last employee is off payroll. The time taken to conduct the execution of a collective redundancy exercise is almost in parity with the time taken to terminate an individual employee in the same company. The duration is dependent upon the contractual terms and the minimum notice periods under the Employment Act (Cap. 91) of the Singapore Statutes (if applicable). In practice, the timeline will vary largely depending on the circumstances, and may take two months or even up to one year.

There is no statutory requirement to provide a longer notice period than that one contractually required. However, it is a leading practice under the Tripartite Guidelines on Managing Excess Manpower and Responsible Retrenchment to provide a longer notice period.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Any contractually required payments
  • Any expenses and social security payments calculated based on the final payments
  • Severance benefits (to certain employees who have served the company for at least two years) — however, the law does not specify the amount of such benefits to be paid out; this will be purely based on the contractual agreement

Customary additional costs

There is no customary additional cost in Singapore.

Hiring restrictions post-redundancy

There are no hiring restrictions in place post-redundancy in Singapore. Hiring of prospective employees is still subject to the standard restrictions imposed by the relevant statutes and the Ministry of Manpower.

Litigation risk

Employees who feel that they are not provided with their proper entitlements may make a claim and/or complaint against the employer.

It should be noted that besides the civil courts, there are three other avenues for recourse for employees:

  • Labor Court for employees protected by the Employment Act (Cap. 91) of the Singapore Statutes (for more information, see “Applicable legislation”)
  • Starting 1 April 2017, Tripartite Alliance for Dispute Management and Employment Claims Tribunal (ECT) for all employees; however, union members will enjoy additional remedies
  • Tripartite Mediation for Professionals, Managers and Executives for professionals, managers and executives who earn a monthly basic salary of up to SGD4,500, under certain conditions which will be simplified starting 1 April 2017

Interested parties

  • Impacted employees:
    • Where an employee considers that he or she has been dismissed without a just cause or excuse by the employer, the impacted employee may, within one month of the dismissal, make representations in writing to the Minister to be reinstated in his or her former employment.
    • The employees protected by the Employment Act (Cap. 91) of the Singapore Statutes, and managers and executives earning not more than SGD4,500 a month, will be able to seek recourse for unfair dismissal at the Labor Court. All other employees may initiate action before the civil courts. Employees who are union members may approach their union for assistance in submitting an appeal to the Labor Court on their behalf.
    • All employees will be able to seek recourse on salary-related disputes at the Tripartite Alliance for Dispute Management and Employment Claims Tribunal (ECT). It should be noted that the ECT does not have jurisdiction to hear cases relating to dismissal without just cause.
    • While the impacted employees can initiate an action in their own name, the court may order a joinder. A “joinder” refers to a situation where two or more persons may be joined together in one action as plaintiffs or as defendants with the leave of the court. Impacted employees who are considering commencing legal action will be subject to the Limitation Act (Cap. 163) of the Singapore Statutes (which is a general statute of limitation) that sets a six-year time limit on an action arising from a contract, starting from the date on which the cause of action accrued.
  • Union: Where there are disagreements between an employer and a union representing the impacted employees, the parties may jointly refer the disagreement to the Industrial Arbitration Court.

In Singapore, a dispute which has been lodged with the Ministry of Manpower will stop or slow down the collective redundancy process.

Damages and other remedies

An impacted employee may obtain damages and other remedies pursuant to contract law.

Damages for unfair dismissal/financial compensation
If the termination of an employee is deemed without just cause in the Labor Court, in addition to potential reinstatement, the Labor Court may order the employer to pay the impacted employee an amount that is equivalent to the wages that the impacted employee would have earned had he or she not been dismissed by the employer or alternatively, direct the employer to pay such amount of wages as compensation as may be determined by the Labor Court.

In practice, as long as the employees are provided with their statutory and contractually entitled payments, it is unlikely that the Labor Court will order for reinstatement or compensation.

Reinstatement
Where an employee considers that he or she has been dismissed without just cause or excuse by his or her employer, and makes representations in the Labor Court to be reinstated in his or her former employment, the Labor Court may inquire into the dismissal.

If the Labor Court is satisfied that the impacted employee had been dismissed without just cause or excuse, notwithstanding any rule of law or agreement to the contrary, the Labor Court may order reinstatement and compensation as determined by the Labor Court (for more information, see “Damages for unfair dismissal/financial compensation” under “Litigation risk”). However, in practice, this is uncommon.

Criminal sanctions
Failure to notify the Ministry of Manpower prior to any redundancy exercise and within the required timeline is an offence and companies may be liable on conviction to penalties, including a fine not exceeding SGD5,000.

Country-specific issues

There are no specific issues to Singapore.

Contact

Primary Contact for Singapore Labor and Employment Law

Jennifer Chih
PK Wong & Associates LLC
+65 6827 5552

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Singapore
SG

Contacts