Responses by Manisha Rai, associate, Colin Ng & Partners
The answers to these questions cover the position under the Employment Act of Singapore and outside the act. The definition of an “employee” under the act excludes employees in managerial or executive positions. Part IV of the Act which provides for, amongst others, payment of retrenchment benefits, applies only to employees earning not more than S$2,000 basic monthly salaries. Generally, where the act does not apply, the terms of the employment contract will govern the employment rights.
Is there a requirement in Singapore for employers to legally justify redundancies and if so, what reasons do they need to provide?
Where the act applies and where the employer terminates an employee’s employment contract, whether or not with notice and whether or not by giving a reason, if an employee considers he has been dismissed without just cause or excuse, he may within one month of the dismissal make representation in writing to the Minister to be reinstated to his former employment. In this case, the Minister may enquire into the reasons for the dismissal.
Where the Act does not apply, the terms of the contract will govern whether it can be terminated without cause.
What is the statutory minimum notice period for redundancies (if any)?
In the case of employees outside the purview of the act, the minimum period of notice is dictated by the terms of the employment contract, which varies depending on the employer’s practice.
Under the Act, however, notice period is the same for both employer and employee and is again determined by any provision for notice in the contract. Unless the contract stipulates a longer period of notice, under the act the notice period varies with the length of service. The minimum notice period varies from one-day where the length of service is below 26 weeks to four weeks where the length of service is 5 years and above.
The Ministry of Manpower (“MoM”) of Singapore suggests that, as far as possible, affected employees should be informed of the impending retrenchment before notice of retrenchment is given.
What is the statutory minimum calculation for redundancy payments (if any)?
Employees under the remit of the act, who has been employed for less than 3 years is not entitled to retrenchment benefits on the grounds of redundancy or reorganisation of the employer’s business, although the employer may pay an ex-gratia payment at its discretion.
The MoM has indicated that an individuals employed for at least three years can request retrenchment benefits, although the law does not stipulate the quantum to be paid and the amount is subject to negotiation between the employee and employer and may take into account the employer’s financial position.
In the case of employees not covered by the Act, the employment contract would dictate the rights an employee has to retrenchment benefits and the calculation of redundancy payments. The Singapore court is not likely to recognise an implied term in an employment contract to make redundancy payment by reasons of the employer having paid retrenchment benefits previously. These benefits are payments the company would make on an ex gratia basis and no matter how many times previously the company may have given retrenchment benefits, that alone does not give rise to any legal obligation to pay retrenchment benefits. In the absence of any contractual provision, redundancy payments are entirely at the company’s discretion.
According to law, what are the main steps that employers must take during a redundancy process?
The MoM advises employers to carry out any redundancy process responsibly and, if applicable, in consultation with the union.
The MoM also suggests that as far as possible the affected employees should be informed of the impending retrenchment before notice of retrenchment is given. The notice must be provided in writing and the day on which it is given is included in the period of the notice. However, payment in lieu of notice is permitted. The employer is also advised to notify MoM of any retrenchments. The employer should pay all salaries, including unconsumed annual leave, notice pay, redundancy payments, to the employee on the date of termination or, if this is not possible, within 3 days of it.
Again, where the Act does not apply, the steps an employer must take during a redundancy process would be covered by the termination of employment clauses of an employment contract. This will include providing notice, or payment in lieu of notice and payment of salaries, accrued leave and other benefits an employee is entitled to under the contract (for example transport claims or other expense claims, bonus, ESOS) calculated up to the date of termination. In practice the employer may set out the terms of these payments in a termination agreement which may be agreed and negotiated between the employer and employee.
What are the consequences for employers who fail to comply with redundancy laws? What kind of compensation can employees claim, and is the amount capped?
Where the Act, if an employee believes he has been dismissed without just cause or excuse, he may, within one month of the dismissal, make representations in writing to the Minister to be reinstated. The Minister may direct the employer to (a) reinstate the employee and pay back wages referable to the time between termination and reinstatement or (b) pay as compensation an amount of wages determined by the Minister instead of ordering reinstatement. It would be prudent for an employer to anticipate this by ensuring that reasons for the dismissal are well documented and evidenced in line with modern HR practices for continuing employee appraisal.
Where the Act does not apply, the terms of the employment contract will determine whether it can be terminated without reason. If there is no contractual term permitting this (for example a provision for termination by notice), then the employer can terminate the contract without notice provided the reason is an act of the employee which amounts to a repudiation of the contract. Otherwise, if an employee is made redundant without a contractual entitlement, they may have an action for unfair dismissal. An employee who has been wrongfully dismissed will normally have to accept repudiation and sue the employer for damages. An employee who has been wrongfully dismissed is entitled to recover estimated pecuniary loss resulting from the premature termination of his service.
Statutory minimums aside, what is the standard practice for making redundancies and calculating payments at banks in your market?
The often stated common practice in Singapore in calculating redundancy payments is said to be to pay 1 month’s salary for every year of service. However this should not necessarily be regarded as a market practice, as each case will depend on the circumstances of the redundancy.