Retrenchment as the Last Resort: How to Do It Responsibly

The do’s and don’ts for employers when conducting retrenchment.

16 Jul 2024 Articles Retrenchment Best practices

Responsible Retrenchment

In the event that retrenchment is inevitable despite having considered or implemented the necessary cost-saving measures, how should employers do this in a responsible and sensitive manner?

Here are some do's and don'ts. 

Use Objective Selection Criteria 

Employers should ensure that the selection criteria used for retrenchment are objective, transparent to employees and consistently applied. The selection criteria should be based on ability, experience, and skills of the employee to support the organisation's sustainability, workforce transformation or the future business needs. Organisations should not discriminate against any employee on grounds of age, race, gender, religion, marital status and family responsibilities, or disability. 

Some organisations use performance as a criterion for retrenchment, but lack a fair and objective appraisal system with measurable standards for evaluating job performance. Regardless of whether performance is used as a retrenchment criterion, employers should ensure a proper performance management system is in place so that employees can be assessed on merit. Supervisors should also conduct regular and constructive performance reviews to enable employees to take steps to enhance their performance. All performance reviews should be documented and retained for at least one year. 

Note: While the selection of employees to be retrenched should be based on objective criteria with primary considerations given to employee merit and preserving skills to ensure business sustainability, employers should also take a long-term view of their manpower needs, including the need to maintain a strong Singaporean Core. Retrenchment should not result in a reduced proportion of local employees.

Engage in Early Communications and Provide a Longer Notice Period 

While most employees are aware of the current economic climate and understand why retrenchments may occur, organisations must ensure that this is conducted in a compassionate and sensitive manner. 

The lack of early communication and insufficient notice given is a typical complaint from retrenched employees. For instance, an established retailer that conducted a mass retrenchment exercise only notified its employees on the spot and gave them less than 24 hours to accept the retrenchment package. Retrenched employees were asked to pack their belongings immediately and escorted out by security guards. The lack of respect and late communications caught retrenched employees, many of whom were long-serving staff, off guard and gave them little time to react. 

Communications and the retrenchment process should not be treated as a procedural exercise. Communicate early to employees, the efforts to manage business challenges and the intent to retrench, before the public notice of retrenchment. This should precede the serving of a retrenchment notice to any individual employee, so they can be mentally prepared. In the early communications to all employees, employers should cover the following:

  • Explain the organisation’s efforts to manage business challenges, and the business situation faced by the company resulting in the need for a retrenchment exercise. 
  • Outline how the retrenchment exercise will be conducted.
  • Elaborate on the factors that will be considered.
  • Specify the assistance being offered to those affected.

As a good practice, employers should provide a longer retrenchment notice period beyond what is required under the Employment Act or contract so that retrenched employees have more time to prepare and look for alternative career plans. The letter to retrenched employees should:

  • Acknowledge the retrenchment. 
  • Accurately reflect the reasons for retrenchment.

If the job has become redundant, it is a retrenchment, and this should be reflected in the notification letter. 

In situations where job scopes have changed or expanded, employers should first consider if there are other options available (e.g. provide training to build up the employee’s skills and capabilities for the new role or look at redeployment opportunities for staff to other suitable positions within the organisation) before considering retrenchment. Employers should also plan ahead and offer guidance to assist employees to have a smooth transition. If other options have been considered but were unsuccessful, be transparent with employees to avoid misunderstanding. 

To ensure that the retrenchment is carried out in a respectful manner, and with compassion, employers should also prepare managers responsible for notifying employees of retrenchment on how to deliver the news in a sensitive manner. Have HR personnel and union representatives (if applicable) onsite to take feedback and address queries from retrenched employees, and give these affected employees the time and space to adjust to the news before vacating their workplaces. 

Provide Retrenchment Benefit (RB) 

The RB provided should be aligned with the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (TAMEM) and the Advisory on Retrenchment Benefit Payable to Retrenched Employees as a Result of Business Difficulties Due to COVID-19. Employers’ ability to provide RB would depend on their financial circumstances at the point in time. As far as possible, a reasonable sum should be provided to enable the affected employees to move on to new employment opportunities.

Employees with at least 2 years of service are eligible for RB, and those with less than 2 years’ service could be granted an ex-gratia payment. Always ensure that there is parity across different batches of employees to avoid any misunderstanding that the employer is being discriminatory.

Employers whose businesses are adversely affected or are in severe financial difficulties should discuss with the union (if unionised) or the employees to reach a mutually acceptable and fair RB package for both employer and affected employees. When communicating with employees, explain the organisation’s efforts to manage business challenges and the current financial position, to help them understand your business situation better.

Provide Job Support

Responsible employers should help retrenched employees look for alternative jobs taking reference from the TAMEM. Here is an example of how employers can go beyond advisory assistance and make practicable efforts to place retrenched employees in their next jobs. 

An IT firm that retrenched 95 employees due to restructuring provided its retrenched employees with an additional 3 months’ access to its Employee Assistance Programme after their last date of employment. Employees could also opt-in to keep their laptops to help them with their job search as well as access to the firm’s internal directory for resources on interview preparation and resume development. To ensure that retrenched employees continued to upgrade their knowledge and skills, the firm also provided them access to 6-months’ subscription to LinkedIn Learning and the courses available. 

In the event that a retrenchment is inevitable, notify the Ministry of Manpower early so that Workforce Singapore, the tripartite partners and other relevant agencies can help retrenched employees find alternative employment and/or identify relevant training to enhance employability. Administrative penalties may be imposed for late or non-notification. 

Unionised organisations should also notify the relevant union early, before affected employees are notified*. 

 * Where it is provided in the collective agreement, the norm is one month before notifying the employee.

Refer to the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment and FAQs for more responsible retrenchment practices, and use the checklist in Annex B as a guide on conducting retrenchment responsibly, if it is inevitable.

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