The recent round of layoffs at e-commerce giant Lazada caused a minor stir in Singapore and triggered a number of media reports reflecting on the rights of the employees in a retrenchment exercise. The conduct of the Lazada retrenchment itself, while criticised for being impersonal and lacking empathy, was not dissimilar to many other retrenchment exercises conducted by other companies – workers were not given advanced notice of the layoffs, they were only informed in hastily arranged meetings on the night before the retrenchment and the layoffs were deep and across many departments. Unfortunately, this was not an isolated incident and layoffs from employers, particularly in the tech sector, started in 2022 and have continued into 2023.
While there were more than 200 retrenchment notices in the first six months of 2022, it increased to 1,270 from July to mid-November in 2022. According to the labour market report for the third quarter of 2023 published by the Ministry of Manpower (MOM) on 14 December 2023, the number and incidence of local retrenchments had both increased in 2023, from 3,200 in the second quarter of 2023, to 4,110 in the third quarter of 2023 as more firms undertook reorganisation or restructuring activities or faced business and costs concerns. Lazada themselves undertook a smaller-scale retrenchment exercise in 2022 which did not attract intense media scrutiny.
The stark difference in this case, however, is the reaction of both the National Trades Union Congress (NTUC) and their affiliated union Food Drinks and Allied Workers Union (FDAWU). In a joint statement on 5 January 2024, the unions said that they are “extremely disappointed” with the actions of Lazada in carrying out the retrenchment without notifying FDAWU, and that “it is critical for companies to work with their union to ensure that a fair and equitable process was carried out to safeguard the interests of all workers, especially our Singaporean core”.
It is interesting to note that notwithstanding the quick and decisive actions of the unions in condemning the actions of Lazada and referring the matter to the MOM, there is no actual legal requirement for Lazada to notify the unions on its retrenchment exercise. In response to the joint statement from the unions, Lazada apologised for not consulting the union (again, not a legal requirement under Singapore law) and agreed to cooperate with the union and work together in the best interest of the workers. According to another statement issued by the unions on 6 January 2024, Lazada had offered the affected workers retrenchment benefits of two weeks’ salary for every year of service, which is within the recommended range of between two weeks’ and one month’s salary, but the unions said that they will negotiate for additional benefits for the affected workers, as they find the current retrenchment package “unsatisfactory”.
These actions are significant in that the unions have not previously intervened in a company’s retrenchment exercise to such an extent. What is more remarkable, is that at the time of writing this article, Lazada does not have an existing collective agreement certified by the Industrial Arbitration Court, but it has not stopped the unions from asserting that Lazada is unionised and that they should be consulted on the retrenchment exercise.
Regulatory framework in Singapore in relation to retrenchment
In Singapore, section 45 of the Employment Act 1968 of Singapore (Employment Act) provides that no employee who has been in continuous service for less than two years will be entitled to any retrenchment benefit. However, there is no definition of either “retrenchment benefit” or “retrenchment” in the Employment Act. According to the Tripartite Guidelines on Mandatory Retrenchment Notifications (the Guidelines) issued by the Tripartite Alliance Limited (comprising the tripartite partners MOM, NTUC and Singapore National Employers Federation), “retrenchments are defined as dismissal on the ground of redundancy or by reason of any reorganisation of the employer’s profession, business, trade or work. This applies to permanent employees, as well as contract workers with full contract terms of at least six months. An employer who terminates an employment contract with no plan to fill the vacancy any time soon is presumed to have retrenched the employee”. Based on the Guidelines and the FAQs on the website of Tripartite Alliance for Fair & Progressive Employment Practice, there would be a presumption of retrenchment if the employer cannot show a plan to fill the vacancy any time soon. The principles as elucidated in the Guidelines are not law, though employers are encouraged to adhere to the advisories as well as NTUC’s Fair Retrenchment Framework (Framework), which sets out the guiding principles for companies on responsible retrenchment practices. Other than the Guidelines and Framework, employers with at least 10 employees are required to notify MOM of any retrenchment exercise by submitting a notification within five working days after the affected employees are notified of their retrenchment. Employees who are retrenched include permanent employees as well as contract workers who have been employed by the company for at least six months.
Under the Guidelines, employers are encouraged to consider the following before they embark on a retrenchment exercise:
- Consider all other options and exhaust them before undertaking retrenchment. These options include redeployment of employees to alternative areas of work within the company or to other companies, implementing alternative work arrangements such as part time work, sharing of jobs, shorter work weeks or temporary layoffs etc. so as to reduce costs to the organisation, making direct adjustments to wages upon agreement with employees, or allowing workers to go on no-pay leave.
- Provide retrenchment benefit depending on the company’s financial circumstances at that point in time. It was illuminating to note that industry observers pointed to the strong financial performance of Lazada and that other companies have given higher severance packages as reasons for why the two weeks’ salary for each year of service are deemed to be below market standard. Companies are also encouraged to go beyond advisory assistance and make practicable efforts to place retrenched workers in their next jobs by engaging with external agencies such as Workforce Singapore, Employment and Employability Institute, Job Security Council and U PME Centre to provide employment facilitation services to the retrenched workers.
- If retrenchment is deemed to be inevitable, to undertake the retrenchment exercise in a responsible and sensitive manner, and to treat the retrenched workers with dignity and respect. The selection of workers to be retrenched should be objective, transparent to employees and consistently applied, and should not discriminate against employees or groups of employees. Employers, even if they are not unionised, should notify and consult with unions before commencing the retrenchment exercise, and communicate the news to the employees early and clearly. Good practices as highlighted in the Guidelines include:
- provide a longer notice period beyond what is statutorily or contractually required;
- prepare managers to notify employees in person and in a sensitive manner;
- allow human resource personnel and union representatives to address queries from retrenched workers and to maintain an open communication channel with affected employees;
- give affected employees the time and space to adjust to the news before requesting them to vacate their workplaces; and
- be sensitive to the emotional needs of the affected employees.
In addition, the Singapore Government has also announced that they will be introducing a new scheme, which provides temporary financial assistance for retrenched workers so that they can focus on upgrading their skills for better long-term job prospects and to allow these workers to get back on their feet quickly. The details of the scheme have not yet been announced but are expected to be announced in the upcoming Budget 2024.
The regulatory framework in Singapore, save for the mandatory notification to MOM, is generally voluntary and not binding upon employers. However, the recent Lazada retrenchment has shown that while there are no legal requirements to do so, it would be prudent to engage with the unions in any retrenchment exercise as they have shown a willingness to intervene on behalf of the retrenched workers and to directly negotiate severance terms with the employer. These actions, together with the upcoming temporary financial support scheme, represents a significant shift in approach taken by the Singapore Government, which have traditionally been reticent in handling payouts to unemployed workers.
If you are considering a possible retrenchment exercise and wondering how to effectively conduct the exercise, or would like to have a chat to find out more, please contact our Singapore-based colleagues Vincent Tan and Prashaanth Rajandran, working in the offices of JurisAsia LLC with whom Gowling WLG has an exclusive association.
Vincent is a corporate lawyer specialising in mergers and acquisitions, cross border investments, and other general corporate and commercial matters.
Prashaanth is a corporate associate and his primary areas of practice include mergers and acquisitions, joint ventures, employment and regulatory.