Employment Act changes to downsizing obligations: Are you prepared?

The HR teams of companies that may need to downsize or restructure should get their records up to date, an employment lawyer has said.

A change to the Employment Act that comes into force on 1 April this year means the retrenchment obligations of companies will change.

While employees now have to work for three years before being eligible for retrenchment benefits, that period will soon reduce to two years.

“The reduction in the non-eligibility period reflects the growing trend for shorter employment periods and is certainly something employers need to be cognisant of,” DLA Piper senior associate Katherine Chew said.

“Companies should ensure that their employment records are up-to-date so that HR personnel are aware of which employees have completed the two year service period at 1 April 2015.”

Chew said such updates should be carried out periodically regardless of the new requirements, as part of good human resources practice.

“This will ensure that companies are always aware which employees are entitled to retrenchment benefits and are better prepared to make such payments in the unfortunate event of retrenchment.”

Chew said that as Singapore’s economy is relatively healthy, the majority of employers and employees should not be affected.

“Currently no employee who has been in continuous service with an employer for less than three years is entitled to any retrenchment benefit on dismissal on the ground of redundancy or reorganisation of the employer,” she explained to HRD Singapore. “This period will shorten to two years from April of this year but this will only impact employers contemplating downsizing or restructuring,” she said.

Given the long lead-in time to the retrenchment non-eligibility changes, Chew says it is likely most companies are ready for compliance.

“The risk is low [of companies failing to comply] given that all changes to the Employment Act were widely publicized, and given the year-long delay to the change is ostensibly to provide employers with time to amend their employment and collective bargaining agreements to ensure that they comply. Further, the MOM has also highlighted the change clearly in the retrenchment section of its website.”