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Guidelines for Termination or Retrenchment of Employment in Singapore
The termination of employment relationship occurs for many reasons, be it due to voluntary agreement between both parties (employer and employee), or by dismissal with (or without) termination notice. For dismissal cases, the employer has to make sure the dismissal decision is made without violating certain preconditions for the MOM termination to be legitimate and reasonable. In general, the termination of employment relationship can be done easily by terminating the employment contract, by either the employer or the employee. However, no matter which party initiates the termination of employment, both employer and employee must understand that the action of employment termination is legally warranted by employment contract where each party has its own rights, duties, and responsibilities.
As such, any employment termination must abide by the terms and conditions as stipulated in the employment contract. There are things/factors to consider while weighing the decision of an employment termination – to make sure the decision and action are reasonable and legitimate:
- Conditions that allow the termination of employment contract
- The right timing to initiate the employment termination
- Termination notice required (as stipulated in the employment contract)
- Termination payments required (as stipulated in the employment contract)
Legislation that Governs Employment Termination in Singapore
The principal statute that governs employment termination is the Employment Act of Singapore. Every employment contract must have an employment termination clause with the clearly defined rights, duties, and responsibilities of both employers and employees on the matters.
Scope of the Legislation
Employment termination guidelines, as outlined in the Employment Act, apply to employees who are protected under the Act. Employment Act covers all employees (except domestic workers, seamen and most Government staff). For those who are not covered by the Employment Act, their employment termination guidelines will be drafted according to company policy as well as the mutual agreement between both parties at the time of employment (these guidelines usually correspond to the stipulations in the Employment Act).
Terminating Employment Contracts
As mentioned above, either party in the employment relationship (be it the employer or employee) can terminate the employment contract with or without termination notice or salary in lieu of notice. In the case of natural termination, the requirement of MOM notice periods is not applicable in employment termination.
Instances that Lead to Employment Termination
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Unsatisfactory Probation Period
Like many countries, employees in Singapore will have to go through the probationary period (Singapore probation period) (ranging from three to 6 months). Employees will receive employment confirmation as the permanent staff upon the successful completion of probationary period. Having said that, the employer has the right to terminate the employment before the probationary period (probation period in Singapore) ends, either by giving notice (as stipulated in the employment contract) or by paying salary in lieu of notice.
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Breach of Employment Contract
A. By Employee
In the case of contract breach by employee, the employer can choose to terminate the employment contract. Precisely speaking, a contract breach happens when the employee does not show up for work for more than two consecutive working days without his or her employer’s approval, or he or she fails to notify the employer of such absence. Therefore, the employer has the right to terminate the employment contract without giving notice nor paying salary in lieu of notice to the employee.B. By Employer
This is the opposite situation as compared with previous paragraph. An employee has the right to terminate the employment contract if the employer breached the contract.In most cases, the employer is said to have breached the contract when the said employer fails to pay the employee’s salary within stipulated timeline (the common practice is seven days after salary is due), or requires the employee to do work that is not within the terms of the contract of service and the extra assignment is said to be risky and unsafe.
Therefore, the employee can terminate the employment contract without giving notice to the employer nor paying salary in lieu of notice.
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Employee Dismissal
A. Dismissal Due to Misconduct
An employee can be dismissed from his or her work on the ground of misconduct. In other words, the employer has the right to terminate the contract without giving any notice or paying salary in lieu of notice. Misconduct, as the name implies, happens when an employee could not fulfil his or her conditions of employment.Usually, the employment contract will outline the incidence/examples/actions that amount to misconduct which include the following:
- Offence of unauthorised possession of company’s properties,
- Abusive behaviour,
- Insubordinate behaviour,
- Negligence behaviour that poses threat on safety and security
B. Dismissal Due to Non-misconduct Reasons
Employee dismissal could also happen on the ground of other than misconduct, for example, poor job performance, prolonged sickness, individual incapacity that has negatively affected the employee’s daily job performance, incompatibility with other employees and etc. That said, the dismissal decisions should be taken into action only after careful thought and after sufficient warnings have been given to the said employee.In this case, the employer has to either provide due termination notice or pay salary in lieu of notice to the employee.
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Employee Transfer
Employee transfer will lead to the termination of employment contract by a current employer (who intends to transfer his or her employees to another employer, be it a subsidiary, or associated company, or an unrelated company).
Many times, employee transfers happen due to mergers, acquisitions, sale of a part of a company, or setting up a subsidiary company.
In the case of employee transfers, all employers (who are transferring employees) have to notify the transferred employees of such a decision, update employees on the terms of transfer, and make sure that new terms of employment are reasonable (not less favourable than current terms). Any dispute or disagreement occurred between both parties (the transferred employees and new employer) could be referred to the Commissioner for Labour.
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Retirement
In Singapore, the retirement age is 62 years old. Employers could opt to terminate the employment contract with the retiring employees by giving the said employee advance notice (as stipulated in the contract). According to the Employment Act, an employer does not need to pay retirement benefits to an employee, unless it is stated in the employment contract.
The new Retirement and Re-employment Act has stipulated that employers must offer re-employment to eligible employees (who turn 62, the statutory retirement age) up to the age of 65. One point worth noting is that the Singaporean law does not prescribe compulsory retirement. In addition to that, the employee at his or her retirement age could continue to work, as the law does not dictate the cessation of employment beyond statutory retirement age.
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Retrenchment
Retrenchment in Singapore is the termination of employment on the ground of redundancy, be it due to the redundancy of an employee’s position, or the redundancy of headcount. Retrenchments always take place when a company decides to cease the company’s operation, or is having a massive restructuring, or is selling a portion of its business. No matter what the reason is, all employers in Singapore are advised (and expected) to manage the retrenchment matters wisely and responsibly, especially if the company is unionised.
A. Retrenchment Notice
Despite not compulsory, it is advisable to all employers to notify the Ministry of Manpower of any retrenchments. On top of that, employer must give retrenchment notice to the affected employees – the notice duration should be aligned with the contractual terms that have been mutually agreed upon. If there is no notice period being previously agreed upon, the Employment Act stipulations apply.B. Retrenchment Benefits
As the name implies, an employee who lost his or her job due to retrenchment in Singapore (applies to those who have been serving a company for at least three years) should be compensated with some retrenchment benefits.The Employment Act does not stipulate the nature or amount of such retrenchment benefits. In other words, the retrenchment benefits are made on the ground of the mutual agreement between the employee and the employer. In Singapore, the common practice is employer will pay the retrenched employee between 2 weeks’ to one month’s salary per year of his or her service. Although the Employment Act has stipulated that an employee who served less than three years in a company will not be entitled to retrenchment benefits, the company can offer an ex-gratia payment (depending on its financial situation).
Central Provident Fund (“CPF”) contributions are not applicable for retrenchment benefits and ex-gratia payments, and the retrenchment payments are not taxable. Having said that, salary in-lieu of notice and gratuity for past services are liable to tax under the Singapore Income Tax Act.
On a final note, retrenchment in Singapore should be as the last resort because the company can always adopt some different alternatives to resolve the issues, e.g. implement a shorter work-week (shorter working hours/duration), temporary lay-offs, flexible work arrangements as well as opt to reassign the manpower to other country or areas of work.
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Resignation
Staff resignation happens all the time and the employer cannot reject an employee’s resignation letter in Singapore. When an employee resigns from his or her company, the employment contract is terminated automatically.
An employee can submit his or her resignation letter and tender resignation by giving notice or by paying salary in lieu of notice. The notice period (that to be served) is as stipulated in the employment contract. If the employment contract does not outline the resignation terms (i.e. notice period), the Employment Act stipulations apply.
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Natural Termination
A. Expiry of a Fixed Contract
This usually happens when a company engage contract staff or the employment is on the contract basis. The contract will be automatically terminated when the contract expires.If an employer intends to continue the contractual employment relationship (engage the service of the employee for a prolonged period or for another project), both parties have to enter into a new employment agreement.B. Death of Either Party in the Employment Relationship
The death of an employee will automatically end the employment contract. In the event that the employer is the sole-employer, his or her death will terminate the employment contract automatically.
Termination Guidelines
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Termination (With Notice Period)
As mentioned earlier, either party (the employer or employee) who intends to terminate the contract must give written notice to the other party where the notice period must be as stipulated in the employment contract (please note that the day on which the notice is given is inclusive in the notice period).
If the employment contract does not outline the notice period, the following MOM notice period applies:
- Employment length of less than 2 weeks : a 1-day notice period
- Employment length of 26 weeks but less than 2 years : a 1-week notice period
- Employment length of 2 to 5 years : a 2-week notice period
- Employment length of 5 years and above : a 4-week notice period
However, the notice period is waivable if both parties mutually agreed on the matters.
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Termination (by Paying Salary in-lieu of Notice)
Salary paid in lieu of notice by either party is not applicable to CPF contributions.
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Employment During Notice Period
The employee cannot commence work with his or her future employer while serving the notice period. It is because both parties are still legally bound by the employment contract. Both parties must discharge their responsibilities duly until the notice period ends.
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Offsetting Notice Period With Annual Leave
The employee can opt to offset the notice period with his or her annual leave (choose not to annual leave encashment). In this case, the employer will not pay for the annual leave (annual leave encashment) that has been used to offset the notice period (or the remaining of notice period).
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Annual Leave Taken During Notice Period
Taking annual leaves while serving notice period is different from offsetting notice period with annual leave. An employee can certainly use his annual leave during the notice period where he will receive his salary for the full notice period. However, it is important to note that the terminated or resigned employee can only join the new company after his or her notice period ends.
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Sick Leave During Notice Period
Any paid (or unpaid medical leave) applied during the notice period should be treated as part of the notice period.
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Maternity Leave and Termination
An employee who is on her maternity leaves cannot resign from service by using the maternity leave period as the notice of termination. Meanwhile, the employer is not allowed to dismiss an employee (who is on maternity leave), or the employer will be slapped with penalties if it violates the law.
In the event the employee is dismissed without sufficient cause within 6 months of an employee’s confinement, or the employee is retrenched within 3 months of her confinement, the employer have to pay maternity benefits to the affected employee. Please note that the maternity benefit is not part of the retrenchment benefit but an addition of it.
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Childcare/Infant Care Leave and Notice Period
An employee is prohibited to offset his or her notice period with the childcare/infant care leave.
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Appeals Against Dismissals
In the case of unfair dismissal, the affected employee can make an appeal in writing (within one month of his dismissal) to the Minister for Manpower. If the unfair dismissal is proved true, the Minister has the right to either order the employer to reinstate the employee and compensate him for the period he was dismissed, or to pay compensation.
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Employment Termination and Foreign Employees
Cancellation of Employment Pass/S Pass on Termination of Employment
The action of employment termination of foreign employees will lead to the cancellation of an Employment Pass or S Pass (the Employment Pass/S Pass will be cancelled within seven days of employment termination). A short-term visit pass of 30 days will then be issued upon cancellation. Please note that all other passes related to the main pass will be cancelled once the main pass is cancelled. The Employment Pass/S Pass holder and his or her related pass holders should not remain in the country after the date of employment MOM termination unless he or she has been issued an alternate valid visa.
Tax Clearance of the Foreign Employee
When the employment contract of the Employment Pass/S Pass holder is terminated, tax clearance is needed to make sure that the said Employment Pass/S Pass holder has paid all taxes. In this light, the employer has to notify the tax authority (IRAS) and withhold all payment due to the foreign employee from the day he or she resigns or when the employer decides to terminate the employment relationship. The employer can then release all payment due to the employee after the IRAS did an assessment and issued a tax clearance certificate.
