Retrenchment Brings Few Benefits to Employer and Employee

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Home > Articles > Retrenchment Brings Few Benefits to Employer and Employee

 Retrenchment Brings Few Benefits to Employer and Employee

Tan Chee Teik | Today's Manager
March 1, 2018

With business disruptions, retrenchments will be common practice in Singapore. It is a sad parting of ways between employers and employees. No matter how loyal and skillful an employee is, it is the bottom line that matters to management.

Retrenchment is also known as downsizing, restructuring, or delayering. Over the years, companies may have been bloated in personnel but with business disruption, they are forced to trim the fat of inefficiencies from their ranks.

Effects of Retrenchments
To many employees, retrenchments can be a shocking experience. Some time ago, when the multinational electronics companies decided to move from their Singapore plants to countries with lower wage bills, assembly-line supervisor, Mr Thomas Lim, who was starting a family, was among the unfortunate ones to be retrenched. He bitterly said: “I’ve been a loyal worker for 13 years and now they let me go without a job in hand. I will never join another electronics company again in this life.”

For some workers with many years of service in the company and are well-compensated when they are retrenched, it could be a blessing in disguise especially if they are over 50 years of age. With the lump sum received, they could start a small business to while away the last years of their working life. It is only fortunate for them if they have paid up their mortgage and have enough to see their children through university.

Business disruption affects the large retailers such as Courts Singapore. On 9 November 2017, it announced the launch of its redesigned megastore at Tampines. There will be sections where customers can experience the products and visualise them in a living space. The relaunch comes as consumers are increasingly shopping online and many go to the brick-and-mortar outlets to view the products before buying them online from another company. Courts’ staff were not retrenched. However, staff at Audio House were not so fortunate: the firm closed its large flagship store in Liang Court in August 2016 and downsized to just one outlet in Bendemeer Road. It reduced its retail space from 50,000 square feet to 15,000 square feet. Its store in Bendemeer Road will operate without any cashiers. Instead, customers will have to scan a QR code of the product they want to purchase, using their smartphones and any QR code scanner app, which will then take them to Audio House's E-commerce platform to complete their purchase.

Elsewhere, Danish toymaker LEGO announced in September 2017 that it would slash its global workforce by eight per cent owing to a drop in sales in the United States and Europe. In December 2017, General Electric (GE) said it will retrench more than 12,000 blue- and white-collar jobs in its GE Power unit. The layoffs will help reduce overall structural costs by US$3.5 billion (S$4.7 billion) in two years.

The Ministry of Manpower defines retrenchments “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”.

Many employers retrench staff in order to reduce the amount of corporate expenses. It usually cuts back on certain products or services it used to offer, and reducing the number of branches it has. The reduction in personnel could also be the trimming of head counts because the company has implemented the use of robotics for more efficient production.

Layoffs are different from retrenchments. Some companies resort to layoffs because of business slowdown. They hope to get back those laid off when business picks up again. A company layoff involves the cessation of employee benefits such as salary or wages. The laid-off employees are given compensation and are told that they will resume work as soon as production resumes to its previous levels. Retrenchment is more severe—it means the parting of ways between the two parties.

Retrenchment Gone Wrong
There has been much disruption in the media business worldwide in recent years and the magazine and newspapers publishers in Singapore are not immune. The Singapore Press Holdings (SPH), who has the monopoly of the daily newspapers in Singapore decided in October 2017 that some cuts would have to be made “to establish a leaner, more focussed, and more viable team of employees”. The headcount would be reduced by 230 which included 130 across SPH with the remaining 100 from reductions due to retirement, termination of contracts, and roles that will be cut as a result of restructuring.

The thankless task of management individually meeting those affected to break the sad news was made more difficult when those affected were prematurely locked out of the editorial system before management could speak to them. In an open letter in the Sunday Times of 22 October 2017, editor-in-chief Mr Warren Fernandez wrote: “It was not the way we had intended for things to play out. My senior management colleagues and I took reponsibility, and apologised to all concerned for the pain this caused.”

Other human resource managers in companies that have a retrenchment exercise can take a lesson from the SPH incident. There must be detailed planning in such a sensitive exercise to ensure that nothing embarassing happens and that the retrenched staff and those lucky enough to remain do not suffer.

Motivating Employees Who Remain
Many companies invest their efforts in helping the retrenched employees get another job elsewhere. This is ethical and positive, especially when they have many mouths to feed. Remember that your employees who survived the exercise are watching in case their turn comes on another occasion.

Human resource has to look into the needs of those who remain. They need to boost morale and repair the damage to workplace trust.

When a company needs to reduce the size of its workforce, outplacement services by external experts can help strengthen the bond between the firm and departing employees. The act of showing its commitment to their long-term career prospects will be much appreciated. By providing outplacement services, the firm shows the affected employees that it has faith in their skillsets and experience, and wants to ensure their employability elsewhere long after they leave the company.

Outplacement services may include workstations for employees so that they have an office to report to. There will also be experts to help them polish up their application letters and their career skills.

Beware of Non-competing Clause
When one is offered an employment contract, all too often one is eager to sign it as soon as possible without reading the fine print. Years later, when the person is retrenched, they find that they cannot use their skills in another company as their former employer can sue.

A non-compete clause is a clause under which an employee agrees not to enter into or start a similar profession or trade in competition against the employer. This is to prevent the employee from assisting a competitor to get trade secrets or sensitive information such as business plans or client lists. Usually the clause contains reasonable limitations as to the geographical area and time period in which an employee of a company may not compete. But Singapore is a small island and Southeast Asia has limited job opportunities for certain professions so the retrenched employee suddenly finds that he/she cannot find another job in the same business.

In a newspaper advertisement, the Tripartite Alliance for Fair and Progressive Employment Practices, (Tafep), and the Tripartite Alliance for Dispute Management, (TADM), warn employees to: “Read before you sign. Look for these key terms in your employment contract: annual leave, medical benefits, public holidays, salary payment, and termination of employment”. They have conveniently left out the important non-competing clause.

In response to the comment in the previous paragraph, Tafep would like to clarify “that such campaign ads targeted at the masses have to be succinct. The five key employment terms listed in the ad (annual leave, medical benefits, public holidays, salary payment, and termination of employment) are the basic ones which apply to almost all employees.
“It is inaccurate to say that Tafep had conveniently left out the ‘non-competing’ clause. Such clauses are specific to certain industries and do not apply to the masses. However, for employees whose contracts have non-competing clauses, TAFEP encourages them to read these clauses thoroughly and seek clarification if anything is unclear.”


Mr Tan Chee Teik is a freelance journalist. He is a regular contributor to M360 and Today’s Manager.

Copyright © 2018 Singapore Institute of Management

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Today's Manager Issue 1, 2018

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