Cost-Saving Measures for Employers and its Legal Implications in Singapore
With close to 200,000 confirmed cases across 140 countries and steadily increasing numbers every day, the coronavirus is undoubtedly one of the most severe public health threats that the world currently faces. In today’s inter-connected world, what was initially a brief moment of crisis in China has caused a ripple effect across the global economy — employers across various different industries are now forced with the harsh reality of a delicate balancing act between undertaking drastic cost-saving measures while simultaneously looking out for the long-term welfare of their employees.
B. Types of cost-saving measures
Against the backdop of the coronavirus pandemic, the Ministry of Manpower (“MOM”), National Trades Union Congress (“NTUC”) and Singapore National Employers Federation (“SNEF”) have come up with a series of guidelines, suggestions and measures for employers to adopt and consider. In particular, employers are encouraged to explore various alternatives to retrenchment and enforce essential short-term cost-saving measures before considering retrenchment as a last resort, in order to ensure that employers keep their businesses afloat with an eye to the bigger picture.
After receiving multiple enquiries from employers in Singapore on the different measures they can legally adopt in order to offset operational costs in response to a temporary decline in business activities, we have summarised some options for employers to consider as follows:
1) Implement a Flexible Work Schedule (FWS)
Employers can consider implementing a flexible work schedule or reduce working hours in order to help the company optimise the use of manpower in the company, as well as to help the company tide through peaks and troughs in manpower demands. Furthermore, FWS allows for employers to seek exemption from statutory provisions for work done on rest days, public holidays, and overtime payment rates. Employers that would like to adopt this option can make an application to the Commissioner for Labour via https://www.mom.gov.sg/eservices/services/apply-for-flexible-work-schedule — MOM has made certain exceptions to expedite the FWS application procedure by introducing a simplied application procedure for short-term approvals of up to 4 months.
2) Contingent workforce
Employers can consider making use of this opportunity to look to the long-term and begin building a pool of a contingent workforce consisting of self-employed consultants, contractors, agency workers and zero-hours staff. From our experience, such arrangements can be easily flexed upwards or downwards, and significantly saves employers many issues of observing stringent employment laws such as paid leave, overtime pay etc.
3) Temporary Layoff / Shorten Work Weeks
Employers can explore temporarily laying off of putting their employees on short-time working during this period in order to save operational costs for the business. From a legal perspective, a layoff is generally a period when an employer ceases to provide work and compensation to an employee temporarily, but both parties nevertheless treat the employment relationship as ongoing, with the understanding that the work/compensation may resume in the future. However, it is worthy to note that pay-off and short-time working can only proceed with the employee’s consent, and are also subject to various restrictions (as highlighted in our FAQ below).
4) Defer salary increases, bonuses or Annual Wage Supplements (AWS)
Coincidentally, the COVID-19 crisis is appearing at a time where most businesses are wrapping up their financial years, along with decisions on salaries and bonuses. In Singapore, it is rare from our experience for employees to have contractual rights to bonuses and pay increments — both of which are usually discretionary with key performance indicators attached, and often given on a goodwill basis. In cases of companies which are severely impacted by the COVID-19 crisis, a temporary reduction or freeze of salary increments, bonuses or annual wage supplements might be an option for employers to consider.
C. Frequently Asked Questions by Employers during COVID-19
1) Can an employer force an employee to adopt any of the cost-saving measures proposed by the employer?
In general, an employer and an employee are free to agree on the cost-saving measures offered by the employer. Employers are not allowed to unilaterally implement cost-saving measures without a clear contractual right to do so. The employer must also ensure that the employee consents to the measures and voluntarily adopts them before implementation, or the employer may potentially face claims for breach of contract, constructive dismissal and unlawful deduction from wages.
2) How can an employer carry out the implementation of the cost-saving measures without breaching the employment contracts with the employees?
An employer may set out an employee’s amended employment terms pursuant to the implementation of cost-saving measures in an additional offer letter to the employee. The supplemental offer letter should expressly set out that it supplements and/or varies the current employment contract with the employee. In cases where the cost-saving measures affect many employees across the board, the employer may opt instead to issue a standard supplemental letter to the affected employees for practical concerns. Given the current unprecedented circumstances, we recommend employers to seek legal advice on what an offer letter should contain in order to ensure that the employer’s interests are protected in the best possible way.
3) How can employers encourage employees to adopt any of the cost-saving measures?
To encourage employees to agree to the proposed measures, an employer may consider communicating to the employees (for example, by issuing a public announcement) that the proposed measures are company-wide schemes to save jobs and reduce the likelihood of having to retrench employees, and assuring employees that the schemes are offered to all or most employees with no intention to discriminate against any group(s) of employees. Senior management should lead by example, by accepting cost-saving measures earlier and/or bigger pay cuts. An employer may also approach this issue by providing assurances that employees will be assured of their position under the original employment contract terms.
That said, any impression that employees were forced or under any pressure whatsoever to agree to the proposed measures should be avoided at all costs.
4) Are there any legal requirements and restrictions which employers must take note of before deploying the cost-saving measures?
We highlight the legal requirements which employer need to comply with if any of the following measures are implemented:
· Reduction in work week
An employer may implement this as long as the reduction does not exceed 3 days in a week. A reduction of 3 days should only be implemented if the company’s performance is severely affected. Any reduction in work week must not last for more than 3 months, subject to review. Employees should not be asked to take more than 50% of their earned annual leave, and employers should pay the affected employees no less than 50% of their wage on the day(s) when the employees are not working.
· Temporary lay-offs
Any layoff period implemented must not last for more than one month, subject to review. Employees should not be asked to take more than 50% of their earned annual leave, and employers should pay the affected employees no less than 50% of their wage during the layoff period.
· Reduction in salary
From 12 March 2020 onwards, employers that are currently employing at least 10 employees and are registered in Singapore must notify MOM if they implement any cost-saving measures that affect/reduce the employees’ salaries. This does not include any adjustments to discretionary salary payments (e.g. salary increments and bonuses). Notification must be done within 1 week after implementing the cost-saving measures via an online form accessible here: https://form.gov.sg/#!/5e609fc6835c4b0016dc47e8
For employers that are seeking to adjust the salaries of foreign employees, they would have to first seek approval from the Controller of Work Passes before proceeding with any adjustment decisions via an online form accessible here: https://form.gov.sg/#!/5e69023cbce24a00118eb252
Complex legal and operational issues arising from the COVID-19 emergency are only just emerging. Employers need to be taking steps now to prepare for disruptions to their workforce and business-as-usual environment. We would recommend employers to take note of the suggestions above, and seek legal advice at an early stage to ensure that any responses adopted do not create additional sources of legal exposure.