Why can't retrenchment benefits be mandatory?

A new rule from Jan 1, that will require firms to report all layoffs to the Manpower Ministry, aims to get timely help to retrenched workers.
A new rule from Jan 1, that will require firms to report all layoffs to the Manpower Ministry, aims to get timely help to retrenched workers.ST FILE PHOTO
A new rule from Jan 1, that will require firms to report all layoffs to the Manpower Ministry, aims to get timely help to retrenched workers.
Toh Yong Chuan.

Flexibility to negotiate such payments better than a rigid law as firms' situations will vary

Reader Gabriel Tham wrote in to askST: "Why does Singapore not have a mandatory retrenchment benefits scheme?

"First, it will make employers weigh the cost of retrenchment in the short term.

"Second, it will make employers think twice about over-hiring and then abusing the system."

Manpower correspondent Toh Yong Chuan answers.

This issue crops up from time to time, especially during economic slowdowns when retrenchments rise. The Government has always rejected suggestions to make it mandatory for companies to pay retrenchment benefits to workers who are laid off.

It has always maintained that it is not necessary for such payments to be made mandatory because the practice is already widespread. According to its own surveys, as many as nine in 10 companies which retrenched workers paid such benefits. It would rather give companies and unions the flexibility to negotiate such payments, rather than prescribing them under the law, because the circumstances of companies that retrenched workers are different and there cannot be a one-size-fits-all approach.

This approach is consistent with the longstanding view of the Government that if labour laws are rigid, such as making retrenchment payments compulsory, firms will be deterred from hiring workers from the onset and workers will be hurt.

The furthest that the Government will go, for now, is to make it compulsory for firms to report to the Ministry of Manpower within five working days of laying off workers. The new rule, which kicks in from Jan 1, will make sure that retrenched workers get timely help, the Government said when it announced the new rule last month.

The pressure on the Government to make retrenchment payments compulsory will continue to increase. As workers become more educated, they will want to see their rights protected. The Government will have to balance the desire for more protection by workers against the flexibility that it gives companies in hiring and firing.

A version of this article appeared in the print edition of The Straits Times on December 10, 2016, with the headline 'Why can't retrenchment benefits be mandatory?'. Print Edition | Subscribe