EMPLOYMENT ACT (Compensation to long-service employees whose services are terminated)

Mr Low Thia Khiang asked the Minister for Labour whether the Government will consider amending the Employment Act to require employers to pay compensation to employees who are terminated by the companies that they had served for ten years or more.

The Minister of State for Labour (Encik Othman bin Haron Eusofe) (for the Minister for Labour): Sir, an employee's service may be terminated for a variety of reasons such as poor work performance, ill health or redundancy. Under any of these circumstances, the employer is required to give notice of termination or salary in lieu of notice. Notice of termination is usually provided in the employment contract. In the absence of such a provision, the period of notice will be in accordance with the Employment Act.

Where an employee's service is terminated on ground of poor work performance, he will not be given compensation. In the case of an employee whose service is terminated on ground of ill health, his employer would usually grant an ex-gratia payment to assist him financially. For termination on ground of redundancy, an employee who is covered by the Employment Act is eligible to claim for retrenchment benefit if he has a minimum of 3 years' service.

The Employment Act does not stipulate the quantum of retrenchment benefits payable. We have taken this approach to enable companies and the affected employees to have greater flexibility in determining the appropriate amount, taking into account the financial position of the company. Thus, the quantum of retrenchment benefit payable for a non-unionised employee is subject to negotiation with his employer. Where a non-unionised employee is dissatisfied with his compensation, he can always appeal to my Ministry for assistance. My Ministry's Labour Relations Department will, through conciliation, help the employee to pursue claim for retrenchment payment. In the case of a unionised employee, the amount of retrenchment benefit is determined through collective bargaining between the union and the company.

The prevailing retrenchment benefit payable to affected workers in the non-unionised sector varies from a few days' salary for each year of service to one month's salary for each year of service. In the case of the unionised sector, the norm of retrenchment benefit payable is two weeks to one month's salary for each year of service, unless the financial position of the company warrants a lower quantum.

In practice, the quantum of retrenchment benefit stipulated in collective agreements is higher compared to the quantum paid to those who are not unionised. This in itself is an incentive for workers to join trade unions. It should also be pointed out that employees with less than 3 years' service, while not eligible to claim for retrenchment benefit, are in practice also paid some form of ex-gratia payment.

As the law already enables a retrenched employee with 3 years' service to claim retrenchment benefit and affected workers are paid such benefit based on the financial position of the company or in accordance with the collective agreements, the suggestion by the Member for Hougang that employers pay retrenchment benefit to employees with at least 10 years' service, is not in the interest of workers.

Mr Low Thia Khiang (Hougang): Sir, is the Minister of State aware that there are employees whose services are terminated by the employer giving just one month's notice or in lieu of notice, paying one month's salary without any further compensation? I think such cases have been referred to the Ministry before.

Encik Othman bin Haron Eusofe: Sir, as I have stated, if he is a non-unionised employee and he is not satisfied with the retrenchment payment, he can appeal and seek assistance from the Labour Relations Department of my Ministry. In the case of unionised employees, it is based on the negotiations between the union and the company. As I have mentioned earlier, in most cases, the practice for unionised employees is that they can at least have two weeks to one month's salary for each year of service as compensation. But this depends on the financial position of the company. I am not sure which particular case the Member is referring to. In the case where a company has no money, there cannot be any retrenchment payment. So it depends on the financial position of the company and the circumstances of the retrenchment exercise.

Mr Low Thia Khiang: Generally, do employers need to specify the reason for termination in their letter of termination or they just say, "Under the contract, I terminate your employment."?

Encik Othman bin Haron Eusofe: Sir, in the case of retrenchment, the employer will mention to his employee that because of very poor business conditions or some other reasons there has to be a retrenchment. In the case of a unionised company, the union will be informed of any retrenchment that is necessary because of these reasons.

Mr Low Thia Khiang: A clarification, Sir. I am referring to termination, not necessarily retrenchment. The employer may just terminate an employee's services by giving him one month's notice, or in lieu of notice, paying one month's salary without specifying any reason. Is there anything under the Employment Act which could compel an employer to specify the reasons for termination?

Encik Othman bin Haron Eusofe: Under the law, the employer has to give a notice of termination. But whether or not he gives the reasons for termination depends on the circumstances of the case. If it is poor conduct or poor performance, then the employer may want to give that reason. But it depends on the circumstances of the case.

Mr Low Thia Khiang: In the case of an employer not stating any reason at all, would the employee concerned be able to claim any compensation?

Encik Othman bin Haron Eusofe: Sir, there is a termination clause. The employee can also terminate his services and he does not need to give a reason. If he finds another job, he just says, "Okay, I want to leave the company." Since there is a termination clause and the employer wants to terminate the services of his employee, he can also exercise it on the same basis. So it is not necessary for him to give a reason if he does not want to, because it is on a reciprocal basis. The employee can also give notice of termination. If he finds a better job, he does not need to give a reason to the employer. Likewise, it is up to the employer. In the case of retrenchment, and that was the Question filed, obviously in the case of a unionised company, the union would be informed and it will then negotiate on the type of retrenchment benefit or payment that should be paid, and this is based on the financial position of the company.

Mr J. B. Jeyaretnam (Non-Constituency Member): Does the Minister of State appreciate that the present laws in Singapore and the practices followed by his Ministry leave the worker entirely on the charity of the employer as to how much compensation he is to be paid? The Minister of State says that it will not protect the workers to legislate for payment of compensation for workers who have been employed for 10 years or more. Why will it not? May I ask the Minister of State when will this Government bring in an Unfair Termination Act so that an employee who feels that his services have been terminated unfairly may have it referred and reviewed by a board, quite outside the Ministry, who will then decide what compensation is to be paid to the employee?

Encik Othman bin Haron Eusofe: Sir, I have already explained that under the current law there is adequate protection for all employees, and if an employee needs any help he can come to the Ministry. Under the law, if a worker has worked for more than three years, he can claim for retrenchment benefit. He does not have to work for 10 years. That was made very clear. If there is any problem relating to the amount of compensation paid, he can appeal to the Ministry of Labour, but the amount of compensation payable is dependent on the financial position of the company. If the company is doing well and retrenches its workers for reasons other than being insolvent, then the Ministry will have to look at the amount of compensation that should be paid. The norm is from two weeks to one month's salary for each year of service for companies which are able to pay. So there is adequate protection under the law and I do not think we need to make any changes at this stage.

Mr Jeyaretnam: May I say to the Minister of State that I was not asking about retrenchment, but about workers whose services are terminated and the law, as I know it, does not require the employer to give any reasons. If he does not like the man's face, he can terminate his services by giving him a month's notice. So what is the protection? Why do we not have an Unfair Termination Board?

Encik Othman bin Haron Eusofe: Sir, first, I have mentioned earlier that it applies to both employer and employee. The employee can also send in his letter of termination and he need not give any reasons.

Mr Jeyaretnam: That is not an answer.

Encik Othman bin Haron Eusofe: Second, if the employee feels that his services have been unfairly terminated, he can appeal to the Ministry which will look into the reasons for termination. He can appeal to the Minister who will ask for an inquiry to be conducted. Both parties will be invited to the Ministry. The Ministry will study the reasons. If it is unfair, the Ministry will ask the employer to take whatever action that is needed. The law provides for this and I do not see why the Member is raising this matter.