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When revenue falls, a contract is lost or the business is restructured, many Singapore companies conclude that some roles are no longer needed. Retrenchment is lawful, but it is also one of the most closely watched decisions an employer makes. The Ministry of Manpower (MOM) expects retrenchments to be carried out responsibly, some employers must report them within days, and a badly handled exercise can lead to wrongful dismissal claims.
For directors and managers, the questions are practical. Who can be retrenched? Is retrenchment benefit compulsory? What must be reported, and by when? This guide answers those questions from the company’s side, using the Employment Act 1968, MOM guidance and recent decisions of the Employment Claims Tribunals and the High Court.
Short answer
Retrenchment is dismissal for redundancy or reorganisation. Employers with at least 10 employees must notify MOM within 5 working days of telling affected staff. Employees with at least 2 years’ service are eligible for retrenchment benefit, but the amount depends on the contract or collective agreement; MOM’s prevailing norm is 2 weeks to 1 month’s salary per year of service.
What counts as retrenchment
MOM defines retrenchment as dismissal on the ground of redundancy or by reason of any reorganisation of the employer’s profession, business, trade or work. It applies to permanent employees and to contract workers whose full contract term is at least 6 months. MOM also states that an employer who terminates an employment contract with no plan to fill the vacancy any time soon is presumed to have retrenched the employee.
That presumption matters. A company that describes an exit as a “termination with notice” rather than a retrenchment does not escape the retrenchment rules if, in substance, the role has disappeared.
Before you retrench: the responsible retrenchment framework
MOM directs employers to the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment. In summary, before retrenching, an employer should:
- take a long-term view of its manpower needs, including maintaining a strong Singaporean core;
- consider alternatives to retrenchment, such as cost-cutting or redeployment;
- consult the union if the company is unionised;
- select employees without discrimination, based on factors such as their ability to contribute to the company’s future business needs;
- treat affected employees with dignity and respect; and
- consider giving a longer notice period than the minimum.
Selection is where most disputes start. An employer that cannot explain why a particular person’s role was selected, or whose selection looks linked to age, pregnancy or a recent complaint, invites a claim that the “retrenchment” was really a disguised dismissal. Our guide to the Workplace Fairness Act explains the wider anti-discrimination framework that employers should factor into selection criteria.
Notice and final pay
Affected employees must be given notice according to the termination terms in their employment contracts. Where the contract is silent, section 10(3) of the Employment Act sets minimum notice periods based on length of service. Either party may instead pay salary in lieu of notice under section 11.
| Length of service | Minimum notice if the contract is silent (s 10(3)) |
|---|---|
| Less than 26 weeks | 1 day |
| 26 weeks to less than 2 years | 1 week |
| 2 years to less than 5 years | 2 weeks |
| 5 years or more | 4 weeks |
Notice must be in writing (section 10(5)). MOM states that during a retrenchment exercise the employer must pay all salaries, including unused annual leave and notice pay, on the employee’s last day of work. Our guide to essential employment contract clauses covers how notice and termination terms should be drafted in the first place.
Retrenchment benefit: is it compulsory?
Section 45 of the Employment Act provides that no employee who has been in continuous service with an employer for less than 2 years is entitled to any retrenchment benefit on dismissal for redundancy or reorganisation. MOM’s guidance is that employees with at least 2 years’ service are eligible, and that those with less than 2 years’ service could be given an ex gratia payment out of goodwill.
The amount is not fixed by statute. According to MOM, it depends on what the employment contract or collective agreement provides. If there is no provision, it has to be negotiated between the employer and the employees or their union. The prevailing norm is between 2 weeks and 1 month’s salary per year of service, depending on the company’s financial position and the industry. In unionised companies where the collective agreement states the amount, the norm is 1 month’s salary for each year of service.
Two further MOM points are often missed:
- If the retrenchment comes shortly after a salary cut, the salary before the cut should be used to calculate the benefit.
- Neither employer nor employee pays CPF contributions on retrenchment benefit.
What the courts have said
In JIF v JIG [2026] SGECT 3, one of the first published decisions of the Employment Claims Tribunals, an employee claimed an additional month of retrenchment benefit on the basis of the employer’s policy and past practice. The tribunal analysed section 45 and dismissed the claim, holding that the section does not create a standalone right to retrenchment benefit and that the employer’s past generosity did not create a binding obligation. In Seng Hock Chye Daniel v Denso International Asia Pte Ltd [2026] SGHCR 14, the High Court likewise observed that an allegation that a role had been made redundant would not by itself confer an entitlement to retrenchment benefits, which must be founded in contract or statute.
For employers, the lesson is to check what the company has actually promised. A contractual clause, a collective agreement or a policy incorporated into contracts can create a binding entitlement, while a non-contractual guideline generally will not.
Mandatory Retrenchment Notification to MOM
Employers must notify MOM of retrenchments if they have businesses registered in Singapore, have at least 10 employees, and notify any employee of their retrenchment. The notification must be submitted within 5 working days after the affected employees are notified. The obligation arises under section 96A of the Employment Act, read with the Employment (Retrenchment Reporting) Notification 2019. Employers with fewer than 10 employees are not required to notify but are strongly encouraged to do so. Details are on MOM’s page on Mandatory Retrenchment Notifications.
MOM also offers a voluntary early alert while retrenchment plans are being worked out, which allows affected local employees to be referred for outplacement support.
Late notification has consequences beyond regulatory risk. In JIF v JIG, the employer won the case but the tribunal declined to award it costs, citing its undisputed failure to comply with the retrenchment reporting obligation and concerns about how the exit was handled.
When a retrenched employee claims wrongful dismissal
Redundancy is a valid reason for dismissal, but an employee may argue that the redundancy was not genuine. Under MOM’s guidance, an employee who believes the dismissal was wrongful should file a claim with the Tripartite Alliance for Dispute Management (TADM) within one month from the last day of employment. For dismissals with notice or salary in lieu of notice, the employee must show that the dismissal was wrongful; for dismissals without notice, the employer must show that it was not. Managers and executives dismissed with notice or salary in lieu can claim only if they have served at least 6 months (section 14(2A)).
If mediation at TADM fails, the claim goes to the Employment Claims Tribunals, which can order reinstatement with lost wages or compensation (section 14(3)). The tribunals hear wrongful dismissal claims of up to $20,000, or $30,000 for tripartite-mediated disputes. Parties cannot be represented by external lawyers at the tribunal. In JIF v JIG, the tribunal accepted that the role had genuinely been reshaped and found the employee had not proved that the redundancy was a sham. See our guides to the Employment Claims Tribunals and TADM and to preparing an evidence bundle for TADM mediation.
Director-employees
Where the person whose role is being cut is also a director, the company must deal with two separate relationships. Ending the employment does not remove them from the board, and removing them from the board does not end the employment. See our guide to removing a director of a Singapore company.
What the company should do
- Record the business case. Prepare a written rationale for the restructuring and the roles affected, dated before any employee is told.
- Pass a board resolution approving the restructuring, the selection criteria, the retrenchment package and who is authorised to carry it out. Keep the signed minutes in the minute book.
- Check each contract and any collective agreement for notice and retrenchment benefit terms.
- Apply consistent, documented selection criteria and keep the scoring.
- Diarise the 5-working-day deadline for the Mandatory Retrenchment Notification from the date employees are told.
- Pay final salary, leave and notice pay on the last day, and handle CPF on wages correctly.
- Deal with work passes for any foreign employees affected.
- Update the company’s records, including the register of directors and an ACRA filing on Bizfile within 14 days if a director’s appointment changes.
- Reflect the costs properly in the accounts. Retrenchment benefits, notice pay and any restructuring provision should be recognised in the right period, with the board’s decision available to support any year-end provision.
If the restructuring includes leaving premises, plan the exit early to protect the company’s deposit; see our guide to commercial lease security deposits and reinstatement.
Frequently asked questions
Must we pay retrenchment benefit to someone with 18 months’ service?
Under section 45 of the Employment Act, an employee with less than 2 years’ continuous service is not entitled to retrenchment benefit. MOM notes that employers could still make an ex gratia payment out of goodwill, and the contract may provide otherwise.
We have only 8 employees. Do we need to notify MOM?
Mandatory notification applies to employers with at least 10 employees. Smaller employers are not required to notify but MOM strongly encourages them to do so.
Can we retrench someone and hire a replacement soon after?
That is risky. If the role is refilled, it suggests the role was not redundant, and the employee may claim the dismissal was wrongful. MOM presumes retrenchment where there is no plan to fill a vacancy soon, and the reverse situation invites scrutiny.
Is CPF payable on retrenchment benefit?
No. MOM states that neither employer nor employee has to pay CPF contributions on retrenchment benefit. CPF still applies to ordinary wages paid up to the last day.
How long does an employee have to bring a wrongful dismissal claim?
MOM’s guidance is that the claim should be filed at TADM within one month from the last day of employment. Employers should keep their records for at least that period and preferably longer.
Need a lawyer?
This article is general information about Singapore law for companies, directors and shareholders. It is not legal advice, and it does not take account of your circumstances. Raffles Corporate Services Pte Ltd is a corporate service provider, not a law practice, and does not give legal advice.
If your company is planning a retrenchment exercise or is facing a wrongful dismissal claim from a retrenched employee, we can introduce you to an experienced Singapore law firm that handles employment and restructuring matters. Tell us briefly what has happened and we will connect you.
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Conclusion
Retrenchment is a legitimate tool for a company that needs to cut costs or reorganise, but the process is judged as much as the decision. A clear business case, fair selection, correct notice and final pay, a benefit that matches what the company has promised, and timely notification to MOM are what protect the company if a claim follows. MOM’s page on responsible retrenchment and the Employment Act 1968 are the starting points. For the board resolutions, register updates and filings that accompany a restructuring, speak to Raffles Corporate Services.
The Editorial Team, Raffles Corporate Services