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Is an Employment Act that covers all a boon or bane for business?

Benjamin Cher
Benjamin Cher5/28/2018 10:17 AM GMT+08  • 9 min read
Is an Employment Act that covers all a boon or bane for business?
SINGAPORE (May 28): This time next year, just about all employees in Singapore, save for the roughly 145,000 people employed in the civil service and statutory boards, foreign domestic workers and seafarers, will come under the protections of the Employme
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SINGAPORE (May 28): This time next year, just about all employees in Singapore, save for the roughly 145,000 people employed in the civil service and statutory boards, foreign domestic workers and seafarers, will come under the protections of the Employment Act (EA). The government is set to remove the Act’s monthly salary cap of $4,500 from April 1, 2019, which means some 430,000 PMEs (professionals, managers and executives) will enjoy key safeguards such as leave benefits and statutory protection against wrongful dismissal.

On the face of it, the Act’s expanded coverage is in the right direction and applauded by human resource consultancies. Rob Bryson, managing director of Robert Walters Singapore, says: “Median wages (including those of PMEs) are rising, and PMEs are now gradually forming the majority of the workforce. This changing profile of the workforce requires a regular review of the scope of coverage of the Employment Act to ensure that the policy stays relevant and serves the needs of the future workforce.”

Dennis Ong, associate professor of the Division of Business Law at Nanyang Business School (NBS), Nanyang Technological University, says: “These measures are not new but represent a measured and calibrated attempt to recognise the importance of PMETs [professionals, managers, executives and technicians] in our workforce and to take timely measures now as their numbers burgeon.”

The proposed amendments may not be going as far as needed. For one, as industry consultants point out, the leave benefits covered under the Act tend to already be part of PMEs’ contracts with employers. And, significantly, the expansion of coverage to PMEs does not include Part IV of the Employment Act. This governs additional benefits relating to hours of work, overtime and rest days and, importantly, the payment of retrenchment and retirement benefits, and annual wage supplements or other variable payments.

PMEs accounted for the lion’s share of retrenchments in 2016, the latest available data points. Nearly 11,000 PMEs were retrenched that year. At 62.4%, the rate of re-entry into employment by PMEs after six months ranked the lowest among occupational groups.

Further, lawyers to whom The Edge Singapore spoke point out that while it is clear, in principle, what constitutes “wrongful dismissal”, it may not be so straightforward in practice. “Whether any particular set of facts constitutes a wrongful dismissal is often controversial and open to argument,” says Deborah Barker, senior counsel at Withers KhattarWong.

Still, the change is helpful. “Without the benefit of the statutory unfair dismissal protection, many managers and executives who fell outside of the Employment Act had no recourse against their employers who dismissed them capriciously,” says NBS’s Ong. He argues that contractual terms alone do not provide adequate protection. “The remedy against unfair dismissal is not a contractual right but a statutory right. It gives a dissatisfied employee the right to complain to the Minister for Manpower for an order of reinstatement (or compensation in lieu of reinstatement).”

In his view, an employee is already on unequal ground with respect to his or her employer. The idea that PMEs can negotiate a contract with a company and obtain terms they ask for is a myth. “Consequently, such employees need statutory protection to equalise the imbalance so as to put them in a better position,” says Ong. “The proposed changes in the EA are definitely seen as employee-centric or pro-employee.”

Would stronger statutory protection for employees put companies at a disadvantage now? What does this mean for the broader economy? Singapore currently ranks third in the World Economic Forum’s Global Competitive Index. Switzerland is top, and the US is second. In terms of ease of hiring and firing workers, Singapore also comes in third, behind Hong Kong and Switzerland. Will the city state lose its edge?

Hiring and firing

Industry players say the changes to the Act are unlikely to affect hiring trends locally. “[Hiring] will be based on the needs of the organisation. If the business needs to hire PMEs to grow the business, it will have to hire executives based on their skill sets, experience and soft skills,” says Robert Walters’ Bryson.

In fact, in recent years, organisations have begun to look “beyond the statutory or traditional” to differentiate themselves as employers and attract as well as retain talent, says Kulapalee Tobing, information solutions business leader at Mercer Singapore. “Based on a poll we conducted in 2017, as many as 66% of organisations have recently enhanced their benefits, to provide wellness and worklife balance benefits, time-off benefits, flexible work arrangements, and travel/holiday benefits in the past few years, or are looking to do so in 2018/19.”

Interestingly, the Singapore National Employers Federation has raised concerns about how far companies can extend benefits to workers. “The compensation and benefits package of [management and executives] tends to take into account the minimum legislated. We expect some employers to restructure their packages to ensure they remain competitive and are able to attract talent,” says SNEF executive director Koh Juan Kiat. “We have some concerns with regard to how these benefits have to be managed, such as the requirement to carry over their annual leave and payments for work on public holidays.”

Koh says SNEF is in discussions with its partners — the Ministry of Manpower and the National Trades Union Congress — to evaluate how the changes “can be softly legislated to provide some management flexibility for operational readiness and efficiency. This is especially crucial for companies that provide essential services where M&Es need to respond to exigencies promptly”.

Tobing says, “The change in the EA will not affect the majority of MNCs in Singapore, but the principle of equity and employee protection that underpin this policy change is sending a positive message to the workforce in the country.”

The greater impact will be on how and when a company decides to dismiss an employee. It seems the onus is on the employer to ensure any termination of employment is not wrong or illegal. “Employers will need to be more cautious when terminating highly paid executives to avoid a wrongful dismissal claim,” Bryson warns.

Jenny Tsin, joint head of the employment practice at WongPartnership, notes that, under the Act, employees can challenge their termination, even if they were given notice, or paid in lieu of notice. “Section 14 of the Employment Act allows any employee who considers that he has been dismissed without just cause or excuse by his employer to make representations in writing to the minister. The remedies available include reinstatement, which is not a remedy that is otherwise available under the common law,” says Tsin. “This could give rise to more challenges to terminations.

“Employers should therefore always ensure that they consider the reasons for or circumstances leading up to termination before terminating an employee. From a litigation standpoint, having the evidence to support your position is important. For instance, an employer may find itself on the back foot if it seeks to argue that the employee was non-performing when the evidence shows that that employee has been getting good appraisals/high bonuses in the years leading up to the termination.”

The Edge Singapore contacted at least three MNCs for this story, but all have declined to answer queries on how the regulations would affect their hiring and firing practices.

In a commentary on the amendments to the Act, Ian Lim, partner and head of employment and labour practice at TSMP Law Corp, notes “the often nebulous concept of undeserved termination”. In response to The Edge Singapore’s follow-up questions, Lim reiterated his call for “more clarity on what constitutes wrongful dismissal” under the Act.

The Act’s expanded scope will also have an impact on the role that the Employment Claims Tribunal (ECT) plays.

Under the Act, someone who considers himself dismissed from work without just cause or excuse could write to the Minister for Manpower to argue his case to be reinstated or seek compensation. Under the proposed amendments, such disputes would be brought before ECT if unresolved by mediation. “The number of claims that can come before ECT has now increased. ECT is obviously going to play a greater role in the future,” says Barker.

ECT currently sees cases limited to $20,000 in claims, or $30,000 with union-assisted mediation, which effectively excludes higher-paid executives from bringing claims, although those limits are set to rise.

“Because ECT was specifically structured for swift and economical employment dispute resolution, its decisions are procedurally difficult to appeal to the High Court,” Lim notes. “This makes it vital that ECT gets its decisions right, to ensure fair outcomes for unfair dismissal cases. It would accordingly help ECT if the revised EA, while doing away with salary caps, could also provide greater clarity on the nature and scope of compensation for wrongful dismissal.”

Staying business-friendly

Meanwhile, Lim’s advice to companies is to “establish and follow clear performance improvement, disciplinary and due inquiry processes and procedures, keeping all relevant records post-employment”.

There are “good reasons” for changes to the Act, he says. “[There is] also good reason to think that Singapore’s economy and standing are now mature and developed enough to weather any initial teething difficulties and adapt for the better.”

NBS’s Ong believes the impact of such a move would have been carefully considered after discussions with industry bodies. “In general, any extension of EA protection to benefit employees must always be carefully balanced against the employers’ need to stay competitive. This is particularly true of small and medium-sized enterprises, where any increase in the class or size of employees (for example, by raising or removing salary thresholds) may have a significant impact on employers and the cost of running their businesses.”

In fact, Ong sees the non-extension of the benefits in Part IV of the Employment Act as a cautious and prudent move by the government. “As you know, the Part IV rights will have a much greater impact on business cost than the core benefits.” He believes the changes improve rather than dent Singapore’s business-friendly image. “It should enhance Singapore’s image as a country that has laws that promote the mutual trust and confidence so fundamental in an employment relationship, requiring both employers and employees to behave responsibly and fairly with each other. In the words of Robert Frost, ‘Good fences make good neighbours,’” he adds.

This article appears in Issue 832 (Week of May 28) of The Edge Singapore which is on sale now

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