When separations get ugly

As the tougher economic climate pushes more firms towards large-scale retrenchments, there are many legal implications HR needs to be aware of.

In January this year, Singapore infrastructure consultancy firm Surbana Jurong, a subsidiary of state-owned investment management fund Temasek Holdings, axed some 54 employees for “poor performance” without giving any prior warning.

With the swift nature of the dismissals, it was soon suggested that the “performance-related” culling may actually have been a front for a more strategic retrenchment exercise.

One affected staff member told local media that he was given an ultimatum on the same day of his departure: resign immediately or be fired. He chose the first option and was out the company’s door only 90 minutes later.

Disguised dismissals?

There was no evidence that the sackings were legally “unfair”, but if indeed true, some industry observers were not surprised by the restructuring. That’s because workforce trimming is a common activity after a merger, with some level of overall skills redundancy typical whenever two entities become one.

In the case of Surbana Jurong, it was formed in 2015 following a merger between Surbana International Consultant and Jurong International Holdings.

The facts also seemed to point towards a mass retrenchment, although the company’s intentions cannot be proven. But by classifying the job cuts as a performance-related decision, the organisation was able to avoid paying out retrenchment benefits legally required by Singapore’s Ministry of Manpower (MOM).

It says employees who have served the company for at least two years are eligible for retrenchment benefits.

The prevailing norm is to pay a retrenchment benefit of between two weeks to one month salary per year of service, depending on the company’s financial position and industry.

In unionised companies, where the amount of retrenchment benefit is stated in the collective agreement, the norm is one month’s salary for each year of service.

Among the 54 affected staff, a number are union members who had been with the organisation for years. If they had been let go as part of a retrenchment, Surbana Jurong would have been forced to pay out a hefty settlement amount.

Laure de Panafieu, Partner, Head of Employment & Incentives – Asia at law firm Linklaters Singapore, notes that although the company was not formally prosecuted by the MOM, it did receive a strong rebuke from the Minister for Manpower, who found the exercise “unacceptable”.

The incident also generated a great deal of negative press coverage for the company.

“The reputational impact of this type of publicity often significantly outweighs any financial considerations,” says de Panafieu, adding that Surbana Jurong’s story “will no doubt serve as a useful warning to Singapore employers not to adopt the same doubtful practices in the future”.

Surbana Jurong eventually did make an ex-gratia payment to affected employees, after settlement talks with the various labour unions involved.

With layoffs aplenty throughout the region in the current economic climate, de Panafieu says HR and employers should ensure retrenchment exercises are executed “responsibly and sensibly”.

Back-up plan

This is also crucial in China, where employment regulations are constantly evolving, states Jonathan Isaacs, Head of the China Employment Practice at Baker & McKenzie.

Retrenchment can be a tricky issue in China because redundancy, or just a role no longer being viable, is not legal grounds for termination there, says Isaacs.

Companies implementing retrenchments need to first see if the action can be justified on any of the statutory termination grounds allowed under Chinese law. 

While termination by mutual agreement is always the preferred first option, companies still need to find good back-up grounds to unilaterally terminate employees who may refuse to sign mutual termination agreements. 

“Having such a back-up plan also makes it easier to convince employees to sign the termination agreement, since employees would know that if they do not sign the agreement, they may only get the legally-required minimum amount of severance,” he says.

“Whether the company will have good grounds to unilaterally terminate will depend on the nature of the restructuring, and often whether the restructuring can be connected to some external factors beyond the company’s control.”

In Hong Kong, presiding officers at the Labour Tribunal are always alert to employers trying to avoid their obligation to pay statutory severance by disguising a redundancy with another reason for termination, says Sarah Berkeley, Partner, Simmons & Simmons. She notes that suspicious cases are routinely probed further.

“There is no legal protection against unfair dismissal, but, if an employee is concerned that the ‘real’ reason for a dismissal is redundancy, they can bring a claim in the Labour Tribunal to recover the unpaid statutory severance monies,” says Berkeley.

In the case of an unlawful dismissal, the Labour Tribunal may order: reinstatement or re-engagement of the dismissed employee (subject to the mutual consent of both the employer and employee); or an award of termination payments against the employer.

Berkeley says that in the event of a mass layoff, advance planning is key to ensuring a smooth process.

HR and employers should check the terms of employees’ contracts to ensure that those being made redundant receive their full entitlements on termination, as well as carry out clear communication of how final payments have been calculated. This will provide comfort for individuals, and let them know they are being treated properly and fairly.

Many employers also offer outgoing employees an additional discretionary severance payment, usually conditional upon signing a waiver and release of claims. “This provides a financial cushion for the individual and a clean break for the employer,” says Berkeley. 

The 2015 case of Tadjudin versus Bank of America, National Association, showed that some organisations are even willing to manipulate performance structures in order to avoid paying bonuses.

From 2000 to 2007, Sunny Tadjudin worked as an analyst at Bank of America in Hong Kong. She was employed on a contract that permitted termination on notice, or pay in lieu of notice. She was also eligible for an annual bonus on the condition of her still being employed by the bank at the time of pay-outs.

Tadjudin was paid bonuses up until 2006, before she was let go in August 2007, just prior to the pay-out date.

A higher court judge concluded that Tadjudin’s employer had deliberately designed a performance improvement plan with the specific end goal of dismissal, so that it could avoid paying out the rightful bonus entitlement.

“Although this decision might lead employers to consider whether they would be better off staying silent as to reasons for termination, the main take away is simply that employers should act in good faith,” wrote Eversheds Sutherlands lawyers Jennifer Van Dale and Hannah Swift in the Hong Kong Lawyer journal.

Abrupt closure

In Malaysia, another case –that of gymnasium chain True Fitness, has also made headlines recently. The Singaporean-owned chain closed down each of its Malaysia outlets overnight, leaving employees without compensation for their final months of employment.

HRM Asia had reached out to the company for clarification on the claims, to which the company confirmed that wages were delayed because of “payroll issues”.

But this entire sequence of events raised a few pertinent compliance (and moral) questions for HR and employers, not only in Malaysia, but throughout Asia.

When organisations shutter, under what legal circumstances are they obligated to inform employees of the move? Also, in the event that a company has wound up due to insolvency, where do outstanding wages stand in the debt settlement queue?

Donovan Cheah, a partner at Malaysian law firm Donovan & Ho Advocates & Solicitors, says that in this instance, because True Fitness employees were not paid wages for several months, they may deem themselves “constructively dismissed”, and could file a complaint of unfair dismissal against the company, even if the doors were still open.

With regards to notice of closure, Cheah says “companies are advised to give as early a warning or as much notice as possible to the affected employees”.

Employees subject to the Malaysian Employment Act are entitled to minimum notice or payment in lieu, which is determined by their length of service, he adds.

For example, someone who has been employed for less than two years is entitled to receive at least four weeks’ notice (or payment in lieu) in the event the employer intends to cease carrying on business.

Some collective agreements may also specifically require employers to give advance notice of retrenchment or closure of business, and a failure to comply may subject the employer to proceedings under the Industrial Relations Act.

Moral obligation

For HR professionals anywhere in the region, it is important to note that local labour laws do require employers to provide minimum notice periods.

But the real question for the management of True Fitness may be a moral one. That is, even if it could avoid informing staff of the impending cessation, shouldn’t it have a moral obligation to give staff some form of warning?

The company appears to have been more than capable of giving staff in Malaysia and Thailand a smoother and more structured exit. While its businesses in both markets had suffered in recent years, the group was still going strong in Singapore and China.

Following the closures, CEO Patrick Wee immediately issued a statement to members saying that operations in those countries would not be affected.

Because the group has yet to legally wind up its operations, Cheah says it was still legally obligated to pay wages to its employees for the period in which they were employed.  It is understood that these payments have since been made in full.

Had the business legally folded, employees still would have been relatively high in the queue of liabilities.

“In some cases, employees’ claims for unpaid wages would even have priority over a secured creditor – for example, where there is a sale of the employees’ place of employment,” says Cheah.

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