Web Stories Friday, February 23

RETRENCHMENT BENEFITS: WHAT IS THE NORM?

Laid-off Lazada workers were told that they would receive two weeks’ salary for every year of service.

Retrenchment benefits are not mandatory under the Employment Act. Any benefits a laid-off worker gets depend on the staff’s employment contract and the company’s policies, said the Institute of Policy Studies’ Dr Faizal Yahya.

“The employment contract should therefore be the first recourse for an affected employee, followed by the company’s internal policies or other regulations,” said Dr Faizal, a senior research fellow in governance and economy. 

This is in line with the Manpower Ministry’s policy that the amount of compensation depends on what is stated in the employment contract or collective agreement for unionised companies.

If it is not provided, it would have to be negotiated between the employer and employees or their union.

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

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

LAZADA COMPENSATION “BELOW MARKET STANDARD”

While Lazada’s compensation was within the recommended scale, the union may have found it lacking given the company’s financial position.

“Lazada’s retrenchment benefit is not satisfying in comparison to the company’s consistently strong performance in the previous year,” said Dr Xu from NUS. 

While Lazada’s financial figures for 2023 have not been disclosed, she noted its robust performance within the Alibaba group, including a 53 per cent year-on-year growth in the third quarter of last year. Lazada was acquired by Alibaba in 2016. 

“Despite these positive indicators, Lazada’s retrenchment benefit remains at the lower end of the scale.” 

Dr Xu added that other companies have implemented “more generous” severance packages. For example, Google reportedly offered a minimum of 16 weeks of severance pay during its retrenchment exercise last January

Singapore-based Grab – which cut 1,000 jobs last June – offered employees a severance payment of half a month for every six months of completed service, or based on local statutory guidelines, whichever is higher.

The company’s chief executive had said that laid-off employees would also get a “goodwill payment” for “forgone target bonus and equity”. 

“(Industry) norms dictate that Lazada’s proposed payout falls below market standard, and a larger payout is warranted,” said Ms Amarjit Kaur, partner in litigation and arbitration at Withers KhattarWong.

Besides the lower-than-expected payout, the union likely also found that the help and job support Lazada offered to affected employees was lacking.

Such support could include outplacement services, counselling, referral letters, assistance with finding alternative employment and post-termination training opportunities.

Institute for Human Resource Professionals’ Mr Aslam said organisations need to balance the short- and long-term implications of its retrenchment benefits, as this will have an impact on subsequent business decisions.

“These decisions will likely impact the current workforce as well as prospective talent,” he said.

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