Guidelines on the Downsizing of Employees

Purpose:  This guideline serves to provide the process and actions that can be taken by a Company in a downsizing exercise. This is an important document as downsizing is one of the most difficult of HR management exercises

INTRODUCTION

This guideline is to explain the process of downsizing and effective ways to implement and execute the downsizing exercise process. In this document, the term downsizing will include retrenchment and voluntary separation schemes.

WHAT IS A DOWNSIZING EXERCISE ?

Downsizing means the action taken by an organization to terminate the contract of service of employees in a redundancy situation. This redundancy situation may arise from several factors such as closure of business, restructuring, reduction in production, mergers, technological changes, take-over, economic downturn and others. In the current situation of the COVID 19 crisis, there will be redundancy in many organizations due to loss of profitability and income.

WHAT ARE SOME MEASURES THAT CAN BE TAKEN BY COMPANIES TO AVOID DOWNSIZING OF EMPLOYEES?

When there is a situation of redundancy, the employer concerned must first take relevant measures to avoid termination of employees. For industrial harmony, measures suggested are as follows:

a.      To freeze recruitment of new workers except for critical areas.

b.     To limit overtime work.

c.      To limit work on weekly rest days and public holidays.

d.     To reduce weekly working days or reduce the number of shifts.

e.      To reduce daily working hours.

f.       To reduce working days by asking employees to take ‘forced’ leave.

g.     To conduct retraining programs for workers so that they can take on other jobs.

h.     To introduce cost cutting measures.

i.       To identify alternative jobs and to transfer workers to other jobs in the same Company.

j.       To implement temporary lay-off i.e. temporary shut down by offering fair salary and to assist the employees affected in obtaining temporary employment elsewhere until normal operation resumes.

k.     To introduce salary reduction exercises in a fair manner at all levels and to be implemented as a last resort after other cost cutting measures have been carried out.

Measures f, i and k must be implemented with the consent of the workers or the Unions representing the employees.

WHAT MEASURES SHOULD BE TAKEN BY COMPANIES IF THERE IS A NEED TO REDUCE THE WORKFORCE?

If the downsizing of workers still has to be exercised despite the implementation of the above steps, employers should implement the following measures to lessen the negative impact on the workers:

a.      To immediately inform and discuss with the workers or the unions which represent them regarding any impending downsizing.

b.     To offer downsizing/voluntary retirement scheme with the best possible compensation.

c.      To terminate workers who have attained normal retirement age.

d.     To assist workers in seeking alternative employment elsewhere before downsizing with the cooperation of Labor Department and Manpower Department under the Ministry of Human Resources.

e.      To implement downsizing in stages over a period of time.

f.       To terminate foreign workers first before terminating local workers in the same category.

g.     When the downsizing involves local workers, the 'LIFO' principle (last-in-first-out) must be practiced for the same category of work. However, employers may carry out downsizings in accordance with other criteria after consultation and with the Unions representing the workers.

WHAT IS THE EMPLOYER'S RESPONSIBILITY IN TERMS OF REPORTING THE DOWNSIZING AND OTHER RELATED MATTERS?

 Employers are required to report to the nearest Labor Office at least one month prior to taking downsizing measures by using the following forms:

a.      Retrenchment of workers - Form PK1/98

b.     Voluntary separation - Form PK2/98

c.      Lay-Off - Form PK3/98

d.     Pay-Cut - Form PK4/98

    These forms are available free of charge from any Labor Office.

WHAT ARE THE RIGHTS OF WORKERS INVOLVED IN THE DOWNSIZING?

Notice period shall not be less than those specified in the Employment Act 1955, i.e.    

a.      4 weeks’ notice if the worker has been employed less than 2 years

b.     6 weeks’ notice if the worker has been employed for 2 years but less than 5 years

c.      8 weeks’ notice if the worker has been employed for more than 5 years.

Should the employer fail to give sufficient notice, the employee is entitled to be paid wages in lieu of notice. Wages in lieu of notice must be paid in full, latest on the day the contract of service is terminated.        

Downsizing benefit must be in accordance with the contract of service but should not be less than the rate specified in the Employment Act 1955 which is:  

a.      10 days wages for each year of service if the worker has been in employment for less than 2 years

b.     15 days wages for each year of service if the worker has been in employment for 2 years but less than 5 years

c.      20 days wages for each year of service if the worker has been in employment for 5 years or more.

Downsizing Benefits must be paid latest by the 7th day after the date of downsizing. Should the above rights be denied, the worker can file a claim at the nearest Labor Office. 

If there is a Collective Agreement on terms and conditions relating to downsizing the benefits payable to the workers shall not be less than those stipulated in the Collective Agreement. If the employee is not satisfied with the downsizing, he or she may seek advice from the nearest Industrial Relations office which is under the Ministry of Human Resources.       

WHAT ARE THE TYPES OF SERVICES AVAILABLE TO WORKERS AND EMPLOYERS AT THE MANPOWER DEPARTMENT?

Retrenched workers can go personally to register at the nearest Manpower Department free of charge, by bringing along with them their identity cards, educational certificates and other related documents. If the worker fails to get a job after 3 months, he or she must renew the registration with the Manpower Department. Successful applicants must also inform the Manpower Department immediately.    

Employers who wish to employ retrenched workers can request for suitable candidates from the nearest Manpower Department by stating relevant information on the vacancies available, salaries offered, minimum qualifications and other requirements. Upon interviewing the candidates supplied by the Manpower Department, employers should inform the Department of the number of candidates that have been recruited.

The government will not consider any request from employers to employ foreign workers if the employers do not give priority for local workers to fill the vacancies.

Source: MOHR Website  

Note.

 a.     Downsizing is a difficult exercise and therefore a lot of thought and planning must be done before implementing it.

 b.     Very importantly, the downsizing must adhere to set HR policies of the government and any existing collective agreement.