The Coronavirus pandemic continues to disrupt businesses worldwide and whilst many are implementing cost cutting measures in an attempt to avoid redundancies, employers are under increasing pressure to reduce their headcount.
Redundancy exercises are often costly and complex so employers should be alert to their respective legal obligations across jurisdictions – which vary significantly – in order to minimise the risk of related claims and reputational damage.
Click on the links below for our international guides to implementing redundancies:
Redundancy is one of five potentially fair reasons for dismissing an employee in the UK. Employers must have a genuine redundancy scenario and follow a fair process involving considering suitable alternative employment and consulting with employees on an individual and (depending on the number of roles at risk) collective basis.
What is a genuine redundancy scenario?
A genuine redundancy scenario is where an employer has a need to reduce its employee population due to:
- a business closure; or
- a workplace closure; or
- an identified reduced or diminished requirement for employees to carry out work of a particular kind.
Employers should be able to demonstrate that the employee’s dismissal is wholly or mainly attributable to that reason.
Does it matter how many redundancies I plan to make?
The higher the number of roles at risk the more onerous the consultation obligations will be, as described in more detail below.
If employers propose to make 20 or more employees at one establishment redundant within a 90 day period, they are required to implement a collective and individual consultation process. Where there are 20-99 proposed redundancies, collective consultation must begin at least 30 days before the first dismissal takes effect. Where there are 100 or more proposed redundancies, this period increases to 45 days.
If fewer than 20 redundancies are proposed, employers only need carry out individual consultation with the employees who are at risk of redundancy, as part of the fair procedure described below.
Can employees volunteer for redundancy?
There is nothing to prevent employers from offering voluntary redundancy as an option however employers should be mindful that:
- Volunteers should be included in the total number of redundancies proposed over a 90 day period, which is relevant in determining whether collective consultation is required (as above);
- Offering voluntary redundancy carries the risk that the business will lose high performing employees who wouldn’t have otherwise been selected for redundancy; and
- If take up is over or under subscribed, care should be taken to ensure that an employee has not been offered or refused voluntary redundancy for discriminatory reasons (for example, on grounds of sex, race, age, pregnancy or maternity).
What procedure should I follow?
Where only individual consultation is required, the nature of a fair process will depend on the reason for the proposed redundancy and the number of employees impacted, but will generally include:
- Informing the employee/s that they are at risk of redundancy and explaining the business rationale for the proposals;
- If there are more employees in the organisation than the roles at risk, identifying pools of employees and devising and applying objective selection criteria to each;
- Considering suitable alternative employment; and
- Consulting with the employees on the proposals which will involve meeting with employees and considering any suggestions that they have to avoid the redundancy.
Where it is proposed that 20 or more employees are made redundant, collective consultation is required as well as individual consultation, and involves:
- Consulting with employee representatives on the proposals including the reason for the dismissals, the number of employees impacted, and what they will be paid.
- If there are no recognised trade union members or employee representatives already in place, giving employees the opportunity to elect representatives (by way of a ballot process) for the employer to consult with.
Failure to meet collective consultation obligations exposes employers to affected employees bringing protective award claims in the Employment Tribunal, for up to 90 days’ pay (uncapped) per employee.
Do I need to identify suitable alternative roles for each employee?
Yes, employers are required to consider if there are any suitable alternative roles for each employee. Pregnant employees or those on maternity leave must be offered these roles before other employees.
How long should I consult for before confirming redundancies?
In a collective consultation scenario, redundancies can’t take effect until the end of the 30 or 45 day period.
For individual consultation, there is no minimum time period for consultation before redundancies are confirmed, however the consultation should be long enough to allow for a meaningful consultation about the redundancies and potential alternatives.
Do I have to inform the government if I plan to make redundancies?
In a collective consultation scenario, employers must notify the Secretary of State for Business, Innovation and Skills about the potential redundancies via an HR1 Form. Failure to provide this form is a criminal offence which can result in unlimited fines.
What payments are employees entitled to?
Employees with more than two years’ service are entitled to a statutory redundancy payment calculated using the employee’s age, length of service and capped weekly wage. The maximum award is currently £15,750.
If an employer has a custom or practice of making enhanced redundancy payments, employees may be entitled to this too.
As with all terminations, employees are also entitled to either work or be paid in lieu of their notice period, and to be paid in lieu of any accrued but untaken holiday.
What if my company is insolvent and cannot pay?
Employees can make a claim under the national insurance fund for unpaid redundancy pay, notice and holiday pay. However, these payments are capped.
In Hong Kong it is very easy to make employees redundant and there is no regulatory procedure to safeguard employees to avoid abuse by employers.
What is a genuine redundancy scenario?
A dismissal for reason of redundancy will cover situations where an employer closes or intends to close down its business or where the needs of the business for employees to carry out work of a particular kind ceases or diminishes.
Does it matter how many redundancies I plan to make?
No, the procedure is the same.
Can employees volunteer for redundancy?
Yes, they can although this is not usually an option made available to employees in the majority of cases.
What procedure should I follow?
The Employment Ordinance does not regulate how an employer should handle its redundancy process. An employer has complete freedom on deciding which employees will have their employment terminated. The only restriction on an employer is to ensure that the employee has not been selected for redundancy on the basis of a protected characteristic which would mean that the employer has unlawfully discriminated against the employee. Employers cannot seek to terminate the employment of any employee who:
- is on sick leave and receiving paid sick leave entitlement;
- is in the process of making a claim under the Employees’ Compensation Ordinance for a work related injury; and
- is pregnant and has given notice of her pregnancy by a medical certificate.
In selecting a pool of employees who are candidates for redundancy, an employer should ensure that it has a fair selection criteria against which the employees will be judged. The criteria should be objective and applied equally to all employees. Employers should document the assessment which they carry out so that in the event an employee challenges the decision to make them redundant this will enable the employer to protect itself against a possible discrimination claim.
Any decision to terminate an employee’s employment for reasons based on their sex, pregnancy, disability, family status, race, colour, descent, national or ethnic origin will be in breach of the anti-discrimination ordinances in Hong Kong and would therefore be unlawful.
Employers which decide to make redundancies must ensure that they comply with their contractual obligations set out in their employment contracts as well as their statutory obligations.
Do I need to identify suitable alternative roles for each employee?
It is not a requirement to do so.
How long should I consult for before confirming redundancies?
There is no consultation requirement.
Employers should ensure that employees are notified of the termination of their employment due to redundancy at the same time that notice is being given to them. For employers who are winding down their entire operations they should consider providing staff with ex gratia payments or payments above the statutory minimum in order to keep staff engaged and to ensure that they will work up to the termination date. It would be tempting for employees who have been notified of their redundancies to look for alternative employment and in the event that they were able to secure new employment to start work as soon as possible which would put at risk the employer’s plans of closing its operations smoothly and on the planned date.
Do I have to inform the government if I plan to make redundancies?
No.
What payments are employees entitled to?
An employee has been employed for at least 24 months, is entitled to a statutory severance payment equal to two-thirds of their last full month’s salary, or two thirds of HK$22,500 whichever is lower, multiplied by the number of years’ service. Where an incomplete year has been served, the severance sum is pro-rated for that year. There is a cap on statutory severance payments which is HK$390,000.
It is still permissible for an employer to offset the value of its MPF contributions against statutory severance which can reduce the payment to a negligible amount.
Notice: the employer must ensure that they comply with the notice requirement in the employee’s employment contract if the employee will be required to serve out their notice period or otherwise to make a payment in lieu of the notice period. In addition, the employer must ensure that any contractual entitlement which the employee has is paid within 7 days of the termination of the employment. Such sums would include:
- wages up to the termination date;
- payment in lieu of accrued unused annual leave entitlement;
- reimbursement of expenses incurred for the benefit of the employer;
- accrued end of year payment; and
- payment of any bonuses /commission.
An employer which fails to make payment within 7 days of the termination date commits a criminal offence and is liable to a fine or 3 years imprisonment upon conviction.
What if my company is insolvent and cannot pay?
Employees will be a preferential creditor in any winding up. In addition, an employee can apply for an ex gratia payment from the Protection of Wages on Insolvency Fund which was set up to provide protection to employees and covers wages owed during the four months prior to the last day of employment as well as unpaid holidays, wages in lieu of notice and statutory severance payment. Each type of payment has upper limits.
For the purpose of this note, we have focussed on the legal requirements that currently apply to:
- Employers subject to the UAE Labour Law (No. 8 of 1980) (the “UAE Labour Law”), as well as the Ministry of Human Resources and Emiratisation's ("MOHRE") Ministerial Resolution No. 279/2020 (the “MOHRE Resolution”), which enables employers to implement certain emergency employment measures in light of the COVID-19 pandemic. Employers based in freezones should take advice on whether the MOHRE Resolution applies to them. The MOHRE Resolution does not have a specific end-date and will remain in force until further notice from the MOHRE; and
- Employers subject to the Dubai International Financial Centre (“DIFC”) Employment Law No.2/2019 (the “DIFC Employment Law”), as well as the recent DIFC Presidential Directive No. 4/2020 (the "DIFC Directive"), which enables DIFC employers to implement certain emergency employment measures in response to the COVID-19 pandemic.The DIFC Directive is in force for the period from 21 April 2020 to 31 July 2020, subject to any subsequent extension.
Neither jurisdiction formally recognises the concept of "redundancy"; as such, whilst 'redundancy' dismissals do happen in practice, they carry with them the risk of challenges and claims by employees, which are considered further below.
What is a genuine redundancy scenario?
There is no statutory definition or concept of redundancy under UAE Labour Law or DIFC Employment Law.
Under UAE Labour Law, employment can be terminated: by mutual agreement; on the expiry of a fixed term contract; or for "valid grounds of termination without arbitrariness", namely, one of the 10 prescribed gross misconduct grounds or another "valid reason" to dismiss. Unhelpfully, the UAE Labour Law does not define what valid reason means, but generally the UAE Labour Courts want to see a reason connected with the employee's conduct or performance - a dismissal by reason of 'redundancy' under UAE Labour Law is, therefore, technically an arbitrary dismissal. Generally, redundancies or costs-savings are not accepted as valid reasons for dismissal; however, exceptions have been made, for example, where a business is shutting down completely and the employer can demonstrate – and clearly evidence – through its financial records that the closure was necessary.
In the DIFC, the concept of redundancy is broadly understood to envisage the scenario where there has been a significant change in business requirements – such as a material reduction in demand – that results in the need for employees to do certain work ceasing or diminishing, or a complete business or location shutdown. Under DIFC Employment Law, employment can be terminated for cause, namely where the conduct of one party warrants termination and where a reasonable employer or employee would have terminated as a consequence of that conduct. Redundancy would not fall within this definition. Alternatively, employment can be terminated without cause provided that the statutory/contractual notice requirements are adhered to. There is nothing in the statute preventing redundancy being cited as the reason for termination without cause. However, care must be taken to guard against claims that, for example, a redundant employee was dismissed or subjected to some other detriment because they raised concerns about wrongdoing in the company (whistleblowing), or that their redundancy was tainted by discrimination, including being selected for redundancy for reasons relating to a protected ground (such as sex, race, age, pregnancy or maternity). It is prudent, therefore, for an employer who is intending to make staff redundant to be able to demonstrate that the reason is genuine, for example, by documenting this in business forecasting reports, board minutes or by way of a standalone analysis.
(Note that there is also limited protection from discrimination under UAE federal law; in relation to non-nationals (i.e. expatriates) this is not contained in the UAE Labour Law itself but in certain other statutes.)
Does it matter how many redundancies I plan to make?
No.
Can employees volunteer for redundancy?
In both jurisdictions, employment can be ended by mutual agreement between the employer and employee. There is, therefore, nothing to prevent employers from offering voluntary redundancy as an option. However, before doing so they should consider how to deal with take-up being over- or under-subscribed, to ensure that they do not unwittingly lose their most talented employees in the process and, in the DIFC in particular, that an employee has not been offered or refused voluntary redundancy for discriminatory reasons (for example, on grounds of sex, race, age, pregnancy or maternity).
What procedure should I follow?
Whilst the DIFC Directive is in force, DIFC employers must maintain a list of employees who are surplus to current requirements or have been terminated since 1 March 2020. That information must be provided to the DIFC Government Services Offices who will enter the employees' details onto the DIFC Available Employee Database (with the employee's consent) for recruitment purposes.
Aside from this, there are no statutory redundancy procedural requirements in either jurisdiction.
That said, employers in either jurisdiction will be keen to limit the risk of claims in a redundancy situation and/or try to reduce the amount of compensation that may be awarded to an employee (for example, for arbitrary dismissal). Multi-national employers may also want (or need) to be seen to be adhering to international best practice. Following even a basic redundancy procedure may assist in both respects.
A fair process might include some or all of the following: providing employees with (written) information related to the potential redundancy situation, including the business rationale and implications for the business and them personally; consulting with the employees on a group and one to one basis (although this is not common market practice); considering alternatives to redundancy (see below); and ensuring that fair and objective (non-discriminatory) selection criteria are used.
As mentioned above, employers in both jurisdictions ensure that they have sufficient documentary evidence to show that any redundancy was genuine to support their defence of any employee claims that are made in connection with the dismissal.
Are employers required to consider alternatives to redundancy?
There is nothing in either the UAE Labour Law or the DIFC Employment Law requiring UAE or DIFC employers to consider alternatives to redundancy.
However, as at the time of writing, the position is complicated for UAE employers by the MOHRE Resolution, which enables them to implement certain emergency measures in response to the COVID-19 crisis. These emergency measures could be considered alternatives to redundancy and include remote working, the taking of paid or unpaid leave, and temporary or permanent salary reductions (some of which require the employee’s and/or the MOHRE's consent). In addition, if they have employees who are surplus to business needs then employers should consider registering them on the new virtual labour market ("VLM") established under the MOHRE Resolution to give them the opportunity to apply or be considered for vacancies with other employers. Whilst registered on the VLM, an employee's visa and employment contract remain valid and the employer must continue to provide their housing and other employment entitlements (except wages), until the employee finds another job or leaves the UAE (or until the scheme is withdrawn by the MOHRE, if earlier). Unfortunately, the wording of the MOHRE Resolution is not as clear/precise as it could be, meaning that certain key provisions are open to interpretation until the Labour Courts have ruled on it (in particular, whether registration on the VLM is mandatory or optional, and whether "housing" includes housing allowances or just the provision of physical accommodation).
DIFC Employers can also implement emergency measures as provided for in the DIFC Directive, which include imposing reduced working hours, paid and unpaid leave, and implementing remote working – all of which can be done without employees' consent. Under the DIFC Directive, DIFC employers must also maintain a list of employees who are surplus to current requirements or whose employment has been terminated since 1 March 2020. That information must be provided to the DIFC Government Services Offices) who will enter the employees' details onto the DIFC Available Employee Database (with the employee's consent) for recruitment purposes.
In our view, neither the MOHRE Resolution nor the DIFC Directive require employers to have implemented all of the alternative measures before dismissing; however, it is advisable to have at least considered them and make sure that you have convincing reasons – and evidence - why they were not appropriate and why dismissal was unavoidable.
Do I need to identify suitable alternative roles for each employee?
This is not a specific statutory requirement in either jurisdiction, whether under the UAE Labour Law/MOHRE Resolution or the DIFC Employment Law/DIFC Directive, but would be consistent with international best practice and could, therefore, help employers to mitigate the risk of employees bringing claims (for example, on the basis that employees are reassured that the employer has considered this before proceeding to dismissal).
How long should I consult for before confirming redundancies?
There are no statutory redundancy consultation requirements in either jurisdiction and, whilst consistent with international best practice, consultation is not undertaken as a matter of course in the UAE or DIFC. Redundancies can therefore be implemented fairly quickly – particularly if they are made in response to unexpected, urgent cashflow issues (for example, those that may result from the COVID-19 pandemic).
If an employer decides to consult, then best practice suggests that the higher the number of proposed redundancies the longer the consultation period should be.
Do I have to inform the government if I plan to make redundancies?
There is no requirement on UAE employers to notify the relevant government authorities prior to making redundancies. As mentioned above, UAE employers should consider registering surplus employees on the VLM. Once redundancy dismissals have been confirmed UAE employers will have to take steps to cancel the residency visa of any employees under their sponsorship and any work permit, which will involve notifying the relevant authority of the dismissal and visa/permit cancellation.
DIFC employers have similar obligations in relation to the cancellation of residency visas of employees under their sponsorship and work permits (although have some scope to delay cancellation under the DIFC Directive). In addition, as mentioned above, whilst the DIFC Directive is in effect DIFC employers must provide details of employees who are surplus to current requirements, or terminated since 1 March 2020, to the DIFC Government Services Offices.
What payments are employees entitled to?
Subject to certain exceptions, dismissed employees in both jurisdictions are entitled to statutory end-of-service gratuity payments as well as standard termination costs including notice pay (or pay in lieu of notice), pay in lieu of accrued but untaken holiday entitlement, repatriation flights and contractual benefits, such as a pro-rated bonus or shipping costs.
Employees are not entitled to any statutory redundancy pay in either jurisdiction. There is a common misunderstanding that, under the UAE Labour Law, UAE employers are obliged to pay 3-month 'redundancy payment' to employees who are made redundant. This confusion arises from the fact that the maximum compensation that employers can be made to pay an employee for arbitrary dismissal (should they bring a claim) is 3 months' gross remuneration. Note that under the UAE Labour Law termination of a limited term contract for any reason other than one the prescribed gross misconduct grounds (which do not include redundancy) may result in an award of 'early termination' compensation to the employee equal to the remaining period of the fixed term contract or 3 months wages, whichever is shorter.
Employers in either jurisdiction may offer an ex gratia payment when making employees redundant – usually where there is a likely risk of an employment-related claim or reputational damage, or where it is the company’s standard approach. Such payments should be made under settlement agreements incorporating a waiver of claims (the effectiveness of which differs depending on which jurisdiction the dismissals are made in). Employers should also note that there are time limits for making termination payments.
What if my company is insolvent and cannot pay?
Employees in both jurisdictions have some protection in an insolvency situation in that they will be considered preferential creditors in respect of certain employment payments including: salary; payments in lieu of notice or accrued but untaken annual leave; end of service gratuity payments or (in the DIFC at least) sums owed by way of contributions into a pension scheme.
These payments are, however, subject to certain limits, for example: for UAE employees, the total aggregate amount recoverable as a preferential debt is generally limited to the equivalent of three (3) months' salary; for DIFC employees, whilst the salary element is capped at four (4) months, the other elements are generally recoverable as preferential debts on top of that amount.
Sums paid by DIFC employers into the DIFC Employee Workplace Savings scheme ("DEWS") are held in a separate trust outside of the employer's control and so will be protected against any insolvency of the employer.
(See, for example: DIFC Insolvency Law, DIFC Law No.1/19 and the DIFC Preferential Creditor Regulations; UAE Bankruptcy Law, Federal Law No.9/2016.)
Employment laws pertaining to redundancy (known as retrenchment in Singapore) are generally employer friendly and in particular, there is no legal obligation on an employer to pay an employee retrenchment benefits. The Ministry of Manpower of Singapore ("MOM") has however published the Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (March 2020) (the “Guidelines”), which while not carrying force of law, are generally followed by most employers as a matter of market practice.
What is a genuine redundancy scenario?
The words “retrenchment” or “redundancy” are not defined in Singapore’s legislation but case law has considered such terms as “the discharge of surplus labour or staff by an employer for any reason whatsoever otherwise than as a punishment inflicted by way of disciplinary action”.
Does it matter how many redundancies I plan to make?
If a company has at least ten employees and intends to retrench at least five employees within any six month period, the company must notify MOM within five working days after it notifies its employees of the impending retrenchment (the "Mandatory Retrenchment Notifications").
Failure to comply with the requirement on Mandatory Retrenchment Notifications is a civil contravention, for which administrative penalties can be imposed and companies which wilfully do not comply may be guilty of an offence, for which strong enforcement action may be taken.
Can employees volunteer for redundancy?
There is no legal prohibition against doing so.
What procedure should I follow?
Due to the impact of Covid-19 on the economy, several new guidelines have been introduced to curb the number of retrenchments. Employers are encouraged to implement one or more of the following alternatives before making retrenchments:
- Send employees for training to upgrade their skills and employability;
- Redeploy employees to alternative areas of work within the company;
- Implement flexible work schedules, flexible work arrangements, shorter work-week, or temporary layoffs;
- Adjust wages in line with the guidelines established in Tripartite Advisory on Managing Excess Manpower and Responsible Retrenchment (March 2020); and/or
- Implement no-pay leave.
If after considering the alternatives provided above, an employer still determines that it has to carry out a retrenchment exercise, it should take into consideration the following:
- The selection of employees for retrenchment should be conducted fairly, based on objective criteria such as the ability of the employee to contribute to the employer's future business needs and should not discriminate against any particular group on grounds of age, race, gender, religion, marital status and family responsibility, or disability. Employers are required to abide by the Tripartite Guidelines on Fair Employment Practices as MOM will investigate complaints of discriminatory employment practices and take strong enforcement actions for substantiated complaints.
- Compliance with the Mandatory Retrenchment Notifications, if applicable. Additionally, if is the employees to be retrenched are unionised, the relevant union should also be notified as early as possible.
- The retrenchment exercise should be communicated to the employees as early as possible and, in any event, before public notice of the impending retrenchment is given. Subject to any contractual agreements in the employment contract and/or employment handbook of the company; the Employment Act (Chapter 91) of Singapore (the "Employment Act") stipulates that the minimum notice period is as follows:
a. one day’s notice if he has been so employed for less than 26 weeks;
b. one week’s notice if he has been so employed for 26 weeks or more but less than 2 years;
c. 2 weeks’ notice if he has been so employed for 2 years or more but less than 5 years; and
d. 4 weeks’ notice if he has been so employed for 5 years or more.
- Retrenchment benefits should be provided to employees who have served two years and above while employees with less than 2 years' service could be granted an ex-gratia payment. The quantum of retrenchment benefits depends on what is provided for in the employment contract or the collective agreement (if applicable). If no such provision is found, the recommended rate is two weeks to 1 month of salary for every year of service. The payment of retrenchment benefits is a guideline and not a statutory requirement although it is followed by most employers as a matter of market practice.
Do I need to identify suitable alternative roles for each employee?
While not a legal requirement, employers are strongly encouraged under the Guidelines to identify and redeploy employees to alternative areas of work within the employer. Where there are no such available positions, employers may also consider outplacing the affected employees to suitable jobs with other employers.
How long should I consult for before confirming redundancies?
No consultation is legally required. However, if the affected employees are unionised, the Guidelines recommend that the union should be contacted to discuss redundancy payments and other redundancy issues prior to speaking to the employees.
Notwithstanding the above and subject to any minimum periods set out in the Employment Act or the employment contract, employers are encouraged to open channels of communication with the affected employees early and adopt a longer redundancy notice period, where possible.
Do I have to inform the government if I plan to make redundancies?
If an employer has at least ten employees and intends to make retrench at least five employees within any six month period, the employer must comply with the Mandatory Retrenchment Notifications (as discussed above).
What payments are employees entitled to?
The common payments which an employee is entitled to upon retrenchment are as follows:
- wages up to the last day of his employment;
- payment in lieu of accrued unused annual leave entitlement;
- reimbursement of expenses incurred for the benefit of the employer;
- accrued end of year payment (e.g. annual wage supplement);
- payment of any bonuses /commission;
- agreed retrenchment benefits.
What if my company is insolvent and cannot pay?
Employees with outstanding claims for salary, retrenchment benefits, outstanding CPF contributions and any payment for accrued but unutilised annual leave are considered as preferred creditors and will be paid in priority to all unsecured debts under section 328 of the Companies Act, Chapter 50 of Singapore.
Outstanding salary and retrenchment benefit claims are ranked second and third in the list of priorities respectively, subject to a cap of five months' salary or S$13,000 (whichever is lower) whereas outstanding contributions to CPF and payments for accrued but unutilised annual leave rank fifth and sixth respectively.
The Singapore section of the article was written by Jason Yang and Christine Ong at Virtus Law LLP (a member of the Stephenson Harwood (Singapore) Alliance). For more information, please do not hesitate to contact any of the team at Stephenson Harwood (Singapore) Alliance.