What is Retrenchment? All You Need To Know.

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In the dynamic landscape of today’s workforce, retrenchment has become increasingly relevant. Whether prompted by economic shifts, technological advancements, or organizational restructuring, retrenchment entails the reduction of a company’s workforce.

This article delves into the intricacies of retrenchment – exploring its meaning, causes, and methods. It will also examine the various aspects employers and employees must consider when navigating this challenging process.

From legal considerations to strategies for fair implementation, understanding retrenchment is essential for organizations. It is also essential for individuals seeking to navigate change while maintaining integrity and sustainability in organizations.

What Is Retrenchment?

Retrenchment of employees involves dismissing workers due to excess labor or inability to meet the company’s performance standards.

Retrenchment refers to the termination of a worker’s service by an employer for any reason other than disciplinary action.

However, the following circumstances are excluded from the definition of retrenchment:

  1. Voluntary retirement of a worker.
  2. Workers’ Retirement on reaching the superannuation age if the employment agreement includes a superannuation clause.
  3. Termination of a worker’s service due to the non-renewal of the employment agreement.
  4. Termination based on ongoing ill-health.

Retrenchment of employees is a strategy employed by companies to reduce their workforce when compelled to downsize. Subsidiaries of multinational corporations often use workforce reduction to cut human resource expenses.

However, companies often fail to consider the legal requirements to be carried out before retrenching their employees.

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What Is Considered To Be A Fair Procedure For Retrenchment?

The employer is obligated to engage in discussions with employees likely impacted by employee retrenchment, as well as their workplace forum, registered or elected representatives, or individuals chosen through a collective agreement (referred to as “consulting employees”).

The employer must furnish a written notice inviting the consulting employees to partake in consultation and disclose all pertinent information for this purpose.

The consulting employees must collaborate to reach a consensus on specific matters detailed in the notice.

The employer must permit the consulting employees to provide input on the subjects mentioned in the notice and any other matters related to the proposed retrenchment.

The employer is obliged to address the representations made by the consulting employees. In cases where there is a difference of opinion, the employer must provide reasons for their disagreement.

The employer must select the employees to be let go based on selection criteria mutually agreed upon with the consulting employees or one that is impartial and equitable.

Once the consultation process has been fully explored, the employer can retrench and issue a notice of employee reduction in compliance with labor laws, notifying the affected employees.

For employers with over 50 employees, the law prescribes additional procedures to be adhered to when implementing retrenchment.

No Mandatory Retrenchment Benefits

“No Mandatory Retrenchment Benefits” typically refers to a situation in which there are no legally required or mandated severance or compensation packages for employees who are laid off or retrenched by their employers. In some countries or regions, there are laws that dictate that employers must provide certain benefits to employees who are laid off due to factors beyond their control, such as economic downturns or restructuring.

However, in places with no mandatory retrenchment benefits, employers might have more flexibility in deciding whether or not to offer any form of compensation or severance to retrenched employees. This can vary widely depending on local labor laws and regulations, as well as the company’s policies.

Employees need to be aware of the labor laws and regulations in their jurisdiction to understand what protections and benefits they are entitled to in case of reduction. Negotiating a fair severance package might be crucial for affected employees if there are no mandatory benefits.

Please note that labor laws and regulations can change, so it’s always a good idea to consult legal experts or relevant government agencies to get the most up-to-date and accurate information regarding retrenchment benefits in a specific location.

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Disguised Retrenchments And Quiet Firings

Among the more covert variations of retrenchment are those deliberately engineered to appear as something other than their actual essence.

These reductions are masked to circumvent reporting requirements, avoid drawing attention from regulatory bodies like the Ministry of Labor, and sidestep the obligation to provide retrenchment benefits. Instances of such concealed retrenchments include:

  • “Quiet firing” is a “cheap” retrenchment tactic where companies create an intolerable work environment such that employees quit independently.
  • Mischaracterizing a reduction as a sacking for misconduct or poor performance, in particular, where the employer has expressed no such concerns prior
  • to mischaracterize a retrenchment as a straightforward contractual termination by only providing notice or salary in place of notice and failing to address the issue of retrenchment benefits.

When a company is discovered to have camouflaged its retrenchment actions, labor authorities may impose administrative sanctions, potentially leading to consequences such as the revocation of their work pass privileges.

What Should Retrenchment Look Like?

While retrenchments might be unavoidable from a business perspective, employers must ensure they are carried out with sensitivity, fairness, and without discrimination towards the employees.

This involves ensuring that retrenchment is considered a last resort, and employers should explore alternative options like reassigning employees to different roles, transitioning them to part-time positions, or even facilitating job sharing.

If retrenchment becomes the only option, employers should give employees a longer notice period than stipulated in their contracts. This extended notice period gives affected employees more time to search for new employment opportunities.

Regrettably, it’s not uncommon for companies to bypass the requirement of providing notice by offering a salary instead of notice.

An additional approach is for companies to place employees on garden leave during notice. This allows employees to remain on the company’s payroll while actively seeking new job opportunities.

The Tripartite Advisory strongly recommends that companies support employees in finding new employment paths. This support can encompass services such as outplacement assistance, providing positive references, offering CV writing aid, and collaborating with organizations like the Employment and Employability Institute (e2i) and Workforce Singapore to facilitate this process.

What Recourse Is Available To Retrenched Employees?

Retrenched employees typically have certain rights and options, varying depending on their jurisdiction’s labor laws and regulations. Below are some standard recourses that may be available to retrenched employees:

Severance Pay or Retrenchment Benefits:

In some regions or industries, laws or agreements might require employers to provide retrenched employees with severance pay or retrenchment benefits. These benefits are intended to provide financial support to employees who have lost their jobs due to reasons beyond their control.

Notice Period

Depending on labor laws and the employment contract, employees might be entitled to a notice period before their employment is terminated. This notice period gives employees time to prepare for their job loss and seek alternative employment.

Redeployment or Alternative Employment

Some jurisdictions require employers to redeploy retrenched employees to other suitable positions within the company before resorting to termination. This helps retain experienced staff and minimize job loss.

Unemployment Benefits

In certain countries, retrenched employees may be eligible for unemployment benefits or insurance payments to help cover their basic living expenses while they search for new employment.

Legal Action

Retrenched employees might have legal grounds to pursue legal action against their former employer if the reduction violates labor laws, employment contracts, or anti-discrimination regulations.

Support Services

Government agencies, labor unions, and non-profit organizations may provide support services to retrenched employees, such as job search assistance, training programs, and counseling.

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Depending on the circumstances of the reduction and the company’s policies, employees might have the option to negotiate aspects of their departure, such as the terms of their severance package.

Retrenched employees must familiarize themselves with their rights and options under local labor laws and employment contracts. Consulting legal experts, labor unions, or relevant government agencies can provide more specific guidance based on individual situations and locations.

Strategies To Deal With The Fear Of Retrenchment At Your Company

Suppose you have a suspicion that layoffs are imminent at your company, regardless of the field you’re in. In that case, you’re likely investing a significant amount of time being concerned and anxious about what lies ahead.

Predicting whether you’ll face a layoff is impossible, but this uncertainty also means you can’t be sure you won’t be let go. Even if you receive a severance package, losing a job in the current economic climate is challenging. You wouldn’t want this experience even for your adversaries (or perhaps you would?).

Here are some strategies to deal with that fear and anxiety:

Voice Your Fears And Eliminate Overthinking

Get your closest coworker or a dependable manager, and discuss your anxieties honestly and openly. You might discover the reassurance you require, but you must control your overanalysis and not allow it to overcome you.

You can confide in your friends and family if discussing it with coworkers is awkward. If you believe your position at work is unstable or unclear, get the assistance you need. Allow others to assist you in developing the self-worth necessary to maintain yourself even if you lose your job.

Remember That There’s Always Something Out There

During retrenchment exercises, workers are let go at random. You have no control over anything, no matter how nervous you are about it.

There’s always a job out there waiting for you, which is another fact. Remain logical at all times, even when it seems like the end is close (doomsayers, you know who you are).

It doesn’t mean you’ve reached a dead end if you ever get laid off (hopefully). You know how to look for a job since you’ve done it before.

Be Mindful, Focus On The Present, And Keep Doing Your Best At Work.

Projecting your problems onto a future that might or might not happen is useless. You still have work to do at the end of the day, so take time to unwind with these three anxiety-reduction strategies.

Give it your all, persevere through it, and cultivate mindfulness. That’s the mark of a valued employee, and you may ask your boss to write you relevant recommendation letters later on.

Knowing how to prepare for a possible layoff—which we sincerely hope doesn’t happen—brings you one step closer to being a self-assured professional.

What You Should Know About Retrenchment

#1: There Needs to be a Consultation Process

When a company makes the hard decision to restructure, it cannot immediately start retrenching workers. It first needs to consult with staff as it considers the various options.

If management decides to retrench or redeploy staff or cut down working hours as an alternative, it should only do so after consultation.


#2: There Must Be Written Notice

Under section 189 (3) of the Labour Relations Act, an employer must notify employees in writing about all relevant information relating to the proposed retrenchment. This should be done even before the consultation starts.

#3: An Employer Must Prove That All Alternatives Have Been Explored

In arguing the company’s case for retrenchment, management must demonstrate that it has tried all other possible solutions. This is to prove that the actions taken are not arbitrary

#4: LIFO is the Rule

When selecting staff for retrenchment, managers must use the “last in, first out” (LIFO) principle, subject to skills, experience, and qualifications. The employer must make every attempt possible to include affected employees in the new structure of the business. Expecting employees to reapply for positions in the new structure is not permitted.

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#5: Employees Must Be Consulted About Severance Packages

Employers must confer with impacted employees about an appropriate severance benefit. For every full year of service, the package can consist of at least one week’s compensation and notice pay. The two parties’ agreement is also a requirement for the package.

In conclusion, while reduction is never something anyone wants to consider, it happens occasionally. The Labour Relations Act imposed these rules to ensure process equity, and it is in everyone’s best interest to be aware of and follow them.


Retrenchment stands as a pivotal and often distressing concept in the realm of employment and economics. It signifies the involuntary separation of employees from their roles due to various factors, typically from organizational restructuring, economic downturns, or technological advancements.

This process impacts individuals’ livelihoods and carries broader implications for the workforce, companies, and the economy.

Whether through layoffs, downsizing, or restructuring, retrenchment reshapes the employment landscape and underscores the importance of proactive measures for individuals and organizations.

As industries continue to evolve, understanding retrenchment’s nuances becomes crucial in navigating the ever-changing dynamics of the modern professional world.




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