Severance Pay

Can a company remove severance pay if it was given previously?

In Singapore, if a company has included a severance pay clause in the employment contract or if they have provided severance pay in the past, they are obligated to continue providing it to employees who meet the criteria for eligibility.

However, if the company has not included a severance pay clause in the employment contract, they are not legally required to provide it. In this case, the payment of severance pay would be at the discretion of the company.

It’s worth noting that employers can change their policies and benefits, including severance pay, as long as they provide reasonable notice to affected employees.

The notice period for changes in policy or benefits should be clearly stated in the employee handbook or the employment contract.

Under Singapore’s employment laws, there is no statutory requirement for employers to provide severance pay unless it is specified in the employment contract or collective agreement.

However, there are certain circumstances where severance pay may be mandated. For instance, the Employment Act in Singapore states that an employee who has been employed for at least two years is entitled to retrenchment benefits if they are retrenched for reasons other than misconduct or poor performance.

When is severance payable?

Despite this, it is considered good practice to provide employees with a severance package that includes some form of financial compensation, especially in cases of retrenchment.

The amount of severance pay provided is usually based on factors such as the employee’s length of service with the company, their job level, and the company’s financial situation. There is no fixed formula for calculating severance pay in Singapore, but it is common for employers to provide between 1-2 weeks of salary per year of service as a guideline.

It is important to note that if the employee is terminated due to misconduct or poor performance, they may not be entitled to severance pay.

Recent court cases related to severance pay

Far East Square Pte Ltd v. Yau Lee Construction (Singapore) Pte Ltd (2012): The Court of Appeal held that employees who have been unfairly dismissed are not automatically entitled to additional compensation in the form of severance pay. However, the court acknowledged that severance pay could be awarded in exceptional cases where there has been an unfair dismissal.

Ng Chee Meng v. PPST Engineering Pte Ltd (2011): This case involved a dispute over the entitlement to retrenchment benefits. The Singapore High Court clarified that retrenchment benefits should be granted to employees who have been retrenched due to redundancy, regardless of whether they hold a managerial or non-managerial position.

Totalisator Board v. Poon Choon Seng (1999): The High Court of Singapore ruled that the principle of fairness should guide the determination of severance pay. The court considered factors such as the employee’s length of service, age, and availability of alternative employment opportunities in assessing the reasonableness of the severance package.

Koh Yew Beng v. Chuan Hup Holdings Ltd (1997): In this case, the Singapore Court of Appeal clarified that severance pay is distinct from salary in lieu of notice. The court held that where an employee is entitled to a contractual notice period, the payment made during that period cannot be considered severance pay.

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