FEATURE


This case concerns the payment and quantum of retrenchment benefits in the absence of a signed Collective Agreement. The company had asserted that it had absolute discretion on the payment of retrenchment benefits. However, the Industrial Arbitration Court held that the union had the legal right to negotiate with the company on all industrial matters upon being formally recognised by the company.
 
Industrial Arbitration Court Case No D39 of 2012
 
United Workers of Electronics and Electrical Industries v Sealing Technologies Pte Ltd

Facts
 
The United Workers of Electronics and Electrical Industries (the “Union”) represented 98 union members who had been retrenched by Sealing Technologies Pte Ltd (the “Company”) in their claims for retrenchment benefits. The Company had on two separate occasions on 30 December 2011 and 10 February 2012 retrenched a total of 159 employees of which 98 were union members with at least three years of service.
 
The Union was accorded recognition by the Company on 2 November 2010. On 24 May 2011, the Union served a draft Collective Agreement pursuant to s 18 of the Industrial Relations Act on the Company. Negotiations pertaining to the Collective Agreement subsequently commenced. In the Collective Agreement served by the Union on the Company, the clause relating to retrenchment benefits stated that the amount of retrenchment benefits payable to affected employees shall be one month’s basic salary for every completed year of service or part thereof for an incomplete year of service.
 
The Union and the Company were unable to agree on the terms of the Collective Agreement.  In early December 2011, the Managing Director informed the Union of the Company’s intent to retrench some of the employees. On 27 December 2011, the Union was informed that the Company would proceed with its first batch of retrenchment on 30 December 2011 and a total of 71 workers would be affected. The Company claimed that as a consequence of the Thailand floods, millions of dollars were needed for rebuilding and money needed to be set aside to keep the Company going before its overseas plants started running again. The Company proposed the following retrenchment payments:
1.   No ex gratiafor employees with less than three years of service;
 
2.   Two weeks per complete year of service for employees with three or more years of service and no pro-rated quantum for incomplete years of service;
 
3.   Encashment of annual leave; and
 
4.   Payment-in-lieu of notice.
 
The Union reiterated its position that the affected employees should be paid at least one month per year of service and that the Company should consider pro-rated payments for incomplete years of service. As the Collective Agreement negotiations came to a stalemate, the matter was referred to the Ministry of Manpower (the “MOM”) on 28 December 2011. The MOM attempted to schedule a conciliation meeting before 30 December 2011. However, the Company indicated that its representatives were unavailable to meet till the following week. The MOM suggested to the Company to consider postponing the retrenchment exercise till after the conciliation meeting could be held. The Management, however, did not postpone the retrenchment exercise and went ahead on 30 December 2011 to retrench 71 employees. The Company paid retrenchment benefits of two weeks per year of service to those who had three or more years of service and no pro-ration for incomplete years of service.  
 
Despite several conciliation meetings at the MOM after the said first retrenchment exercise, the issue of the quantum of retrenchment could not be resolved. The MOM declared a deadlock. The Management refused to sign a joint declaration and said that they would only go to the Industrial Arbitration Court ("IAC") if “ordered” to do so by the Court.  Subsequently, the Minister for Manpower directed the matter to the IAC.
 
On 10 February 2012, the Company carried out a second retrenchment exercise and retrenched 88 employees. As with the earlier retrenchment exercise, the Company paid retrenchment benefits of two weeks per year of service to those who had three or more years of service and no pro-ration for incomplete years of service.
 
The Company’s Submissions/Arguments
 
No Legal Obligation to Pay Retrenchment Benefits

 
The Company’s key argument was that the payment of retrenchment benefits was entirely at its discretion since the proposed Collective Agreement was not signed. They further submitted that there was no express or implied term in the relevant employment contracts providing for the payment of retrenchment benefits, citing s 45 of the Employment Act and used the decisions of Bethlehem Singapore Pte Ltd v Ler Hock Seng and others[1994] SGCA 133 and Loh Siok Wah v American International Assurance Co Ltd[1998] SGHC 146 to support their arguments.
 
Company’s Ability to Pay
 
The Company tried to show that it had suffered losses since 2010 and that the floods in Thailand as well as significant reduction in demand for its products had resulted in its inability to pay. Notwithstanding, their key argument was that its ability to pay was only relevant if the Company was legally liable to pay. The Company maintained that it was not liable to pay in the absence of a signed Collective Agreement.
 
Purpose of Paying Retrenchment Benefits
 
The Company also stated that it should not pay retrenchment benefits as the purpose of paying retrenchment benefits was to help employees while they were looking for new employment after retrenchment and claimed that most of the employees had found new employment.
 
The Union’s Submissions/Arguments
 
Recognition Accorded to the Union

 
The Union submitted that the Company had accorded recognition to the Union and served notice pursuant to s 18 of the Industrial Relations Act. As such, by virtue of s 18 and s 2 of the Industrial Relations Act, a union that had been accorded recognition had the right to represent and negotiate all industrial matters on its members’ behalf. The Union also submitted that it was unreasonable for the Company to assert that as long as the Collective Agreement was not signed, it had the absolute discretion to decide on industrial matters, which it had done by choosing to retrench and pay the affected members retrenchment benefits which were not mutually agreed upon with the Union.
 
The Company had cited s 45 of the Employment Act as authority for not being obliged to pay retrenchment benefits. The Union submitted that the Employment Act merely stipulated the eligibility criteria for claiming retrenchment benefits and that if a worker was not a union member, his entitlement to retrenchment benefits would depend on his individual employment contract. However, this was not the case for union members as unions had the right to negotiate on their behalf. The Union further submitted that the authorities cited by the Company did not involve union members.
 
The Quantum of Retrenchment Benefits Payable: Industry Norm
 
The Union produced evidence of the quantum of retrenchment benefits for the electronics industry being at least one month per year of service for those who had served three or more years and submitted that the Company should pay in accordance with the industry norm.
 
Financial Ability of the Company to Pay
 
The Union took the Court through the Company’s financial statements and showed that the Group had profits of S$4.2 million and the Company had profits of S$5.5 million for the year ending December 2011. The Group also had strong cash flows and cash balances. The Union pointed out that although the Group had suffered losses from the flood, a large portion of the assets were insured. Further, despite the Company’s claim of having suffered losses for two consecutive years in 2010 and 2011, the Group could still pay 47 per cent and 78 per cent of its profits in dividends respectively. The Union also highlighted the discrepancies in the Company’s Profit and Loss Statement.
 
Plight of the Workers
 
The Union went on to submit that it had tried to contact the affected members but only a portion was contactable. Among those contacted, there were some who were still without jobs or had taken lower paid jobs. The Union asked the Company to show proof that all affected had indeed taken up jobs of equal or higher pay but they were unable to do so. In addition, the Union provided a detailed listing of the age, gender and last drawn salary of the 98 affected workers to further submit that their average monthly wage was about $1,000 and that their average age was around 43 years. 
 
Decision of the Court
 
The IAC said that it would act according to equity, good conscience and the merits of the case and in the present case, the Company was obliged to negotiate in good faith with the Union on industrial matters including retrenchment benefits as the union had been formally recognised by the Company.  The Court added that it would not be right for the Company to have absolute discretion for if so, the need for good faith would be severely curtailed. Accordingly, the Court held that all 98 union members are to be paid one month per year of service and pro-rated for any incomplete year of service on the following grounds:
1.   It was the industry norm of the electronics industry to pay retrenchment benefits of one month of salary per year of service to employees with three or more years of service;
 
2.   The Company had the financial ability to pay retrenchment benefits in accordance with the industry norm;
 
3.   There was no clear evidence that the affected members had found jobs with salaries close to or above their previous salaries;
 
4.   The affected workers were generally low wage workers; and
 
5.   The cases cited by the Company did not involve union members.
 
Conclusion
 
This case is a landmark IAC decision in that the Court ruled for the Union despite the fact that there was no signed Collective Agreement. It also suggests that as long as a union has been accorded recognition by a company, it has the legal right to negotiate with the company on all industrial matters pursuant to the provisions of the Industrial Relations Act.



    Patrick Tay Teck Guan*
       E-mail: [email protected]



►    Vivienne Ong Su-Lin*
 
* This article is written in the personal capacity of the authors.