Twelve Cupcakes, Jollibean, Art Works — Can workers be better protected from sudden closures?: askST

Recent shuttering of businesses including Art Works, Twelve Cupcakes and Jollibean left hundreds of workers abruptly without jobs and owed unpaid wages.

“Unfortunately, this is not the first time we have seen businesses cease operations abruptly, and it highlights recurring vulnerabilities in the current framework,” noted Ms Viviene Sandhu, managing co-partner at Clifford Law.

We speak to her and two other lawyers with specialisations in employment law and regulatory compliance on what can be done to protect workers.

Q: Under current law, employers with at least 10 employees must notify the Ministry of Manpower (MOM) within five days after retrenching workers. This allows timely support for affected employees while balancing business needs.​ Can this be improved to protect workers?

A: MOM is currently reviewing a proposal from the National Trades Union Congress to require employers to notify the government before layoffs, rather than after.

Mr Clarence Ding, a partner at law firm Ashurst, said mandating that liquidators notify creditors, including employees, in advance would give workers time to prepare.

He noted, however, that this still would not guarantee that workers receive timely payment. Employees may get paid after the liquidation process completes, but not necessarily all the monies they are owed.

Mr Alvin Tan, managing director of Kinexus Legal, pointed out that mandatory pre-retrenchment notifications can be tricky, as firms may finalise retrenchment lists at the last moments and may still change plans to save jobs.

He suggested mandatory advance notice only in urgent cases, such as when employees are retrenched on the same day they are informed.

Q: What measures can workers take to recover their entitlements, besides speaking to the liquidator?

A: Workers should file salary claims with the Tripartite Alliance for Dispute Management (TADM) even if they are non-unionised, Ms Sandhu said. They should register as preferential creditors, which gives priority in the liquidation process. Filing a Proof of Debt with the liquidator ensures inclusion in asset distribution if funds are available.

Filing a claim with TADM triggers intervention by MOM and, if appropriate, escalation to the Employment Claims Tribunals.

She said: “Creating an official record is critical for enforcement and mediation.”

Mr Ding explained that under the order of priority, secured creditors, such as a bank that provided a loan or a mortgage, are paid first.

Employees with unpaid salaries come next, in the category of preferential creditors.

Preferential creditors rank higher in priority to unsecured creditors, which could include service providers such as utility and credit card companies.

He proposed amending the Insolvency, Restructuring and Dissolution Act (2018) to move employees up a rank alongside secured creditors like banks.

Q: Can imposing personal liability on business owners guarantee payment for workers?

A: Clifford Law’s Ms Sandhu said Singapore already criminalises intentional non-payment of salary and Central Provident Fund contributions, but provisions to hold directors personally liable could be strengthened. This is especially if they operate while insolvent or dissipate assets shortly before closure.

She proposed earlier notification obligations, tighter asset controls and harsher penalties to deter irresponsible shutdowns.

Mr Tan, however, cautioned that making directors personally liable risks deterring entrepreneurship, as businesses can fail for valid reasons. He suggested wage protection insurance for higher-risk companies, but acknowledged challenges in defining “higher-risk” fairly and balancing entrepreneurial impact.

Q: Do employees of a liquidated business have a better chance for recourse if its parent company is still functioning?

A: Under Singapore law, a parent company and its subsidiary are separate legal entities with distinct assets and liabilities, so it is difficult to hold a solvent parent company liable unless it ran the subsidiary as if they were one entity, said Mr Ding.

But there are exceptions, Ms Sandhu said. “These include situations involving fraudulent or insolvent trading, misrepresentation, the existence of guarantees, or facts indicating that the parent was the true employer in substance despite the corporate structure.”

Employees would need evidence of these to hold the parent liable, she said.

Q: Does Singapore employment law cover foreign directors?

A: Singapore employment law applies equally regardless of whether directors are foreign or local. However, enforcement is harder if foreign directors flee Singapore or the company has no assets, noted Ms Sandhu.

She said: “In such situations, employees may recover only a portion of what they are owed.”

Q: How do other countries protect workers against owed wages?

A: In Hong Kong, workers can apply to the Protection of Wages on Insolvency Fund for an ex-gratia payment of up to HK$80,000 ($13,400). The fund that dispenses the goodwill payment is collected through an annual business registration levy and investment returns. Employees must still pursue severance or unpaid wages through bankruptcy proceedings.

In Japan, workers in high-accident-risk sectors like manufacturing and construction that require industrial accident compensation insurance are paid owed wages by the government on behalf of bankrupt employers, upon their workers’ request. Workers in other industries rely on insolvency and legal claims without government guarantees.

In France, the Wage Guarantee Scheme, a fund created by employers, steps in to pay employee claims during company failures.

The UK Redundancy Payments Service (RPS) pays statutory redundancy and unpaid wages when employers cannot pay, even before formal insolvency. The RPS holds employers liable to repay.

Germany’s Insolvency Wage and Salary Guarantee Fund covers up to three months of unpaid wages if employers become insolvent. It is funded by employer contributions and administered by the Federal Employment Agency.

Source: The Straits Times © SPH Media Limited. Permission required for reproduction.

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