Employees’ redundancy rights
During this Covid-19 crisis, employers and employees alike should be aware of their legal obligations and rights when a redundancy occurs. Where redundancy conditions exist (defined in the Employment Act 2000, the Covid-19 crisis crippling economic conditions certainly qualifies), an employer may lay off an employee for a continuous period not exceeding four months. Where the layoff continues past four months, it shall be deemed to be a termination for redundancy under the Act.
Employees should therefore know their rights on redundancy and employers should know their obligations. The redundancy must be fair and lawful and if not, can be challenged in the Employment Tribunal as an unfair dismissal. If successful, the employee may receive a compensation award or even possibly be reinstated to his/her former job, albeit this rarely, if ever is ordered.
The key elements of a fair dismissal by reason of redundancy are:
• The redundancy situation must be a genuine one. The employer’s work force must have genuinely been reduced due to one of the “redundancy conditions” existing.
Pursuant to the Employment Act 2000, redundancy occurs when the employer has reduced the workforce due to: the modernisation or mechanisation of the business, the discontinuance, sale, disposal or reorganisation of the business, a reduction in business necessitated by economic conditions, a contraction in the volume of work or sales, reduced demand or surplus inventory or the inability to carry on the business at the usual rate or at all due to shortage of materials, mechanical breakdown, act of God or other circumstances beyond the control of the employer. A redundancy also occurs where an employee has been laid off for over four months.
If a new person is hired soon after the redundancy in the same or similar position, then the dismissal could be challenged as being unfair. Further, the Act itself provides that if a sale or disposal of the business is found to be a sham transaction geared solely to get around the Act, the employer will be made to honour his obligations under the Act.
• Fair selection: if a group of employees is being made redundant, to avoid a finding of unfair dismissal, fair, reasonable and objective selection criteria should be used in deciding which employees are being selected for redundancy. The employer must be able to explain why those employees were selected over others. Matters like one’s job performance and conduct, longevity of service, attendance record, importance to the organisation, etc, can be taken into account.
• Consultation/alternative role: in an ideal world, the employer should consult with the employee prior to making him/her redundant and discuss whether the employee could be placed somewhere else in the organisation prior to making him redundant. This is another element of fairness in the process.
Note that severance allowance (redundancy pay) is not payable where the employee unreasonably refuses to accept an offer of re-employment by the employer at the same place of work under no less favourable terms than he was employed immediately prior to the termination.
Whilst consultation is key in English law, it is my experience that employers in Bermuda rarely consult prior to putting a redundancy into effect.
The Employment Act provides that if the employee belongs to a trade union, then before making the employee redundant, the employer must, as soon as practicable, inform the relevant trade union of the details surrounding the redundancy and consult with respect to the possible measures that could be taken to avert or minimise the adverse effects of the redundancy.
An employing company should keep a good record of its actions to comply with the above duties so that it can justify the redundancy as fair and lawful. The parties should also be aware of the following rights and obligations arising when an employee is made redundant.
1. Notice: sufficient notice of termination or payment in lieu of notice must be provided by the employer. The length of notice is governed either by the contract of employment (a required term that must be stated in the Statement of Employment) or is implied by common law subject to the minimum notice requirements in the Employment Act 2000, whichever is more favourable. During this period of notice the employee is entitled to his /her full pay and benefits (e.g. housing allowance, vacation, pension, health insurance, etc).
2. Severance allowance (redundancy pay): in addition, the employer must pay the employee “severance allowance” in accordance with section 23 of the Act. The amount payable is the equivalent of two weeks’ wages (essentially salary and commission only) for each completed year of continuous employment up to the first ten years and three weeks’ wages for each completed year of continuous employment thereafter. The maximum severance allowance payable is six months’ wages (unless the contract or Employee Handbook provides for a more generous amount in which case the contract will prevail).
3. If the employee requests it, the employer must also provide the employee with a Certificate of Termination under section 22 of the Act which contains various formal details about the employment as well as the reason for the termination, again if the employee requests it. This reason can be important in the ensuing job search for the employee. “Redundancy due to restructuring” reads better, for example, than “termination for misconduct” so the employee may request that the reason of redundancy be included.
4. The employee is also always entitled to a written itemised pay statement pursuant to section 7 of the Act at or before the payment of any wages. This would include his final payment after being made redundant. The statement must contain various details as set out in the Act including any severance allowance to which the employee is entitled. A pro-rated payment for accrued but untaken holiday must be included in the final pay. Deductions that were not allowed for in the contract beforehand are unlawful.
5. Prior to the termination date during any relevant period of notice, an employee is entitled to continuation of his/her full benefits including any major medical insurance.
6. Any person who is compulsorily insurable by an employer on the first day of any month under the HIA 1970 is insured by the employer for the whole of that month, notwithstanding that during the course of that month his employment is terminated. Pursuant to section 5 of the Health Insurance (Cover) Regulations 1971, where the employee does not take up insurance with a successor employer, his/her former employer must continue to provide the Standard Hospital Benefit level of coverage in respect of that person for a period of 4 weeks from the date on which that person ceased to be compulsorily insurable by that employer.
7. The employee’s pension will be transferable on redundancy including the employer’s portion of contributions where they have vested — the new legislation provides for a vesting period of 1 year for employer contributions.
8. On a related subject, pursuant to section 5 of the Employment Act 2000, where a business is sold, transferred or otherwise disposed of to another business, then the period of employment with the former employer is deemed to constitute a single period of employment with the second employer, provided that the employment was not terminated (by the first employer) and severance pay was not paid. Thus if the employee is allowed to continue on the same terms and conditions with the second employer and was not terminated by the first employer, then the employee can enjoy continuation of benefits beginning with the original commencement of employment with the first employer. This may reap significant advantage with respect to benefits that improve over time such as pension, vacation accrual and the like.
It is important to note that the Employment Act 2000 applies to all persons working wholly or mainly in Bermuda — including Bermudians and non-Bermudians.
Where foreign workers have a disadvantage is that if they are made redundant, the employer must turn in their work permit within seven days of the termination date (such date marks the end of the notice period or on the payment in lieu or notice termination date). If they have not secured alternative employment with a new work permit prior to the termination date, then they must apply to the Department of Immigration for permission to reside in Bermuda and seek alternative employment.
In light of the above, it is certainly worth getting legal advice on whether a contemplated redundancy is lawful and whether the package being offered is a fair and adequate one. An employee should not sign any severance agreement or cash in on any severance cheque without first getting independent legal advice.
• Juliana Snelling is a director of Canterbury Law Ltd who has a specialist knowledge of Bermuda labour law
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