Bermuda has not escaped the knock-on effect of the current global economic situation.

As a direct result many businesses are seeking to reorganise staff structures and make cut backs in order to allow the business to continue through this period of economic uncertainty.

The Employment Act 2000 (the “Act”) gives clear direction about how employee redundancy and business winding up should be handled.

An employee is considered redundant for the purposes of the Act where the termination of his or her employment is, or is part of, a reduction in the employer’s work force that is a direct result of any of the conditions of redundancy. Section 30(3) of the Act sets out the conditions of redundancy, namely:

n modernisation, mechanisation or automation of all or part of the employer’s business;

n discontinuance of all or part of the business;

n sale or disposal of the business;

n reorganisation of the business;

n reduction in business that has been necessitated by economic conditions, contraction in the volume of work or sales, reduced demand or surplus inventory;

n and impossibility or impracticality of carrying on the business at the usual rate or at all due to shortage of materials, mechanical breakdown, an act of God (such as natural disaster destroying the premises) or other circumstances beyond the control of the employer.

Before terminating an employee because a condition of redundancy has occurred within the business, the employer must, as soon as is practicable, inform the employee’s trade union or other representative (if any) of the existence of the relevant condition of redundancy, the reasons for the contemplated termination of the employment, the number and categories of employees likely to be affected by these conditions and the period over which such termination is likely to be carried out.

The employer is further obligated to consult with the employee’s trade union or other representative (if any) on the possible measures that could be taken to avert or minimise the adverse effects of such redundancy on the employee.

Where a trade union or representative is not involved with an employee, an employer should discuss the situation and the expected impact directly with the employee.

An open and practical discussion may help facilitate the transition for both business and employee.

The Act also makes provision for an employer to “lay off” an employee where any conditions of redundancy exist.

An employer may “lay off” an employee for a continuous period not exceeding four months. Where the “lay off” continues for a longer period, it shall be deemed to be a termination for redundancy pursuant to the Act.

A “lay off” may suit the business and employee better than a redundancy, allowing the business some breathing room and hopefully removing the conditions of redundancy that have occurred and allowing the employment to resume.

When a condition of redundancy has arisen, employers must ensure that they are utilising a fair, unbiased and standardised process to identify employees that may be affected by the condition.

The decision that a condition of redundancy has arisen is not one that an employer should take lightly.

The procedure followed should be fully documented in case the redundancy is later called into question. If the conditions of redundancy do not actually exist, the termination may be deemed to be unfair or wrongful.

The winding up or insolvency of an employer’s business causes an employee’s contract of employment to terminate one month from the date of winding up or the appointment of a receiver. Certain claims have priority over any other debts of the business. These include the claims of an employee to payment for vacation accrued but not taken, payment for wages earned but not paid, and severance allowance up to a maximum of 26 weeks’ wages.

Any liquidators or receivers of a business will also have to retain sufficient funds to cover the costs, charges and expenses of the winding up or liquidation. The Act provides that an employee who has completed at least one year of continuous employment shall be entitled to severance payment by the employer.

The amount allowed is two weeks’ wages for each year of continuous employment up to the first ten years and three weeks’ wages for each complete year of continuous employment thereafter up to a maximum of 26 weeks’ wages.

An employee is not entitled to severance payment where such 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 under which he was employed immediately prior to the termination.

The provisions of the Act apply to employers and employees wholly or mainly engaging in employment in Bermuda for remuneration under a contract of employment, either written or implied.

The Act provides for minimum standards — parties are free to agree terms beyond those detailed in the Act.

Attorney Anna Knapman-Scott is a member of the Litigation and Insolvency Practice Group at Appleby. A copy of Ms. Knapman-Scott’s column can be obtained on the Appleby website at www.applebyglobal.com.

This column should not be used as a substitute for professional legal advice. Before proceeding with any matters discussed here, person are advised to consult with a lawyer.