Issues to consider on terminating employment
In this article we discuss some of the key issues that employers and employees should consider when giving notice to terminate an employment contract.
Bermuda does not recognise the concept of “at will” employment, so employment contracts covered by Bermuda law can only be terminated lawfully where the terminating party has complied with applicable notice requirements.
Section 20 of the Employment Act 2000 (Act) sets out minimum periods of written notice that either party must give (Statutory Notice Periods):
• one week, where the employee is paid weekly;
• two weeks, where the employee is paid fortnightly;
• one month, in any other case.
Notice cannot generally be given by the employer while the employee is on leave.
The Act provides that the Statutory Notice Periods do not apply where periods of notice are regulated by contract, collective agreement or another agreement between the parties, or where a longer period of notice is customary given the nature and functions of the employee’s work.
Therefore, check the contract and any relevant collective agreement for terms relating to notice, and consider whether there is any established custom and practice at the company concerning the length of notice periods.
The Statutory Notice Periods also do not apply where the employer is entitled to summarily dismissal for serious or repeated misconduct, or unsatisfactory performance, under sections 25 -27 of the Act, or where the employee has reached retirement age.
Section 19 of the Act permits either party to terminate without notice during a probation period. Further, it is not necessary to give notice to terminate a fixed-term contract.
As an alternative to the employee working their notice, section 21 of the Act permits the employer to terminate employment with immediate effect by making a “payment in lieu of notice” (PILON), equivalent to the salary and benefits the employee would have received during their notice. Where the contract regulates the notice period, it may also provide for the right to pay a PILON. A well-drafted PILON clause will set out how the payment is calculated, particularly important where the employee’s benefit entitlements are difficult to quantify.
An employer should ensure it gives clear and unequivocal notice to an employee that it is deploying its right to terminate by making a PILON; merely paying the money into the employee’s bank account may not be sufficient.
The timing of notice can also be important. There are circumstances in which the company may want the employment to end before a certain date, for example to prevent the employee being entitled to a severance payment or accruing benefits under an incentive plan.
It is established law that the day on which notice is given is excluded when calculating the expiry date. When the notice period is expressed in months, the “corresponding date” rule applies. For example, three months’ notice given on August 10 will expire on November 10.
Be sure to check whether the contract specifies a mechanism by which notice must be served, for example whether e-mail is permitted. When notice is given by hand, the notice period will commence immediately unless the contract provides otherwise. If notice is sent by post, however, there is scope for ambiguity as to when it will start to run. Again, the contract may stipulate when notice by post is deemed to be received.
Notice of resignation does not need to be “accepted”; an unequivocal notice of termination cannot be refused and also cannot be revoked without the other party’s agreement.
Once notice has been given, an employer may want to place the employee on “garden leave”. This can be done if the contract expressly permits it – otherwise, excluding the employee from the workplace without their agreement is likely to be a breach of contract.
Termination by the employer without proper notice can expose the company to a claim for wrongful dismissal. While the damages will generally be limited to the sums the employee would have received during their notice period, these can be significant.
Further, a wrongful termination will generally be a repudiatory breach of contract, which will render important contractual protections, such as restrictive covenants, unenforceable.
When the employee purports to terminate without giving proper notice, the employer will not be obliged to pay the employee for their notice period. Further, although a court will not compel an employee to work their notice, the company may be able to get an injunction preventing the employee joining a new employer for the duration of their notice.
When bringing employment to an end, employers are often most concerned with the fairness of the dismissal (which is outside the scope of this article) and overlook the requirements of giving proper notice.
However, as we have explored, the steps required to terminate an employment contract are often less straightforward than they seem and there are pitfalls for the unwary, with potentially serious consequences of getting it wrong. Legal advice should be sought if there is any uncertainty.
Senior Associate Bradley Houlston is head of Appleby's Employment and Immigration law practice in Bermuda. He can be reached at email@example.com or 298-3250 with any employment law questions. A copy of this 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, persons are advised to consult with a lawyer.