The world economic crisis has not spared Bermuda. Gradually, our economy has been strangled and that has employers seeking ways to keep their businesses afloat.

Careful and prudent planning by employers has so far kept job losses to a minimum, relying on natural attrition rather than taking an axe to the workforce. But that situation may change if business slows even further and what then for employers?

It is too easy to say that the only solution is to create redundancies if the business is to continue.

There are other remedies that may be considered before the ultimate sacrifice is made.

First, employer and employees must communicate honestly about the issue of job security.

After all, the employer wants to keep the business going rather than face the indignities of bankruptcy or liquidation and employees likely all agree that it is far better to have a job than not.

Second is to establish what is needed. Is it a reduction in the workforce? Savings on the wage bill? Or perhaps a reduction of expenses or some other saving?

The employer may consider a wage freeze (already in place for public service workers) for a period of time or perhaps reduced working hours for employees.

Either option would result in a reduction of the wages/salary paid to the employee and possible savings on expenses to the employer by keeping the office or plant closed, thereby reducing its tax bill and the tax bill of the employee.

Employees need to be wary when an employer seeks a wage reduction, ensuring that it is for a set period and that the employer is not seeking the wage reduction in order to boost its profits.

Scrupulous employers will keep employees informed of financial developments and ensure that a review takes place at a later date with wages returning to their previous rate.

An employer in financial difficulty may also grant sabbaticals or time off unpaid. An employee may have to make a payment to the employer in respect of their own contribution toward health insurance during the period off work.

An employer might also consider transferring an employee to another position within the employer's organisation. This may involve a reduction in pay.

All of these options depend on the consent of both parties.

If the options set out above are not possible or if the savings are not sufficient to rescue the employer from the jaws of extinction, redundancies will likely follow.

Redundancy, of course, is the option of last resort for an employer because he will then have to make a large severance payment from already depleted capital.

In the first instance the employer may call for volunteers for redundancy.

The employer will (or should) exercise discretion on whether to accept volunteers. The reason is that the employer will want to keep key people in the organisation, retaining those who can mentor others and continue to fight for the survival of the company.

Ultimately, the employer may have to consider compulsory redundancy. In Bermuda, the redundancy payment formula (known as severance payment) is fixed by statute.

The qualifying period is 12 months' continuous employment and the amount of the payment will be two weeks' wages for each complete year of employment for the first ten years and three weeks thereafter. There is a cap of 26 weeks' pay (half a year).

Bermuda has far better redundancy payment provisions in her legislation than some other countries in the developed world.

In the United Kingdom, for example, the rate of redundancy pay is fixed by statute to a maximum payment, the period of qualification is longer and the calculation of the payment is shorter.

An employee is entitled to notice of the redundancy in the same way that he would if he was being terminated or was giving the employer notice.

The employer has absolute discretion regarding whether he requires the employee to work out his notice.

If he chooses not to have the employee work his/her notice then the employer has an obligation to make a payment in lieu of notice.

This amount will be equal to what the employee would have earned if he had continued to work for the period of notice.

Should the employer become insolvent the severance payment is a priority payment in the insolvency. The employee will be paid provided that there are sufficient funds in the insolvency but may not necessarily be paid at the time of the actual redundancy.

The liquidator will need to carry out some investigation and administration to assess what the financial position of the employer is for the purpose of clearing debts and paying creditors.

*Attorney E. Kelvin Hastings-Smith, FCIArb, is Counsel and Manager of the Litigation Practice Group at Appleby. A copy of Mr. Hastings-Smith'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, persons are advised to consult with a lawyer.