Wrangling over hotel redundancy payments revealed
The owners of the island’s biggest resort lobbied the Government for a delay to $11 million in redundancy payments to staff until a year after they were laid off.
Karim Alibhai, the founder and principal of Gencom, warned David Burt, the Premier, that lenders would not back the redevelopment of the hotel with the “looming” redundancy payout.
He wrote: “Without the financing in place to move forward, the challenge we have is that there are no funds available to make the redundancy payments, since it was originally contemplated that such amounts would be paid from refinancing proceeds.”
Mr Alibhai made an appeal for the delay months before severance packages were paid to hundreds of Fairmont Southampton staff.
The Government stepped in to fund $11 million in redundancy payments after the US-based firm, which owns the hotel through subsidiary Westend Properties, missed last year’s November 20 deadline.
The cash was repaid in February this year.
Mr Alibhai’s request was revealed in a series of e-mails, copies of which were released to The Royal Gazette after a public access to information request.
Many Fairmont Southampton workers were laid off in March 2020 when the island started to feel the effects of the coronavirus pandemic.
More than 700 employees at the resort – including 430 Bermudians – lost their jobs last October when it closed for redevelopment.
The Employment Act 2000 stipulates that the maximum duration of a layoff is four months after which severance payments have to be made.
The Bermuda Hotel Association asked for “urgent” amendments to relax the rule last May as the economic fallout of the pandemic continued.
No time frame for extension to the layoff window was suggested by the BHA and Stephen Todd, the organisation’s CEO, could not confirm last week if one was proposed.
Mr Alibhai raised concerns in an e-mail Mr Burt on June 2 last year.
He wrote: “Having the 12-month time frame to trigger the redundancy payment is an extremely important issue for the hotels on the island due to the uncertainty of reopening – and level of business on the island this season – and the recovery time needed to get back to full staffing levels.
“The proposed changes that the BHA has suggested are not an attempt to eliminate any rights but rather an attempt to allow hotels the time to recover and assure long term jobs for Bermudians.”
Mr Alibhai told Mr Burt in a later e-mail that the collective bargaining agreement did not override the Employment Act on the four-month time limit to the layoff and that he had been advised that the hotel was “currently obligated under the Employment Act to initiate redundancies once the four months passes”.
He added: “The extension to 12 months is a critical part of our recovery/survival plan for both properties and we have to assume for the many other related businesses on island.
“While we understand that some interested parties may see this as diluting the rights of some employees it is necessary to get through this crisis together.”
Mr Alibhai said in an e-mail to Mr Burt and some Cabinet ministers about two weeks later that the redundancy payment payout should be no earlier than April 1 this year.
Mr Alibhai said the move was“critical” because lenders on Gencom’s Bermuda properties would “not agree to near-term working capital solutions with the redundancy payment looming”.
He warned that plans to start renovations at the Fairmont Southampton this year would be “in jeopardy” as a result.
Mr Alibhai said “the intent of redundancy was not to penalise owners for circumstances out of their direct control (i.e. act of God, pandemic) which restrict operations and mandate closures”.
MPs agreed in July last year to exclude April 1 to June 30 in calculating the four-month period that would trigger redundancy payouts.
Mr Alibhai sent an e-mail to the Premier in August that year and copied it to others, including Curtis Dickinson, the finance minister, and Chris Furbert, the president of the Bermuda Industrial Union.
He said that he had instructed his team to send redundancy notices out on or before August 17.
Mr Alibhai said it was “impractical” to reopen the Fairmont Southampton until the redevelopment was complete, expected to be the second quarter of 2022.
Mr Alibhai added: “If we can get the Minister of Finance and his department to agree upon parameters actively and quickly under which government will loan funds to the project, then payment of the redundancy obligations would be solved.”
He wrote: “If there is no prospect for government to participate in the project funding, the redundancy payments will not be paid, remain subject to a future refinancing event, and become an unsecured liability against the property owner (subject to likely litigation and a can of worms).”
Mr Alibhai said: “To date, I feel as if this project’s revival is not a priority of government and that there is a perception that the owner will figure out another way to proceed and fix it in order to avert a situation similar to Elbow Beach and other historical hotel closures which have occurred in Bermuda.
“The unvarnished facts are that if this project does not move forward and melts down now, it will remain closed for the next three to five years, tourism demand will vanish, airlift to Bermuda will be significantly reduced, new foreign investment in hospitality will halt and critical employment (800 direct jobs and likely many more indirect jobs) will cease to exist.”
Mr Alibhai wrote to Marc Telemaque, the Cabinet Secretary, in October last year to ask for an “emergency call”.
Mr Alibhai wrote: “As you can appreciate, how the redundancy was initially handled was a co-ordinated waltz and if transparency on payment timing is not handled properly, the PR nightmare avoided weeks ago will become an unwieldy reality in a number of days.
“It was our collective understanding that the Government had agreed to fund 50 per cent of the total redundancy amount, with the remainder to come from Westend (and such was communicated to president Furbert and the union).
“While initially we fielded your questions around how and when such amounts would be repaid, we have not received any further input, which is very concerning.
“The only way to get back on track is to actively negotiate a simple-form loan agreement that can be fast-tracked to meet our respective objectives.”
Mr Dickinson sent an e-mail later the same day with an attached memorandum of understanding, which was not included in the Pati response.
He wrote that “while the Government is considering the position of the employees, it must be clear that the amounts owed to employees (inclusive of all payments) are solely the responsibility of Westend Properties Limited.
“We are committed to supporting you in that endeavour on the terms contained in the attached MOU, but the Bermuda Government is fully prepared to lead a resolution for the employees in conjunction with the leadership of the Bermuda Industrial Union in the event you are unable to meet your financial obligations.
“Further, no support for funding (construction or otherwise) outside of the $50 million previously contained in the Letter of Intent (December 2019) has been agreed.
“Accordingly, while we support your efforts to obtain further financing, it must be understood that this must be on top of cash equity provided by you, as sponsor, so as to meet the equity component of the deal.”
A Westend Properties spokeswoman said last December that the company had "attempted numerous times to lay out terms of a loan agreement with payment directly to the Bermuda Government“.
But she added that “the Government still chose to set up the loan terms with the employees directly”.
Mr Dickinson said later that the company would also pay about half a million dollars for the Government’s legal and consultancy fees.
He added that Gencom had “secured further funding to allow Westend to continue with pre-development work”.
Mr Dickinson said: “They are prepping themselves for the development, and they are still looking to raise financing for the substantial redevelopment.”
It emerged in March that the Government was considering a request to provide a multimillion-dollar guarantee in support of the Fairmont Southampton redevelopment, which was earlier expected to take 18 months.
A Ministry of Finance spokeswoman said then that as part of the acquisition of the hotel by Gencom, the Government “did enter into a letter of intent to provide a guarantee subject to a number of conditions precedent”.
But she added: “These conditions were not met and the LOI expired on 31 December 2020.
“In support of continued efforts to finance the proposed redevelopment, a new request has been made to the Government.
“Upon receipt of satisfactory due diligence information that has been requested, the Government will give the matter due consideration.”
Gencom did not respond to a request for comment.
* To read the e-mails, click on the PDF under “Related Media”. The Royal Gazette has redacted contact details contained within.