Firms warned: Make correct severance pay

By NEIL HARTNELL
Tribune Business Editor

BAHAMIAN employers have been warned that failure to pay the correct amount of severance pay to laid-off employees will lead to wrongful dismissal legal actions, a Higgs & Johnson partner saying she "goes to court on a lot of cases of this type".

Tara Archer, addressing a Nassau-based seminar staged by the law firm, said: "It is incumbent on the employer to pay the correct amount of severance pay to the employee to avoid ending up in litigation.

"Should not the correct amount be paid, you could find legal action [taken against you] for wrongful dismissal."

Ms Archer recommended that Bahamian employers and companies consult their attorneys on the amount of severance pay that should be paid to terminated/laid-off employees, as the total sum was "not clear cut".

Apart from the statutory pay stipulated by the Employment Act, laid-off employees were also entitled to payment for unused vacation time, contractual bonuses, other benefit payments and any allowances they had been enjoying, such as gas and meal allowances, during their notice period if they worked it out. National Insurance Board (NIB) contributions also needed to be deducted for employees during their notice period.

In addition, under the Employment Act laid-off employees at companies where they had a pension plan have to choose between taking their pension entitlement or accepting statutory severance pay. Parliament seemingly passed the law requiring employees to make that choice in order to not over-burden companies with severance costs.

Ms Archer said it was critical for employers "to have clear, concise employment contracts" stipulating staff job descriptions, pay and benefits, and that these be reviewed continually - on an annual basis.

She explained that if an employee had been promoted through several positions since joining a company, and the employment contract had not been renewed, the courts would look at the present terms of employment - not the contract - if a dispute arose.

Ms Archer also advised employers to "obtain a signed declaration of release" from laid-off employees once they had received their severance pay to stop them bringing any legal action against the company.

Another common area of dispute surrounding lay-offs was whether an employee was a manager/supervisor, and entitled to four weeks' pay for every year worked, or a line worker and entitled to two weeks' payment for each year.

Ms Archer said that in such cases, courts would assess issues such as whether the employee could hire, discipline or transfer other staff, the degree of decision-making and management control they had, and whether they received overtime pay to determine whether the worker had supervisory authority. The terms of the employment contract were also crucial.

Ms Archer also warned employees asked to work out their two or four-week notice period not to "burn bridges" by sabotaging or undermining their former employer, adding: "It's a small community, and one would not want to leave a bad impression because a reference may be required.

"An employer may find an employee may prefer to leave rather than work out their notice period, so ask them to take accrued vacation pay. The employee gets what he wants, and the employer gets what he wants."

Given the current economic downturn, Ms Archer acknowledged: "Those who have a job are finding it increasingly difficult to focus on their duties because they think they're going to be next to receive a pink slip."

Oscar Johnson, a fellow Higgs & Johnson attorney and partner, said: "In these circumstances, it is clear there is an imperative faced by employers to rein in costs to weather the economic downturn they are facing.

"That is a reality that is inescapable. Employers facing dire circumstances need to rationalise cost structures", meaning they were assessing staff complements, their suitability and skill sets.

"It has to be understood, if one is an employer and one is an employee, that litigation is a costly affair, and especially in an economic downturn it should be avoided if at all possible. The propensity to litigate is something an employer should look at, as they should structure decisions taken to avoid this if at all possible."

Mr Johnson also warned Bahamian employers not to "sacrifice long-term value for short-term relief" in terminating employees. While many firms felt that if they reduced costs by a certain percentage, they would have a specific bottom line impact, in doing this they could lose valuable workers "and may prevent your company from recovering as speedily. Sound decisions need to be taken".

Among the lay-off alternatives, Mr Johnson said, were to reduce salaries and work hours, reduce paid vacations, implement 'work from home' rules, and reassign employees - especially productive, highly-skilled ones - to growth areas in a business.

"Often times, people feel that if they are bound to an employee contract, there is no flexibility," Mr Johnson said. "I can assure you that in today's environment, employees are prepared to be flexible. They want to retain their income."

On redundancy, Mr Johnson said employers could only make workers redundant if they were closing a business, specific location or eliminating a certain post altogether.

Published On:Tuesday, September 29, 2009