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Labour Expert: Severance Pay 'Can Be Onerous'

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Peter Goudie

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The National Tripartite Council’s vice-chairman yesterday admitted that legally-mandated severance payouts “can be onerous” after Cavalier Construction cited them as a key factor in its closure.

Peter Goudie told Tribune Business that the Employment Act’s severance pay stipulations for both supervisory and line staff could total “a lot of money” especially if a company had numerous long-serving staff who would earn the maximum payout.

He spoke out after Cavalier, arguably the largest and best-known Bahamian contractor, cited prohibitive employee severance/termination costs as an obstacle that had prevented it from right-sizing its workforce in line with reduced business levels prior to last week’s decision to cease operations.

The 64 year-old contractor, which is in the process of appointing a liquidator to wind-up its operations, said in a statement: “As a company having a number of long-standing employees, we have simply not had the cash reserves needed to restructure our operations due to the significant financial cost/liability associated with this exercise as set out in the employment legislation.”

Cavalier’s complaint is an eerie echo of the explanation that 74 year-old Taylor Industries gave almost exactly a year ago when it collapsed into insolvency and ceased trading.

The electrical contractor and appliance retailer also fingered a “significant liability” related to employee terminations as its principals blasted “inflexible and draconian labour laws that made it financially impossible to appreciably reduce staff numbers in order to downsize”.

Taylor Industries’ liquidator, in a subsequent report, said the company’s staff were owed a combined $682,000 in termination pay. The figures showed a business that failed to align costs with falling revenues by downsizing and reducing its workforce, with the termination costs for employees - many of whom are long-serving - exceeding $70,000 in one individual case.

“Taylor Industries’ staff demographic contained many long-standing employees who, under Bahamian labour law, would have been entitled to significant termination pay for which the company did not have the cash reserves to meet as part of a restructuring exercise,” Mr Davies wrote, echoing Cavalier’s statement yesterday.

Several observers have privately suggested to Tribune Business that the company’s predicament highlights how the Employment Act’s termination provisions are overly-generous and too great a burden for employers - especially those that are struggling.

The Act mandates that supervisory employees receive one month’s pay for each year worked up to 12 years, thus providing for a maximum payout of one year’s salary. For line staff, they are entitled to two weeks’ pay for every year worked up to 12 years, meaning the statutory maximum they can receive is six months’ salary.

“The severance packages that have been legislated can be onerous. I would say that. It can be,” Mr Goudie told Tribune Business. “It is heavy. If a business has a lot of long-term employees it’s a lot of money. You cannot get away without paying supervisory staff a year’s salary and line staff half a year’s salary. A lot of these companies have employees that have been there that long.”

He added that his personal solution to this issue was the advancement, and enactment, of legislation making it mandatory for all working Bahamians to establish a private pension where a portion of their salary would be saved and go towards financing their retirement.

Mr Goudie said the former Christie administration brought such legislation to the House of Assembly, but it “never went anywhere”. However, he revealed: “We’re looking at it again through the National Tripartite Council but I don’t know if there is any political will at the moment to put in something that increases costs.

“All this comes back to us having proper pension plans and legislation so people have something to fall back on. Don’t depend on the National Insurance Board. You need to have your own pension plan. You need to put money away for the future. You should not depend on other people.”

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