Employment Implications in a Covid-19 Impacted Bermuda

Employment Implications in a Covid-19 Impacted Bermuda

The restrictions put in place by the Government of Bermuda (“Government”) following positive cases of COVID-19 in Bermuda have placed unexpected pressures on businesses and employees alike.

Lay offs and redundancies have already been made and fear is mounting as regards employment rights and obligations. Misinformation is not helping quell such fear.

This article seeks to set out a factual summary of the law in Bermuda with respect to the ability to terminate employment contracts or lay off employees in the current economic climate created by this pandemic.

It should be noted at the outset that the Employment Act 2000 (“the Act”) seeks to promote the fair treatment of employers and employees by providing minimum standards of employment. An employer is unable to waive any requirement of the Act but is able to provide more enhanced provisions in the employment contract.

COVID-19 Related Redundancies

The Act provides that an employer may terminate an employee whose position is redundant. An employee is redundant where the termination of the employee is, or is part of, a reduction in the employer’s work force as a direct result of any of the conditions of redundancy.

Conditions of Redundancy
The conditions of redundancy are: (i) the modernisation, mechanisation or automation of all or part of the employer’s business, (ii) discontinuance of all or part of the business, (iii) sale of a business, (iv) reorganization of the business, (v) reduction necessitated by economic conditions, or (vi) the impossibility or impracticability of carrying on the business at the usual rate or all due to an act of God or other circumstances beyond the control of the employer. 

An employee may be made redundant due to COVID-19 restrictions based on conditions (v) and/or (vi) cited above. As matters currently stand, this is beyond debate for those businesses which have been specifically instructed to close pursuant to a Section 88 Public Health Act 1949 Closure Notice. Government has encouraged other businesses to close their offices and indeed has been openly critical of those which continue to require their employees to work in what could be deemed an unsafe working environment.  The latter type of “encouraged” closures could potentially result in businesses either reducing their workforce due to financial strains (for example, insufficient cash flow and inability to fund salary and benefit payments) or being unable to continue trading altogether.

An employer will have to ensure that they have followed the consultation provisions contained in Section 30(2) of the Act including the consideration of any possible measures that could be taken to mitigate the adverse effects of any termination on the employees concerned.

Severance
On termination of employment on grounds of redundancy, an employee who has completed at least one year of continuous employment is entitled to be paid severance allowance. The amount of severance payable is no less than the equivalent of 2 weeks’ wages for each year up to the first 10 years and 3 weeks’ wages for each year thereafter, but up to a maximum of 26 weeks’ wages in total.

Contractual notice (or in the absence thereof, statutory notice) will also have to be paid to the employee. An employee is entitled to benefits (including health insurance) during the notice period. If an employee is paid in lieu of notice, the employer must confer all other benefits that would have been due up to the expiry of any required notice period. After the termination of the employment contract, health insurance must be extended at the employer’s cost at the minimum statutory level for a period of 28 days. It is optional to the employer if they can negotiate coverage beyond this point with the insurer concerned.

Employers should ensure that they have also looked at any enhanced severance provisions in the contract of employment or staff handbook.

How Does Lay Off Operate In Bermuda?

In a bid to stave off outright redundancy, businesses on occasion opt to rely on lay offs as a stop gap measure, with the hope that they may be able to rationalise and eventually continue their operations.

In a lay off situation, the employer provides no work for its employees, even though they are available to undertake their duties. It effectively amounts to a suspension of the obligation to provide work and to pay salary and benefits.

Traditionally, lay offs have been used where there is a breakdown of equipment or where there is a lack of essential supplies required for business processes and work is temporarily halted to address those issues. Also, it is established practice in many common law jurisdictions that during recessionary periods, larger lay offs can be successfully implemented.   

Pursuant to Section 32 of the Act, where any of the conditions of redundancy exist (as noted above), an employer may lay off an employee for a continuous period not exceeding 4 months, following which the lay off will be deemed to be a termination for redundancy and severance will become payable (as summarised above).

It is unusual for employment contracts to contain provisions regarding lay off, although collective bargaining agreements usually do contain such provisions for unionised staff. Notwithstanding this, Section 32 of the Act states that an employer cannot lay off an employee except in accordance with the Act. 

At common law there is no general right provided to employers to lay off employees. It may, however be an accepted exception to redundancy if there is an express or implied contractual term or custom and practice to that effect, although this must be for a reasonable time.

It is being argued by some that employers cannot lay off employees in accordance with the terms of the Act unless the lay off provision is incorporated into contract. However, the Canadian case law which may be relied upon to promote this argument is based on legislation quite different to ours.  The Act (unlike Canadian legislation) expressly grants employers the statutory right to give effect to lay offs.

It should also be noted that the Canadian case law addressing the operation of lay off is based on quite different sets of circumstances (normally when one aggrieved employee was placed on lay off in order to avoid regular termination provisions and where grounds for lay off are in doubt). It does not address lay offs triggered by an implied term of the contract where acts of God, impossibility of continuing the business or legal frustration are involved.

There is no case law in Bermuda which addresses a common law claim to constructive dismissal arising from lay off. Whether a Bermuda Court would be willing to find that the statutory provision for lay off in the Act would be ineffective with respect to COVID-19 lay offs,  unless lay off is contractually permitted remains to be seen, but as explained above we have our serious doubts. Public policy considerations would have to be taken into consideration. Declaring statutory lay offs of no practical use will most likely result in possible mass insolvencies if the COVID-19 restrictions continue for a protracted period of time. 

As to the operation of Section 32 itself, it should be noted that it is silent about providing any notice of intended lay off. Some collective bargaining agreements do provide such a notice but Bermuda legislators (contrary to their counterparts in some Caribbean jurisdictions) did not include an express notification provision.  Our view, therefore, is that no notice is legally due to be given to an employee unless the contract of employment provides for such. It is open to employers to voluntarily provide notice. To emphasise such notice would be gratuitous.

Further, there is no provision in the Act which obligates an employer to pay any salary or benefits during a period of lay off. That said, there is nothing stopping an employer who has the financial means, from providing some level of pay and/or benefits during the period of a lay off. As with notice, such payments if employers choose to make them would be gratuitous.

Questions may arise as to how the 4 month severance trigger period operates in circumstances when an employee is invited back to work for a short period after the initial lay off, eg. for 4 weeks, and then placed on lay off again. Our view is that an employee needs to be laid off for a continuous period of 4 months before severance pay would become due.

Following the COVID-19 restrictions, some employees are being invited to go on what has been termed a “partial lay off” such that they are working fewer contractual days or hours. In our view, the Act does not permit partial lay offs. Short time working in other jurisdictions (eg. in UK and in the Caribbean) is affected by means of specific legislation.

In Bermuda, an employee is either laid off (ie. does not perform any work) or new contractual arrangements are offered including either reduced hours and/or reduced salary. If alternative working arrangements are being offered, this cannot be done unilaterally but must be done with agreement of the employee, as such changes will amount to a variation of the original contract. Imposing varied terms on the employee without consent may result in a claim for unfair dismissal. From a practical perspective, if an employee does not consent to the requested changes, it is open to an employer to consider the alternative of redundancy based on the financial condition of its business. It may, under certain circumstances, be a better option for an employee to accept variations of a contract rather than be made redundant.

One way to address any confusion that may exist in the mind of the public regarding the operation of lay off in Bermuda is for Government to bring about legislative change to the statutory lay off provisions.

In the meanwhile, we maintain the view that in Bermuda, statutory lay offs do not need to be incorporated into contracts of employment before giving effect to a valid lay off necessitated by COVID-19 and that partial lay offs cannot be effected unilaterally.

Is there any other way a contract of employment can be terminated as a result of COVID-19?

Frustration
Where an employer is unable to rely upon the redundancy provisions in Section 30 of the Act to terminate a contract of employment the employer may be entitled to treat the contract of employment as “frustrated”. Such circumstances may arise, for instance, where the employee is physically unable to perform their duties. This might occur if an employee is abroad, unable to return to their place of work due to international travel restrictions prompted by COVID-19, and their role (or any reasonable alternative) is incapable of being performed remotely.

For a contract of employment to be considered frustrated, the frustrating event must occur after the contract has been formed (in this instance, the COVID-19 pandemic and the consequential measures put in place by governments and businesses which prevent an employee/employer from performing their obligations).  A contract will also not be capable of being frustrated unless: (i) the event is beyond what was contemplated by the parties on entering the contract and is so fundamental that it strikes the root of the contract, (ii) neither party is at fault, and (iii) the event renders performance of the contract impossible, illegal or materially different from what was contemplated by the parties at the time the contract was entered into.

Ultimately, whether there is a right to treat the contract as frustrated will depend on whether the COVID-19 related restrictions make performance of a contract impossible, or merely more difficult. If the COVID-19 outbreak merely delays performance of an obligation, or increases the cost of performance, the employer is unlikely to be succeed in arguing that the contract has been frustrated. As such, where the contract contains long-term rights and obligations that are unlikely to be rendered impossible by the temporary measures put in place due to the COVID-19 outbreak, employers will not be able to claim frustration.

Further, if the employee is incapable of performing their duties because it is impossible for them to be present at their place of work, employers must be careful to ensure that their absence is not the result of the employee fulfilling his/her duties (e.g. traveling for work).  Employers must be careful, because a mistaken assertion that a contract is frustrated may amount to an anticipatory or repudiatory breach of the contract of employment, which in turn could result in the employee terminating the contract and claiming damages.

Where a contract of employment is found to have been frustrated, it is automatically terminated at the point of frustration. The contract is not void ab initio (i.e. from the beginning), but rather, only future obligations are discharged.

In our view, it would take a very specific set of circumstances to justify a termination on the grounds of frustration.

Force Majeure
In addition to frustration, an employer could possibly avoid obligations to pay an employee by relying on a “force majeure” clause in the contract of employment.  Typically, where a contract contains a force majeure clause that engages specifically as a consequence of the COVID-19 outbreak, frustration will not be relevant because the parties have already contractually provided for such an occurrence in the employment contract (e.g. by reference to “epidemics” or “pandemics”).

However, to be enforceable, the force majeure clause must be clear, unambiguous and sufficiently specific (i.e. it cannot be argued that it does not apply) for an employer/employee to rely upon the clause. Where an “act of God” is specified, it is arguable that such language refers only to natural disasters such as earthquakes and typhoons, where there is no human intervention. As such, the COVID-19 pandemic may not fall within its scope.

Further, a force majeure event will not result in the contract of employment being automatically terminated as occurs with a frustrated contracted, rather, it merely relieves a party from complying with the obligation subject to force majeure.

In practice, it is unlikely that contracts of employment will contain reliable force majeure clauses.

Rescue Package Introduced by Government

Pursuant to the Public Treasury (Administration And Payments) (Temporary Unemployment Benefit) Regulations 2020 (the “Regulations”), employees that were in full-time employment (more than 15 hours per week) are now able to apply for emergency unemployment benefits (the “Rescue Package”) under certain circumstances. The benefit will last for a period of 12 weeks from the date the benefit application is approved. All applications must be made by 30 June 2020.

The Rescue Package provides a payment of 60% of the employees’ gross earnings up to a maximum of $500 per week. In order to be eligible, individuals must meet the definition of an employee under the Employment Act 2000.

Specifically, under section 4(3) of the Regulations, a person living in Bermuda on the date the Regulations came “…into force is qualified to apply for unemployment benefit where, as a direct result of COVID-19―

1. a)      he is laid off work;
2. b)      he is self-employed, and without income or his income has been substantially reduced, and is registered with the               Office of the Tax Commissioner;
3. c)     subject to paragraph (4), his employment has been terminated;
4. d)     he is engaged as an employee, but is for the time being working substantially reduced hours;
5. e)     he is subject to mandatory quarantine or isolation, without compensation.” (emphasis added)

Section 4(4) of the Regulations effectively states that non-Bermudians who are being terminated because of COVID-19, must demonstrate at the time of the application, that they are unable to depart Bermuda because of travel restrictions. If, for example, travel restrictions are lifted to a non-Bermudian’s home jurisdiction before an application is made, that non-Bermudian will not qualify for the unemployment benefit. This is likely to impact certain industries whose workforce is largely non-Bermudian and where the negative financial impact of COVID-19 will last beyond the removal of travel restrictions.

We assume for the purpose of interpretation that “direct result” includes not just lay offs/terminations resulting from Notices of Closure of businesses such as spas and gyms but also as a result of guidance issued by Government to work from home. Both may result in reduced earnings for businesses which could necessitate lay offs or terminations.

There is latitude within the Regulations for the Director of Department of Workforce, in consultation with the Minister, to review each application based on an individual’s circumstances, payment the employee may be receiving from the employer, as well as the best interests of Bermuda. As applications start to be processed, we will hopefully get a better sense of how the Rescue Package will work in practice.  

Conclusion

The impact of COVID-19 on businesses changes on a daily basis. Regular attention must therefore be paid to Government press conferences as well as to legislation, notices and guidance issued by Government. We unfortunately expect to see further redundancies and lay offs triggered by COVID-19 as the restrictions remain in place. Reduced working hours will require agreement of the employee.