As global and local market conditions begin to affect businesses in Bermuda, business owners would be wise to review the provisions of the Employment Act 2000 ("the Act") as they relate to issues such as redundancy, insolvency and winding up.

Section 30 of the Act provides that an employer can terminate an employee's position where such termination is, or is part of, a reduction in the employer's work force that is a direct result of any of the conditions of redundancy.

Conditions of redundancy include modernisation, mechanisation or automation of a business; discontinuance of all or part of a business; sale or disposal of a business; reorganisation; reduction in business as a result of economic conditions/reduction in work or sales/surplus inventory; and impossibility or impracticability of carrying on the business at a usual rate e.g. irreversible hurricane damage.

Each case must be decided on its own merits. An employer must be genuine in concluding that a condition of redundancy exists. The employer may look to the general economic conditions for his business and decide that all or part of the business should be discontinued or reorganised or he can determine that because of a downturn in trade he must reorganise staffing to bring the business into profitability – which in turn will lead to a reduction in headcount.

Before terminating an employee's contract of employment for redundancy, however, an employer must inform any trade union or other representative (if any) as soon as practicable of the conditions giving rise to redundancy, the reasons why the employer is contemplating termination, the number and categories of employees likely to be affected and the period over which termination is likely to be carried out.

The employer is also obliged to consult the trade union or other representative (if any) on the measures to be taken to avert or minimise the adverse effects of such redundancy on employment and the measures that could be taken to mitigate the adverse effects on the particular employees concerned.

Even if a trade union is not involved it is still prudent to follow the above-mentioned requirements relating to informing and consulting staff members about impending redundancies.

Employers must also ensure that they are using a selection and criteria method that is fair in identifying the staff members who are to be made redundant. The key is to ensure that, whatever criteria is chosen, it is applied objectively, fairly and consistently. An adequate written record of the procedure adopted should be kept in the event that the redundancy is challenged.

An alternative to making employees redundant is to "lay off" the employee. Section 32 provides that where any of the conditions of redundancy exist, an employer may lay off an employee for a continuous period not exceeding four months. Where the lay off continues for more than four months, this will be deemed to be termination for redundancy.

Section 33 of the Act provides that where a business is winding up or becomes insolvent, this will cause any contract of employment to terminate within one month from the date of winding up/appointment of a receiver.

Subject to the retention of such sums as may be necessary to satisfy the costs, charges and expenses of the winding up of the employer's business, payment for accrued but untaken vacation, earned but unpaid wages and severance allowance (calculated in accordance with the Act) will take priority over other claims in the winding up of the business. These payments will rank equally and must be paid in full unless there are insufficient assets in the business in which case they will be paid in equal proportions.

Severance allowance is payable at the rate of two weeks wages for each continuous year of employment up to the first 10 years. Thereafter, the employee is to be paid three weeks wages for each completed year of continuous employment, up to a maximum of 26 weeks wages.

A severance allowance is not payable if an employee unreasonably refuses to accept an offer of re-employment by the employer at the same place of work under no less favourable terms.

In the case of redundancy, an employee is entitled to payment in lieu of notice where the employer does not want the employee to work out the notice period. Such a payment will include all payments due under the contract to the date the notice expires.

These provisions relate to an employer who employs a person in Bermuda and to employees employed wholly or mainly in Bermuda for remuneration.

Fozeia Rana-Fahy is an attorney in the Litigation Department at Appleby. A copy of Mrs. Rana-Fahy's column can be found 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 described herein, persons are advised to consult with a lawyer.