Following the onset of the Covid-19 pandemic, termination of employment contracts became a topical and critical issue as many employers were forced to downsize, scale down, or completely cease, business operations. The actions of employers in general, vis-à-vis the stringent effects of the pandemic, brought to the fore many questions concerning the fairness and legality of terminations on the ground of redundancy. Even now, in the wake of the pandemic, these questions remain relevant.
The Labour Act Cap. 16.04 is comprehensive legislation which touches on most employment related issues in St. Lucia, including the termination of employment contracts. The Act provides that there must be a valid reason for termination before an employee is terminated. This requirement protects the employee-employer relationship by ensuring that employers do not terminate employment contracts on a whim but upon lawful grounds.
Redundancy – A Two-Part Procedure
One such ground is redundancy. To lawfully make an employee’s position redundant, the employer must go through a two-part process.
Part 1 – Conditions of Redundancy
The first part of the two-part procedure requires the employer to show that a condition of redundancy exists. Conditions of redundancy, as set out in the Act, are:
“(a) the employer has modernized, automated or mechanized all or part of the business;
(b) the employer has discontinued to carry on all or part of the business;
(c) the employer has sold or otherwise disposed of all or part of the business;
(d) the employer has reorganized all or part of the business;
(e) it has become impossible or impracticable for the employer to carry on all or part of the business at its usual rate or level or at all, due to—
(i) a shortage of materials,
(ii) a mechanical breakdown,
(iii) an act of God, or
(f) a reduced operation in all or part of the employer’s business has been made necessary by economic conditions, including a lack of or change in markets, contraction in the volume of work or sales, reduced demand or surplus inventory.”
An employer must ensure that he/she is able to prove that one of these conditions exists before terminating on the ground of redundancy, as an affected employee or his/her (union) representative is entitled to lodge an objection with the Labour Commissioner. Where an objection is lodged, the Labour Commissioner will launch an investigation which the employer is bound to facilitate or pay a fine not exceeding $10,000.00. Therefore, employers should not attempt to use redundancy as a smokescreen to terminate an employee.
Part 2 – Inform, Consult and Notify
The second part of the two-part procedure requires the employer to inform, consult and notify.
The employer must inform the applicable trade union, and if none, the employee(s) and their representative of (i) the condition of redundancy that exists, (ii) the reason this condition is likely to result in termination of the employee(s), (iii) the number and categories of employees likely to be affected, and (iv) the period over which terminations will be conducted. This information must be given as early as possible, being, as soon as there is an intention to dismiss an employee(s) on the ground of redundancy, and in a reasonable time prior to the intended date of dismissal.
An employer must also consult as early as possible with the recognized trade union or the employee and their representative on (i) possible measures that could be implemented to prevent or mitigate any adverse effect of the condition of redundancy on employment, in other words, possible measures to avoid termination, and (ii) possible measures that can be implemented to mitigate the adverse effects of termination on the employees. The consultation process must, therefore, be sincere, with an intention to help employees transition or adapt to the condition of redundancy. As such, it is necessary that the consultation process be carried out in a reasonable time period prior to dismissal to allow the trade union or the employee’s representative and/or the employee to make representations, raise concerns and generally, to fully understand the position taken by the employer, and make alternative arrangements, if possible.
It is important that the Labour Commissioner be notified about the termination where this option is unavoidable. It is recommended that the Labour Commissioner be kept in the loop from inception to avoid any contestation or to minimize the effects of same after the termination process. The Labour Commissioner must be notified of (i) the reasons for the termination, (ii) the number and category of employees to be terminated, and (iii) the period over which the terminations are likely to be carried out. The employee must also be given formal notice of termination.
Part 2 of the redundancy procedure to inform, consult and notify is mandatory and, as such, must be followed prior to the dismissal of any employee. Failure to comply may render the termination unlawful and the employee may be entitled to compensation, separate and apart from the redundancy pay and other entitlements due to the employee upon being terminated.
Generally, upon being made redundant, an employee(s) is entitled to redundancy pay once he/she has completed at least two years of continuous employment. Redundancy pay is calculated on a cumulative basis based on the years of service of the employee, that is, one week’s basic pay for the first 1-3 completed years, two weeks’ basic pay for the next 3-7 completed years and three weeks’ pay for each completed year in excess of 7 years. These years of service are then multiplied by the basic pay, which is the lower of, the employee’s last week’s basic pay, or the sum of $350. If therefore an employee has completed 10.5 years of service with his last week’s pay being $450.00, his/her redundancy pay would be $7,000, calculated as follows:
- Years 1-3: $350 x 1 week’s pay x 3 years =$1,050
- Years 4-7: $350 x 2 weeks’ pay x 4 years=$2,800
- Years 8-10: $350 x 3 weeks’ pay x 3 years=$3,150
All other entitlements due to an employee who has been terminated, including but not limited to, (i) payment in lieu of notice (if applicable), (ii) outstanding wages, (iii) and benefits, must also be paid to the employee.
In conclusion, redundancy can be a convenient way for an employer, faced with economic changes to his/her business’ operations, to terminate employment relationships which have become economically burdensome or irrelevant. However, employees’ rights are equally relevant and the failure to observe proper procedures can cause adverse legal consequences for the non-compliant employer.
Prepared by Danielia Chambers, an associate in the firm’s Litigation and Alternative Dispute Resolution Practice Group.
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