First published in The Bermuda Chamber Of Commerce Newsletter (Chamber Insider), November 2020
In this month's article we discuss some of the key issues to consider when giving notice to terminate an employment contract.
The starting point is that Bermuda does not recognise the concept of 'at will' employment, where the employer can terminate the contract without warning. Rather, employment contracts covered by Bermuda law can only be terminated lawfully where the terminating party has complied with the relevant notice requirements under statute and common law.
Section 20 of the Employment Act 2000 (Act) sets out the following minimum periods of written notice that either party must give to terminate the contract (Statutory Notice Periods):
- one week, where the employee is paid weekly;
- two weeks, where the employee is paid fortnightly;
- one month, in any other case.
Notice cannot be given by the employer while the employee is on leave, save for a period of sick leave extending beyond four weeks.
The Act provides that the Statutory Notice Periods do not apply where:
- periods of notice are regulated by contract, collective agreement or another agreement between the parties; or
- where the giving of longer periods of notice is customary given the nature and functions of the work performed by the employee.
It is therefore important to check the contract and any relevant collective agreement for terms relating to notice, and to consider whether there is any established custom and practice at the company concerning the length of notice periods.
The Statutory Notice Periods also do not apply where the employer is entitled to summarily dismiss for serious or repeated misconduct, or unsatisfactory performance, under sections 25 -27 of the Act, or where the employee has reached retirement age. Section 19 of the Act also permits either party to terminate without notice during a probation period. Further, it is not necessary to give notice to terminate a fixed-term contract, although the contract may still permit the employment to be brought to an early end by giving notice within the fixed term.
As an alternative to the employee working their notice, section 21 of the Act permits the employer to end the employment with immediate effect by making a "payment in lieu of notice" (PILON), equivalent to the salary and benefits the employee would have received during their notice. Where the contract regulates the notice period, it may also provide for the right to pay a PILON. A well-drafted PILON clause will set out how the payment is calculated, particularly important where the employee's benefit entitlements are difficult to quantify. It is also advisable to make clear that termination is effective on the employee receiving notice that the employer will make a PILON, to avoid confusion.
The timing of notice can also be important. There are circumstances in which the company may want the employment to end before a certain date, for example to prevent the employee being entitled to a severance payment or accruing benefits under an incentive plan. It is established under English common law that the day on which notice is given is excluded when calculating the expiry date. When the notice period is expressed in months, the "corresponding date" rule applies, meaning that notice will expire on the date in the relevant month which corresponds with the date it was given. For example, three months' notice given on 10 August will expire on 10 November.
It is also important to check whether the contract makes provision for the mechanism by which notice must be served, for example whether email is permitted. When notice is given by hand, the notice period will commence immediately. If the notice is sent by post, however, then there is scope for ambiguity as to when it will start to run. Again, the contract may stipulate when notice is deemed to be received if sent by post or other means. If in any doubt, it is best to serve notice in person.
There is a common misconception that notice, particularly resignation, needs to be "accepted" in order to be effective. Rather, an unequivocal notice of termination cannot be refused by the other party and also cannot be revoked without the other party's agreement.
Once notice has been given, there are circumstances in which the employer may want to place the employee on "garden leave", where they are not permitted to enter the employer's premises or contact its clients and staff. This can be done if the contract expressly permits it, or if the employee agrees, otherwise excluding the employee from the workplace is likely to amount to a breach of contract.
Terminating a contract without proper notice can expose a company to a claim for wrongful dismissal in the Employment Tribunal or Supreme Court. While the damages will generally be limited to the sums the employee would have received during their notice period, these can be significant. Further, a wrongful termination will generally be a repudiatory breach of contract, which will render important contractual protections, such as restrictive covenants, unenforceable.
When bringing employment to an end, employers are often most concerned with the fairness of the dismissal (which is outside the scope of this article) and overlook the requirements of giving proper notice. However, as we have explored, the steps required to terminate the contract are often less straightforward than they seem and there are pitfalls for the unwary, with potentially serious consequences of getting it wrong. Legal advice should be sought if there is any uncertainty.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.