In this part we will consider the calculation of severance pay, the application of the statutory exception to the obligation to pay severance in a business transfer situation, and steps that can be taken by a purchaser to limit liability for such payments following a sale or transfer.

Pursuant to section 23(2) of the Employment Act 2000 (Act), an employee’s severance payment is calculated as an amount no less than the equivalent of (a) two weeks’ wages, for each completed year of continuous employment up to the first 10 years, (b) three weeks’ wages for each completed year of continuous employment thereafter; up to a maximum of 26 weeks’ wages.

That said, the Act provides exceptions to the requirement to pay an employee severance allowance. The relevant exception for the purposes of this article is where 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 than he was employed immediately prior to termination.

It is important to note that the employer may still be exposed to the obligation to pay severance if there is an offer of re-employment by the employer which is found to be on less favourable terms than those on which he was employed immediately prior to the termination, or if the employee has reasonable justification for not accepting an offer of re-employment. If the terms are effectively identical, then there is unlikely to be an issue. However, where they begin to diverge, careful consideration will need to be given to the changes and their cumulative effect.

A purchaser may limit their liability for such payments following a sale or transfer by ensuring that any terminations occur prior to the sale or transfer of the business and are carried out by the seller. The parties may also negotiate setting aside a portion of the purchase price to account for any potential terminations which occur following the sale or transfer. Another option is the inclusion of a suitable indemnity clause in the sale and purchase agreement. How to structure this limiting of liability in each case will certainly be subject to negotiations between the purchaser and seller, and it is important that these issues are addressed at an early stage in the process, including the opportunity to take legal advice on the specific transaction. However, by knowing what liabilities may lay ahead, the purchaser will be better placed to ensure that any inherited obligations are dealt with prior to entering into a sale or transfer of the business.

This note is intended as a high level overview of this topic and there are a number of other issues which will also require consideration on the sale of a business, including immigration and payroll tax issues. Legal advice should always be sought on a case by case basis.

Type

Insight

Locations

Bermuda

Share
Twitter LinkedIn Email Save as PDF
More Publications
23 Jun 2022

Digital Assets in a Crypto Winter

In 2013, IT engineer James Howells was cleaning out his house. He had two identical hard drives: one...

Contributors: James Batten
22 Jun 2022

Bloomberg Tax Country Guide: Bermuda

Bloomberg Tax Country Guides provide overviews of the tax regimes of more than 200 jurisdictions. Th...

Contributors: Ashley Bento
9 Jun 2022

Bermuda’s long-term re/insurance landscape

Bermuda’s long-term re/insurance market has grown considerably in recent years. The island now has...

2 Jun 2022

Provisional Liquidation In Bermuda

Provisional liquidation in Bermuda is a distinctive, flexible regime that operates to support compan...

Contributors: James Batten
23 May 2022

The good life: Bermuda’s new economic pillar

The life sector has moved swiftly from being a new ‘nice-to-have’ in the Bermuda marketplace, to...

5 May 2022

Restructuring of (Re) Insurers during Covid-19

Restructuring involves changing the financial, operational, legal or other structures of a business ...

28 Apr 2022

Assignment, novation or sub-participation of loans             

Transfers of loan portfolios between lending institutions have always been commonplace in the financ...

21 Apr 2022

Defining digital assets in insolvency proceedings

It has been more than a decade since the creation of the first cryptocurrency, bitcoin, yet digital ...

Contributors: James Batten
7 Apr 2022

Funds: filing requirements and Integra

Investment funds registered, authorised or designated under the Investment Funds Act 2006 have ongoi...

5 Apr 2022

Catch a wave: defining the latest startups

A hard market is the traditional trigger for new capacity and new startups on Bermuda, but that’s ...