The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

The Government will dissuade many entrepreneurs from “even attempting to do business” if it persists with plans to transform employee severance pay into “a windfall bonus”, the private sector has warned.

The Bahamas Chamber of Commerce and Employers Confederation (BCCEC), in its official position paper on proposals to eliminate the Employment Act’s current ‘12-year cap’ on redundancy pay, said such a move would have a “chilling effect” on business and economic expansion.

The October 7, 2015, paper argued that the proposal would make downsizing “cost prohibitive” for employers, and - in what will further alarm the private sector - implied that the Government wanted it to take effect retroactively.

The Chamber added that should the Christie administration forge ahead, it would make international companies “incredibly cautious” about doing business in the Bahamas, especially given that existing redundancy pay is among the highest in the Caribbean.

It instead urged the Government to move on amendments to the Pension legislation, already laid and debated in the House of Assembly, but not brought into law.

“The recommendation to amend the Employment Act to repeal the ceiling on redundancy pay is short-sighted and unfair to businesses in the Bahamas,” the Chamber warned.

“The Employment Act ensures that employees are protected in the event of termination or redundancy, but it should not be amended so as to put businesses at further risk of failure.

“This amendment would undoubtedly have a chilling effect on entrepreneurial ventures and on expansion. The prohibitive cost of redundancy would dissuade many from even attempting to do business in this country.”

The Chamber position paper added that the Government’s proposal ignored the fact that many companies, especially in the financial services industry, paid redundant staff more than the statutory minimum required by the Employment Act.

It warned that should the Government push forward with the planned legal amendments, it would merely further undermine a business environment that is already grappling with high operating costs, plus multiple new and increased taxes.

“The cost of electricity is too high,” the Chamber said. “We have already raised the minimum wage (which we agree was necessary; we have implemented Value-Added Tax (VAT) and, soon, NHI.

“In financial services, regulatory fees have tripled in some instances. Business License fees have also increased. This is certainly not the time to introduce such a measure, and we should carefully consider the message it sends to businesses as they struggle to maintain profitability in an increasingly complicated world.”

Tribune Business revealed the Government’s plans to amend the severance pay clauses in the Employment Act, via proposals that are now before the National Tripartite Council, last week.

The Council, which is made up of employer, union and Government representatives, was due to have met last Thursday to further discuss the Christie administration’s recommendation.

The Employment Act currently allows line staff two weeks’ severance pay for every year worked up to 12 years, ‘capping’ the maximum payment they are entitled to at the equivalent of six months’ salary plus two weeks’ pay with, or in lieu, of notice.

Managerial staff are entitled to one month’s severance pay for every year worked, ‘capping’ the maximum sum they are entitled to at the equivalent of 12 months or one year’s salary, plus a month’s pay with, or in lieu, of notice.

Many in the private sector are likely to view the proposal to remove the ‘caps’, or upper limits, on statutory severance pay due to Bahamian workers under the Employment Act as another sign that the Government has its priorities all wrong.

For instead of focusing on pro-growth policies that improve the ‘ease of doing business’, the Christie administration is instead increasing business costs by expanding worker benefits and social protections.

The effect of the Government’s proposal, if adopted into law, would be that an employee who had worked for the same company for 30 years is now provided with the equivalent of 30 months’ redundancy pay, determined whether they were line staff or managerial employees.

As a result, companies will find it extremely expensive - and potentially “cost prohibitive”, as the Chamber says - to effect necessary downsizing and staff lay-offs that may be essential to their survival.

The BCCEC paper warns that removing the Employment Act ‘ceiling’ will eliminate the ability to save a Bahamian worker’s “future career prospects”, while also penalising the creditors of insolvent/bankrupt firms.

Pointing out that ‘terminations’ carry much “stigma”, especially in small communities such as the Bahamas, the Chamber pointed out that employers often tried to save workers’ “future career prospects by giving them the option of redundancy”.

“Take away the ceiling, and you take away this option that allows employees not to be negatively impacted by an employer’s decision to go in another direction,” it said, adding that ‘terminations’ suggested worker incompetence even if not for ‘cause’.

“Attention should be given to the impact such a move will have on other unsecured creditors - namely sub-contractors and their staff,” the Chamber warned of the Government’s plans.

“By making even less available in the case of a bankruptcy, the Government will be penalising self-employed people and small contractors and their staff. Employees get paid for what they do as they do it.”

The Chamber reiterated that the Employment Act’s statutory minimum redundancy pay was intended to “tide” workers over until thy found a new job. And they could also apply to the National Insurance Board (NIB) for unemployment benefit, which is also ‘capped’ at 12 weeks.

“Redundancy payment is not intended as a windfall bonus in the event of a company going out of business, downsizing for economic reasons or moving in directions where the staff members’ skills and abilities are not needed,” the position paper said.

“In that regards, the Government should be moving forward with the pension legislation, properly re-amended, so that there is a safety net for employees that they will contribute towards.”

The Bahamian judicial system has previously ruled that the Employment Act was intended by Parliament to provide a statutory minimum, or floor, for severance payments made to Bahamian workers.

This has resulted in several successful court actions where long-serving employees, who were with their employer for more than 12 years, used common law to obtain greater redundancy benefits than those due to them under the Employment Act.

These cases, coupled with large-scale redundancies at major employers, seem to have prompted the Christie administration to move on the proposed amendments.

The Chamber paper implies that Government thinking appears to have been influenced by the recent 2,.000 redundancies at Baha Mar. Another factor is likely to have been the Royal Oasis closure in 2004, when the operator, Driftwood Hospitality Group, effectively abandoned the resort and its $20 million-plus liabilities - including severance pay due to its 1,200 staff.

The Chamber’s position paper, though, urged the Government to deal with such foreign companies directly rather than change the law “in a way which would open all companies operating in the Bahamas to increased liability”.

It added: “Within the private sector business community, especially in financial services, most employers already pay more than required by the Employment Act.

“However, we disagree that an increased payment of this nature should be mandatory. Businesses need to operate in an environment of certainty, and a change of this nature would create the kind of business environment uncertainty that makes international business, in particular, incredibly cautious about the future of their business in the Bahamas.”

The Chamber paper also implies that trade union demands have influenced the Government’s position.

It refers to the proposed creation of a ‘redundancy fund’ that would compensate employees of those businesses that exit the Bahamas without resolving their liabilities. But all businesses would likely have to make contributions to finance it.

Such a ‘fund’ has previously been championed by the likes of Trades Union Congress (TUC) president, Obie Ferguson, but the Chamber described the idea as “short-sighted and ill-advised”.

“Given the fragile economic climate today, the proposed amendments would have a very negative impact on all businesses, and could be seen as penalising the companies who operate with fairness and integrity for those who do not,” the Chamber paper said.

Emphasising that it cannot support the Government’s proposal, the Chamber said the private sector should not be responsible for providing a social safety net.

Pointing out that the Employment Act’s redundancy pay was “one of the highest in the region”, it also warned the Government not to make any changes retroactive - in other words, to apply to past events.