Sunday, April 21, 2024

EVERYDAY LAW: Severance payment


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LAST WEEK’S ARTICLE generated a lot of interest. The focus was on unfair dismissal and the fact that a business reorganisation may amount to a fair reason for dismissal under the heading of “some other substantial reason” for dismissal under the Employment Rights Act.

One thing that employers must not ignore is the existence of the law of wrongful dismissal which still exists alongside the regime under the act.

An employee who is wrongly dismissed may wish to take action under the common law of wrongful dismissal in an appropriate case, rather than unfair dismissal. In this regard, Section 45 of the Severance Payment Act may become relevant. It provides for the assessment of damages where an employee was wrongfully dismissed. It reads:

“Notwithstanding any rule of law to the contrary, where, in an action brought by an employee for breach of their contract of employment, the employee claims damages for wrongful dismissal, the court shall, if

(a) it finds that the employee was wrongfully dismissed; and

(b) it is satisfied that, had the employee been dismissed by reason of redundancy or natural disaster, the employer would be liable to pay him a severance payment, assess those damages at an amount not less than such severance payment . . . .”

In the Barbados Court of Appeal case Neville Grosvenor v The Advocate Co. Ltd (civil appeal 91 of 1991), the court held that a wrongfully dismissed employee was entitled to the higher of the calculations of damages assessed at common law and a severance payment assessed under the Severance Payment Act, not both.

The court also held that in order for Section 45(1) of the act to apply, three conditions must be satisfied:

1. There must be an action brought by an employee against an employer for breach of contract, in which the employee claims damages for wrongful dismissal.

2. The court must find that the employee was in fact wrongfully dismissed.

3. The court must be satisfied that if the employee had been dismissed by redundancy or natural disaster, the employer would be liable to pay him a severance payment.

It is only where the court finds that an employee had been wrongfully dismissed and that he had worked continuously for more than 104 weeks that Section 45 came into play. And then only by way of enabling a computation of damages for breach of contract of employment to be made. The damages according to the section are to be assessed “at an amount not less than severance” (Sir David Simmons, in June Clarke v ALICO (civil appeal No: 33 of 1998).

An employer who is dismissing an employee based on one of the fair grounds for dismissal in the Employment Rights Act should ensure that the dismissal does not amount to a breach of the employment contract.

If that is so, the employee might be able to obtain damages amounting to not less than a severance payment if the employee has been employed continuously for 104 weeks or more.

The other thing that employers should be aware of is that the mere fact of a business reorganisation may not be enough to prevent a successful claim for severance payment.

Section 31(2) of the Employment Rights Act provides:

“An employee who is dismissed shall be taken to be dismissed by reason of redundancy if the dismissal is attributable wholly or mainly to the fact that:

(a) his employer has ceased, or intends to cease, to carry on the business for the purposes of which the employee was employed by him, or has ceased, or intends to cease, to carry on that business in the place where the employee was so employed; or

(b) the requirements of that business for employees to carry out work of a particular kind, of for employees to carry out work of a particular kind in the place where the employee was so employed, have ceased or diminished or are expected to cease or diminish.

The declaration of whether a dismissal is as a result of reorganisation or redundancy can on some occasions be a difficult question and it needs to be referred for adjudication.

If the ‘reorganisation’ is that the employee can prove that his dismissal is wholly or mainly as a result of 31(2) or (b), then the employee will be entitled to a severance payment.

• Cecil McCarthy is a Queen’s Counsel. Send your letters to Everyday Law, Nation House, Fontabelle, St Michael. Send your email to


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