It is not uncommon to describe an employee who has lost their job as being ‘on the breadline’. This expression conjures up bleak images of Dickensian England or the Great Depression, but does it really capture the financial reality that terminated employees face? What does it really mean to lose your job?
It is important to acknowledge that termination can have an emotional and even traumatic impact on employees. Both employers and employees should bear this in mind and take the appropriate steps to manage and mitigate it. That said, in this Article we will be focussing on the financial impact of termination, and more specifically the payments that employees are legally entitled to receive when their employment comes to an end.
The amount that a terminated employee is entitled to receive depends on a number of different factors and can vary vastly from employee to employee. Some payments are mandatory and prescribed by statute. Others are based on what the parties agree to in the employment contract, collective agreement or pension plan. Different benefits will also apply depending on the underlying reason for the termination.
Let’s look at a few different scenarios:
Termination For Cause:
An employee may be terminated ‘for cause’, i.e. for misconduct or poor performance.
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- Severance: The term ‘severance’ is often loosely used and understood to mean a payment that an employee becomes entitled to when the employment relationship ends, regardless of the reason for termination. However, under Trinidad and Tobago law it actually has a very specific meaning and only applies where an employee is terminated for redundancy or ‘retrenched’. Some employers might agree to make a ‘termination’ or ‘service’ payment where the employment relationship ends for reasons other than redundancy. However, it would be exceedingly rare for them to do so where an employee is terminated for cause. An employee that is terminated for cause would normally not receive any sort of severance, termination or service payment.
- Notice: In theory, an employer could terminate an employee without notice or – i.e. ‘with immediate effect’ or ‘summarily’. However, this applies only in exceptional cases of gross misconduct. In most cases, an employee (even one terminated for misconduct or poor performance) would be entitled to receive ‘reasonable’ notice of termination. What is ‘reasonable’ depends on the individual circumstances of each case. Where the employment contract specifies a notice period, this will be taken into account, but it is not necessarily conclusive. Other factors such as the employee’s position, length of service and potential difficulty finding alternative employment would also be considered in order to determine what is a ‘reasonable’ period. An employer can choose to have the employee work out their notice period, or to pay them ‘in lieu’ of notice. Employers generally tend to choose the second option, especially where they are terminating the employee for misconduct or poor performance.
- Accrued Benefits: Terminated employees are generally entitled to any contractual benefits that they have accrued or earned, for example unused vacation leave or non-discretionary bonuses.
Resignation:
An employee may decide to voluntarily resign from their employment.
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- Severance: As noted above, ‘severance’ only really applies where an employee is terminated for redundancy. In theory, an employer might agree to pay an employee who chooses to resign a termination or service payment, but unless this is expressly required under the employment contract or a collective agreement, the employer has no obligation to do so.
- Notice: When an employee chooses to resign, it is the employee (and not the employer) that initiates the end of the employment relationship. This means that the employee would not be entitled to receive any sort of notice payment from the employer. In fact, many employment contracts require the employee to provide notice to the employer. The employer can choose to have the employee work out this notice period or it can decide to ‘waive’ notice.
- Accrued Benefits: An employee that voluntarily resigns would be entitled to their accrued and earned benefits.
Retirement:
An employee may remain in employment until they reach retirement age.
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- Severance: As in the above scenarios, ‘severance’ does not really apply when an employee retires. An employer may be more inclined to make some sort of termination or service payment to an employee that retires than they would one who resigns or is terminated for cause. However, it is important to note that unless such a payment is expressly required under the employment contract or collective agreement, the employer has no legal obligation to make it.
- Pension: The employee may belong to a pension plan sponsored by the employer. If so, they will generally be entitled to receive pension benefits upon retirement. It is important to note that the amount of these benefits will be determined by the rules of the pension plan and may be much less than the amount that the employee was earning before retirement. Employer sponsored pension plans are fairly common in Trinidad and Tobago, but there is no legal obligation for an employer to provide one.
- Notice: Since the end of the employment relationship is not initiated by the employer, there is generally no obligation for them to provide any sort of notice payment.
- Accrued Benefits: The employee would be entitled to any accrued and earned benefits.
Medical Termination:
An employee may be let go if they become physically or medically unable to perform the functions of the job.
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- Severance: As in the above scenarios, ‘severance’ does not really apply when an employee is medically terminated. A compassionate employer may be prepared to make a termination or service payment to an employee that is terminated on medical grounds but again, unless this is expressly required under the employment contract or collective agreement, the employer has no legal obligation to do so.
- Pension: If the employee belongs to a pension plan, they may be able take early retirement or be ‘medically boarded’, which would enable them to access a pension benefit. However, this all depends on the rules of the pension plan.
- Notice: An employee who is medically terminated would be entitled to receive reasonable notice of termination, or payment in lieu of notice.
- Accrued Benefits: The employee would be entitled to any benefits that they have earned or accrued.
Redundancy:
An employee may be terminated for redundancy or ‘retrenched’ if they become ‘surplus’ to the labour needs of their employer’s business.
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- Severance: Under the Retrenchment and Severance Benefits Act, a retrenched employee is entitled to a minimum severance payment of (i) two weeks’ basic pay for each of their first four years of service and (ii) three weeks’ basic pay for each additional year of service after that. For example, an employee with nine years’ service would be entitled to (2 weeks’ basic pay x 4) plus (3 weeks’ basic pay x 5) or a total of 23 weeks’ basic pay. An employer may agree to make an enhanced payment to a retrenched employee, and it is not uncommon for employers to choose to do so. However, unless the employment contract or collective agreement expressly states otherwise, an employer is only legally obligated to pay severance calculated in accordance with the statutory formula.
- Notice: Under the Retrenchment and Severance Benefits Act, a retrenched employee is generally entitled to 45 days’ notice of retrenchment. The Act prohibits employers from retrenching employees during the notice period, which essentially means that employers do not have the option of paying a retrenched employee ‘in lieu’ of Notice. The employer can indicate to a retrenched employee that he is not actually required to report for work during the 45 days, but the employee would be entitled to receive their normal salary during this period.
- Accrued Benefits: The employee would be entitled to any benefits that they have earned or accrued.
Fixed Term Employment:
An employee may be employed under a ‘fixed term’ contract. There are circumstances under which a ‘contract’ employee can be deemed to have been employed ‘continuously’ for legal purposes. However, for the purposes of this Article, we will only consider the position under a straightforward fixed term contract.
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- Severance: There is no general obligation to make a ‘severance’, ‘termination’ or ‘service’ payment to a fixed term employee. Some employees (typically those in the public service) may be entitled to a ‘gratuity’ payment, but this depends on the terms and conditions of their employment.
- Notice: A fixed term contract will usually terminate automatically once the contract period comes to an end. In that case, the employer is not required to provide notice or payment in lieu of notice to the employee. An employer may, however, wish to terminate the employee before the end of the contract period. If the contract contains a clause enabling them to do so once they provide a specified amount of notice, then the employer must provide that notice or payment in lieu to the employee. If the contract does not contain a notice clause, then the employer must pay the employee for the balance of the time remaining on the contract.
- Accrued Benefits: The employee would be entitled to any benefits that they have earned or accrued.
It is important to note that the termination of employees in Trinidad and Tobago involves many nuances that are beyond the scope of this Article. We have attempted to set out, albeit in broad strokes, the payments that employees would generally be entitled to receive if their employment comes to an end. There have been public calls for greater legislative protections to be provided to employees, and in particular for the statutory severance formula to be increased. However, in this writer’s view a more holistic approach – including (among other things) tax reforms to ensure that all payments made upon termination are exempt from income tax and expanding the national insurance system to provide for the payment of unemployment benefits – is more likely to benefit employers and employees in the long run, and to ensure that no terminated employee ends up ‘on the breadline’.
Disclaimer: This Document Provides General Guidance Only And Nothing In This Document Constitutes Legal Advice. Should You Require Specific Assistance, Please Contact Your Attorney-At-Law.
Catherine Ramnarine is a Partner at M. Hamel-Smith & Co. She can be reached at catherine@trinidadlaw.com
