COVID-19 – What Can Businesses Do to Reduce Labour Costs While Preventing Disputes with Employees

Posted on April 15, 2020
in Publications, Legal Insights

Lex Caribbean

Since the outbreak of the coronavirus known as COVID-19, several countries have implemented measures, such as a lockdown of borders and curfews, to contain the rate of infection. Such measures have caused the wheels of the tourism industry to grind to a halt since leisure travel has ceased and planes are grounded. In Barbados, and several other Caribbean countries, the tourism industry is considered the “bread and butter” of its economy. With the cessation of travel, businesses in the sector have seen a rapid decline in revenue and have been forced to temporarily reduce or close their operations. In addition, many other commercial entities are considering ways to reduce costs so that their businesses can survive beyond the current crisis. One strategy many businesses have taken is to reduce labour costs. However, in Barbados, there are many stories circulating in the media where persons have indicated that their employers failed to follow the appropriate procedures to suspend their employment.

In these uncertain times, it is understandable that businesses will need to take steps to reduce their costs, including labour costs. However, businesses must ensure that they follow the right procedures to reduce conflict with their employees and circumvent potential disputes. To that end, here is a list of options that a business may take to reduce labour costs:

  1. Lay Off Action – An employee is deemed to be laid off in circumstances where he is not provided with work by his employer during a given week. However, in order for an employer to effectively lay off its employees, it must act in accordance with Section 38 of the Employment Rights Act 2012 (the “Act”). First, the employer can only take lay-off action where:i. it temporarily ceases to carry on the business for the purpose of which the employee was employed by it;

    ii. it has temporarily ceased to carry on that business in the place where the employee was employed; or

    iii. the requirements of the business for employees to carry out work of a particular kind or in a particular place have temporarily ceased or diminished.

Before laying off its employees, an employer must carry out consultations with those employees at least 6 weeks prior to the date when the lay-off action commences informing the affected employees of:

  1. the proposed method of selecting which employees are to be laid off;
  1. the proposed method of carrying out the lay-off action, including the period over which the lay-off is to take place (the period should not exceed 13 consecutive weeks or 16 weeks within a 26-week period to avoid severance liabilities); and
  1. any measures that the employer might be able to take to find alternative employment for those employees to be laid off and to mitigate for them the adverse effects of being laid off.

In addition, an employer must provide the affected employees or their union representative, and the Chief Labour Officer (CLO), with a statement of the facts that require the employer to lay off its employees; the number and categories of affected employees; and the period during which the lay-off action is to be carried out.

Where there are special circumstances, such as the COVID-19 crisis, which render it impracticable for a business to consult with its employees, within the required timeframe, or provide its employees with the required statement, the employer must immediately consult with the CLO and take all steps to consult with its employees and provide them with a statement as reasonably practicable in all the circumstances.
Any failure to comply with the procedures set out in the Act can result in a complaint being made to the Employment Rights Tribunal against an employer which may result in the employer being ordered to pay damages to the affected employee(s).

Further, an employer must provide the affected employees, even if they were only employed for a day or part thereof, with a Termination of Services/Lay-off Certificate on the lay-off commencement date, and submit a copy to the National Insurance Office within one week of the lay-off commencement date. Failure to do so is an offence according to Regulation 47(5) of the National Insurance and Social Security (Benefit) Regulation, 1967, and may result in a fine of $1,000 together with a further $200 for each day on which the offence is continued.

  1. Short-Time Action – An employer might also temporarily reduce its employees’ working hours. In cases where a diminution in working hours results in an employee earning less than half of their weekly earnings, that employee is deemed to have been placed on short-time by their employer. In order to effectively place its employees on short-time, an employer must comply with the same procedural steps required to take lay-off action.
  2. Employment Contract Variations – An employer might also consider re-negotiating its employment contract with employees to temporarily reduce costs during the crisis. For example, an employer might ask its employees to take a small salary cut or work fewer hours or days (though not to the extent of placing their employee on short-time). In addition, an employer could freeze salary increases, halt bonuses, ban overtime, pause the payments into retirement funds, or reduce vacation days. Many employees would be amenable to such cost-saving measures if they were assured of their job’s security.

However, before implementing these measures, employers should obtain advice from their legal counsel to ensure a smooth transition and to avoid potential disputes with their employees.

This article, current at the date of publication above, is for general purposes only. It does not constitute legal advice and should not be relied upon as such. You should not act upon any information contained herein without first seeking qualified legal advice on your specific matter.
For more information, please contact Olivia L. dos Santos, Associate, at or +1(246)539-1000 ext. 8640, or your usual Lex Caribbean contact.