Current Issue

Companies face a great number of challenges after a natural disaster occurs and affects operations in a given location. While natural disasters often come with little to no warning, anticipating how to manage post-natural disaster risk is possible by understanding the immediate challenges companies face once the dangers subside. Three of these key challenges include:

  • Employee Relief and Aid: Offering appropriate relief as quickly as possible to employees and their families in the affected area.
  • Temporary or Partial Shut-Downs: Making swift decisions on whether the local operation can continue post-natural disaster, and how employees are to be compensated during operation suspensions or as a result of reduced work hours.
  • Permanent Closure: How to properly implement reduction in force procedures consistent with local regulations in the unfortunate case that the business continuity of the local operation cannot be reestablished.

In order to preventively address these issues, companies should consider: 1) the tax and employment implications involved in the offering of relief to affected employees and their communities; 2) market-specific compensation rules applicable during work-reductions or the full suspension of business activities; and 3) local laws governing reduction in force procedures in a permanent closure situation. The recent example of Hurricane Dorian and its devastating toll on the Bahamas demonstrated how these legal and practical considerations can comeinto play for companies:

  1. Bahamian Wage Payment Requirements

The Bahamas has a government-mandated minimum wage of $5.25 Bahamian dollar per hour, $42 per day, and $210 per week. Employers found in violation of such payment must pay a $500 fine and pay the employee the difference between wages actually paid and the minimum wage.

It is important to note that there is no stipulation in the laws in the Bahamas that allows the employer to reduce or suspend employee’s salary due to an unexpected event such as a storm or hurricane. Therefore, any suspension of payment due to the cessation of activities could be problematic and could result in a finding of unlawful termination of the employment relationship. Although some companies have no other choice but to suspend business activities due to force majeure, the most effective practice is to suspend the relationship with an employee by written agreement. If a written agreement is not in place and an organization is unable to continue operations as a result of a natural disaster, the next best option would be to terminate the employment relationship by redundancy. 

  • Potential Considerations When Ending the Employment Relationship Following A Natural Disaster

Bahamian law provides that an organization may terminate the employment relationship for the following reasons: 1) summary dismissal (due to employee´s serious breach of contract), 2) individual dismissal with compensation, and 3) redundancy. 

In this case, if a company ceases its business operations as a result of its destruction during a hurricane and no longer has a workforce need, the end of the employee relationship could be classified as redundant. Bahamian law has specific provisions addressing the payments that should result if a termination is based on redundancy.

Normally, payment based on redundancy termination is to be made on or before the date of the employee’s redundancy. In this circumstance, best practices would be to properly document the payment and to explore the possibility of obtaining a written release upon payment. In addition, an employer is required to notify the employee, the applicable trade union representative, and government officials of its intention to deem an employee redundant. 

A final approach to consider is the possibility of offering an employee the opportunity to renew or reinstate the employment relationship if a business foresees restarting operations in the near future. 

In this situation, the employee could choose between the redundancy payment or the new employment offer. This alternative allows the employer to terminate the employment relationship without payment and offers the employee a promise of return to his or her employment in the near future.

  • Tax Considerations Relating to Assistance on Relief Efforts

During the aftermath of Hurricane Dorian, the Minister of Finance issued an Exigency Order, in force from September 2, 2019, which allowed importing duty-free and VAT-free hurricane relief supplies into the Bahamas during a period of three months (save for bottles of water, clothing, food, and personal hygiene products which are duty-free and VAT-free just for a period of 30 days). Under this order, companies could send goods to their Bahamian operations and those goods supporting restoration or relief activities related to Hurricane Dorian may be exempt from certain import taxes. 

It is key to recognize that the exemptions will only apply to those goods listed in the order or approved by the Minister of Finance, destined to the islands listed in the order, and used for charitable purposes and not for commercial purposes.

Companies should also be mindful of the tax treatment associated to contributions to foreign organizations. Contributions to foreign organizations are generally not tax-deductible, unless permitted by a tax treaty. The United States currently has tax treaties with Canada, Mexico and Israel. There is currently not a tax treaty between the United States and the Bahamas. As such, it is important that employers consult with legal and tax advisors if they are considering establishing an employer-sponsored disaster relief program. 

Be Prepared
The aftermath of Hurricane Dorian highlights the framework of the key issues a business should hone in on before a natural disaster hits. While natural disasters across the globe are inevitable, planning on what to do in the wake of a natural disaster can help your business mitigate risk associated with the aftermath.M

Mishell Parreno Taylor is a managing shareholder in the San Diego office of Littler and Juan Carlos Varela is a managing shareholder in the Caracas, Venezuela office of Littler.