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Unpicking the P&O Redundancies

31 March 2022

P&O Ferries have admitted that they did not comply with collective redundancy consultation requirements under UK law. In this article we look behind the headlines to consider how and why P&O cut those corners.

The mass redundancies at P&O Ferries have understandably received a lot of press attention in the UK.

On 22nd of March the CEO of P&O responded to questions posed by the Secretary of State for Business about the redundancies and why they went about it in the way they did. When addressing MPs' question on 24th March, the CEO admitted that P&O broke UK employment law.

In this article we consider the legal arguments that arise from the situation, as well as exploring the business rationale for P&O's actions, as suggested in their letter.

What has happened?

The letter from P&O's CEO refers to 786 "Seafarers" being made redundant. "Seafarers" are defined in the Maritime Labour Convention 2006 as '''anyone who is employed or engaged or works in any capacity on board a ship''. So that means cabin crew, maintenance staff, cleaners, and anybody else you may expect to see working on a ship

The affected employees were, as we know, not given any notice about their redundancies and many received the news via a pre-recorded video message. Whilst there are stories of Taser wielding security guards removing staff from the ships, these allegations are denied by P&O.

All of the Seafarers' contracts of employment appear to have been with businesses registered in Jersey. The Seafarers worked on various ships which do crossings between ports based in the UK, Northern Ireland, Eire, Netherlands and France (with a small number assigned to vessels called Norsky and Norstream). The ships themselves are registered in the Caribbean and Cyprus. All of the ships had 20 or more Seafarers based on the particular vessel.

P&O's letter to the Secretary of State states that the Seafarers ''were not all UK residents'', although the strong assumption is that most are. P&O do not directly answer the Secretary of State's question as to whether workers in France and the Netherlands had been affected in the same way.

The affected employees have, we understand, been offered Settlement Agreements, assumedly to prevent them bringing any claims against P&O in the UK Employment Tribunals, (or indeed Employment Tribunals in any other jurisdiction where the Seafarers may be deemed to have done their jobs).

P&O has also confirmed that it has offered support to the dismissed Seafarers to find new jobs at sea, and that many have been offered jobs on other P&O vessels, albeit with different companies in the group.

We also understand that P&O proposes to engage employment agencies to staff the vessels once they get moving again, with the agency staff being paid less than the UK national minimum wage (NMW).

Legal Points

Redundancy and Collective Consultation

The basics

The immediate issue, which has received many headlines in the press, is that P&O did not comply with its collective consultation obligations for the mass redundancies.

In brief, where an employer proposes to dismiss over 20 people by reason of redundancy within a period of 90 days or less at one establishment, it must consult with "appropriate representatives" of the affected employees about the proposals.

In most cases, the "appropriate representatives" will be from a recognised trade union (if there is one in place); or they may be elected by the affected employees for the purpose of the redundancy proposals. In P&O's case, there were recognised unions in place who should have been consulted under UK law.

Where between 20 and 99 redundancies are proposed at an establishment, the consultation must begin at least 30 days before the first dismissal takes effect. Where there are 100 or more proposed redundancies, the consultation must begin at least 45 days before the first dismissal takes effect (or 90 days in Northern Ireland).

The employer must also notify the Secretary of State in the same timeframes. However, under s193A Trade Union and Labour Relations (Consolidation) Act 1992, where the employees concerned 'are members of the crew of a sea going vessel registered at a port outside Great Britain', the employer is required to notify the 'competent authority of the state where the vessel is registered (instead of to the Secretary of State)'. We refer to this, as 'the Lacuna' in our analysis below.

Jurisdiction

P&O's letter to the Secretary of State seems to be geared to arguing that UK law does not apply to the contracts of employment, although the CEO's most recent comments backtrack from that argument. In determining whether UK law will apply to a contract of employment, an Employment Tribunal will consider factors such as:

  • the location of the employer's headquarters
  • the employee's home address
  • whether the employees pay income tax and national insurance
  • where the work is done
  • where the HR department is based
  • where the employee was recruited
  • what the contract says

None of these factors is determinative in isolation, and jurisdiction for Seafarers can be a complicated issue. In particular, on the issue of NMW, P&O are seeking to rely on a loophole that allows maritime companies to pay international workers less than UK NMW where they work on ships registered outside of the UK which operate between UK and European ports.

The penalties

Under UK law, where an employer fails to comply with its collective consultation obligations there are various potential claims and penalties, including:

  • claims for unfair dismissal
  • protective awards up to 90 days' pay for each affected employee (for the failure to inform and consult)
  • criminal penalties for failure to notify the Secretary of State

Why did P&O not consult the staff or notify the secretary of state?

The legal angle

In respect of the failure to notify the Secretary of State in the UK about the redundancies, P&O's argument in the letter is that the vessels were all registered outside of the UK and they did notify the "relevant authorities" on 17 March 2022. This ties in with the Lacuna described above, so P&O may well have complied with the duty to notify the competent authorities in Cyprus and the Caribbean. This is in a unique argument, which is only available in novel scenarios. Along with the commercial considerations described below, it may well explain why the Directors of P&O Ferries decided to take this course of action rather than complying with the collective consultation requirements.

It remains to be seen whether P&O will resurrect arguments that the Seafarers themselves should not be subject to UK law, but we struggle to see how that could be the case for any of the employees who were based in the UK and worked on crossings which started or finished in the UK.

In terms of the prospective engagement of international agency workers on less than NMW, the UK Government is debating emergency legislation to close that loophole also.

The commercial angle

It is well known that profit margins in the passenger ferry industry are extremely tight. Add in two years of COVID and reported P&O losses of £200m over the period, rising supplier costs and a £146m pension scheme deficit, it becomes clear that drastic action was necessary to save the ailing shipping operator.

The pensions position warrants further attention. P&O participates in the defined benefit Merchant Navy Ratings Pension Fund, an industry wide scheme in which around 100 unconnected maritime employers participate. P&O has paid a colossal £80m to the fund since 2016 yet is still liable to fund an additional £146m.

In a challenging trading environment, P&O's pension liabilities may well have been the tipping point which led to the drastic action to restructure its workforce. However, an open question remains why P&O did not seek assistance from the government to explore the alternative options available to it.

The government can play a decisive role in assisting UK subsidiaries hamstrung with pension deficits to broker pension deals with their overseas parent companies. This was the case in 2016 when the (then) Department of Business, Innovation and Skills helped broker a pensions deal between Tata Steel UK and its Indian parent company in relation to the British Steel Pension Scheme and its c£700m deficit. Successfully restructuring its pension liabilities to reduce Tata Steel UK's future exposure was a pre-requisite for Tata Steel UK to unlock further investment from its parent company and outside investors. Securing this investment enabled the business to stay afloat.

So the question remains, could government involvement with P&O and its parent DP World have prevented the mass redundancies at P&O whilst keeping the business afloat? The reasons why P&O chose to pursue such a ruthless approach with no warning or third party involvement are still not clear. A potential reason may lie in the nature of its supply chain. If the market found out that drastic solutions were being sought, suppliers may have stopped providing goods on credit. This could have rendered P&O unable to operate and therefore resulted in its demise. However this is conjecture - we can expect more answers in the coming weeks as the saga unfolds.

If you have any questions or would like to discuss any of the issues raised in this update, please do not hesitate to get in touch with Neal Mellor and Marcus Fink.

Further Reading