You just sacked 800 people without warning. Now what?

Can you just out-of-the-blue sack 800 people?

P&O Ferries in the UK says: yes. It bought itself a furious uproar this month by informing 800 employees, without any kind of warning at all, of their immediate termination. Their replacements — agency labour — were waiting outside in vans, ready to take over immediately.

It is not a great time in the UK to be a ferry operator. Major players have already gone under. P&O has been struggling. It saw a way ahead by hiring agency crew on less costly terms.

The transport union calls it one of the "most shameful acts in the history of British industrial relations".

But for P&O there appears to have been a calculation that looked past all other factors to brute economic considerations.

This is a sector with a long history of fraught relations and strikes. The Conservative UK government, no fond friend of unions, has little enthusiasm for the present UK redundancy rules - a legal legacy of the EU - which require an employer to follow ‘collective consultation’ and notify the Government well in advance.

Nonetheless, those rules are law. P&O may be readying arguments that its foreign-flagged vessels are not covered, but these are very doubtful, especially taking into account the collective terms it has negotiated with the UK unions. There is an obligation to consult when greater than 20 redundancies are proposed, and it’s unlawful to dismiss prior to or during that consultation period. Failure to do so carries significant financial penalties, especially if the omission has been deliberate and without excuse.

Crucially, though, in the UK the prospect of employee reinstatement is not strong, meaning that a strictly financial calculation may conclude that the penalties could be an acceptable cost of business.

What took place was far from desirable HR practice: sackings delivered as a fait accompli; replacements waiting in vans; security personnel at the ready to see employees off.

Meanwhile, advice given to the government of impending action fell substantially short of the legal obligation, being given just one day before. This appears to have not much perturbed the government initially. However it duly acquired an air of deep concern as the furore built.

Whether its professed concern will be manifested in any action is debatable, as it ponders the matter in the context of post-Brexit delays and red tape that continue to beset ferry and port services.

Where next? Unions have promised legal action, blockades, demonstrations. P&O has indicated it will be offering an ‘enhanced’ redundancy package to those dismissed so peremptorily.  It will likely need to be significant to contain the potential legal fallout.

What was P&O thinking? Has it calculated it would be best to face the inevitable fury, that had it followed the required path of consultation, union negotiations would have failed to reach any kind of accord, disruption and union action would have followed and that therefore in order to save its finances it should take the nuclear option?

Was it a manifestation of the phenomenon of the overseas owner with little sympathy or interest in local union relations or labour conditions?

That phenomenon is not unknown here in New Zealand.

In terms of the law, we do not have an equivalent of those collective consultation obligations. But there is a general obligation to consult on proposed redundancies in order for them to be fair (which also exists in the UK). The relative value of claims and prospects of reinstatement are also higher here.

It's unlikely an employer could get away with instant dismissals intended to allow cheaper staff to be employed – that would not constitute a lawful redundancy.   But as things stand here there is no equivalent of the statutory redundancy compensation which is available in the UK.

So is it possible we could see such a thing happen here?

Yes, it’s possible. A company might take the view that ‘no notice’ redundancy is needed to preserve business; such events have been seen here, at a small scale.  But any large scale action of this type - even on the basis that it was felt essential to save business – would be very risky.  Claims and risks could be significant.  And there would certainly be no chance of sympathy from the current Government. It seems unlikely any sophisticated large employer would take such an action, and it would surely seem from the viewpoint of any well-informed director, inadvisable at the least.

However, New Zealand managers and local company boards receiving instructions from an overseas parent company have encountered issues not dissimilar to this.

A director in such a position needs to be mindful of the flashpoint potential here. There can be a vital role to be performed for overseas decision makers, providing the local context. Foreign investors unaware of the employment law framework may not apprehend the significance of obligations to consult and the financial ramifications.

Moreover, the extent of the direct obligation on directors personally to ensure good employment law practice is a live policy area, with the possibility that such obligations may be codified.

More broadly of course, whatever the specific legal framework, any time you treat your staff poorly, you rightly stand to find yourself on the front page being judged harshly. P&O will likely be hoping that notwithstanding the scalding it is taking, the few alternatives available to consumers and business will assure it of a future. Any New Zealand company contemplating such action might ask if it would be willing to find itself having to make such bleak calculations. 

About the author

James Warren is a partner in Dentons Kensington Swan's employment and workplace health & safety team. He supports organisations with workforce change, employee relations and disputes, and the employment issues arising out of commercial transactions. He advises clients on the full range of employment issues, including restructurings, investigations, dismissals and disciplinary issues, personal grievances, and contractual and collective issues. 

James has been consistently recommended in The Legal 500, has been published widely and is regularly asked to speak at conferences and seminars.