P&O Ferries: lessons to learn

Answer

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Clients do not only expect their legal advisers to advise on the law, they also expect them to consider commercial factors when advising on important strategic decisions. These considerations cannot simply be limited to saving money, as we saw in the recent example of P&O Ferries and its dismissal of nearly 800 workers without consulting unions.

Background

An employer is under a duty to consult appropriate representatives of the affected employees, or trade unions, when proposing to make 20 or more employees redundant within 90 days or less.

Where over 100 redundancies are proposed, consultation must begin at least 45 days before the first dismissal takes effect.

When the duty applies, the employer must also notify the Department for Business, Energy and Industrial Strategy (BEIS) of the proposed redundancies. Failure to do so is a criminal offence.

In late March 2022, P&O dismissed 768 workers. The firm stated that it suffered significant losses (£100 million per year) as a result of the pandemic, which it considered was not sustainable and necessitated large-scale change in the way it employed its staff.

P&O argued that the duty to consult did not apply to it in this case because the employees in question were employed by Jersey companies and worked on vessels registered outside of the UK. It contended that it did not need to notify BEIS and only the authorities of the states where the vessels were registered. P&O claimed that the relevant authorities had been notified.

The staff in question were told by video message that it was their last day of employment and some were escorted off of ships. Those subject to the changes were offered two and a half weeks’ pay for each year of service, in addition to six months' pay. However, they were required to enter into settlement agreements containing a confidentiality obligation.

The company has defended its actions, stating that such a decision was unavoidable and that there were compelling business reasons for what it did; if it had failed to act, the entire company risked collapse, which could have resulted in the loss of 3,000 jobs. P&O contended that it had no alternative as no union would have accepted the proposed changes. Going forward, P&O sought to crew its ships with a third-party crew provider to save costs.  

Analysis

P&O’s handling of the matter has been criticised by MPs, unions and even the Archbishop of Canterbury.

Further, the company is now under investigation by the Insolvency Service for criminal and civil proceedings. P&O’s chief executive has not resigned, despite calls from the government to do so. However, he may face disqualification if the notification requirements were found to have been breached. Not only that, P&O and its directors may also face prosecution and potentially unlimited fines.

Employment practices are under increasing scrutiny. For example, on 29 March 2022, the government recently announced plans to issue a statutory code of practice to address employers’ “firing and rehiring” practices. Regardless of the result of the Insolvency Service’s investigations, there is no doubt that P&O has suffered significant reputational damage in light of its decision. At a time when people are increasingly interested in buying from ethical companies, it is difficult to see how P&O’s recent actions will not impact trade.

While cost-saving is often the prominent focus for businesses, they must not lose sight of other considerations. Commercial lawyers need to have foresight and consider all eventualities and associated risks when advising clients on optimum solutions. This not only relates to financial risks but also, as in this case, reputational risks, which may ultimately impact the balance sheet.

It will be interesting to see whether P&O’s hasty cost-saving measures were worth the repercussions.

Amanda Applegate is an associate at TLT LLP.