Blog - 18/03/2022
Fight Club: P&O shows that Employment Protections are always a commercial balancing act
For employment lawyers who regularly act for senior executives, it has long been known that the statutory protection against unfair dismissal doesn’t really provide protection against dismissal. The reality is that the City corporations know, that for the high earners who they want to get rid of, they just have to pay out the maximum compensation that can be awarded for unfair dismissal (currently capped at around £90,000) and that employee’s recourse will be limited, unless the dismissal can be shown to be discriminatory or in some way linked to some whistleblowing disclosure. For a city earner on a base salary of £150,000, with twice as much in potential bonuses, making a payment for what would have been the amount a Tribunal could award for unfair dismissal, makes commercial sense, when wanting to exit a higher earner swiftly.
It would appear that this is the calculation that P&O have done in relation to the 800 staff that it sacked yesterday. Presumably, at some stage, the Board did the numbers calculating:
- the cost of the notice periods (let’s assume an average of 6 weeks),
- the accrued but untaken holiday that would have to be paid (let’s assume an average of 5 days),
- the compensation for unfair dismissal (maximum of a years’ salary if under the cap, subject to the employees’ duty to try to find other work),
- the protective award payable for not having gone through the statutory collective consultation period (up to 90 days gross pay and likely to be awarded at that maximum sum given the circumstances) and
- the fact that a Tribunal could make an order for reinstatement, which they would not then comply with, resulting in an additional award of up to 52 weeks’ pay (subject to the weekly cap of £544).
Taking an assumed average salary of £20,000, those factors alone add up to around £50,000,000 when applied across 800 workers, and that ignores potential arguments under TUPE about the transfer of staff to the agencies now supplying staff to P&O reported to be Clyde Marine and Columbia Ship Management (including, presumably, indemnities that P&O may have been asked to provide to those companies in respect of any claims asserted by staff against the agencies that their employment has ‘transferred’ on their existing terms and conditions).
It is reported that P&O have offered ‘substantial’ settlement sums in excess of its enhanced redundancy scheme and this suggests that, against the potential commercial ‘downside’ of immediate dismissal of all staff as set out above, P&O have offered something less than their maximum exposure (possibly notice, holiday, the protective award, the enhanced redundancy payments and ‘something’ else), on the basis that most employees were likely to take that offer and sign the settlement agreement, particularly if they could then accept a role offered by one of the two agencies appointed now to supply staff.
The potential downside is significant and the potential settlement being offered, must be a sizable proportion of that ‘downside’. But, presumably, the numbers add up such that it remains commercially beneficial to take that cost ‘hit’, for the financial benefit of what might be saved going forwards by outsourcing the staffing function. Given the numbers involved, that is surprising.
As ever, unfair dismissal rights are just a commercial equation, and bring to mind the Fight Club recall example, where Edward Norton as the narrator explains:
“A new car built by my company leaves somewhere traveling at 60 mph. The rear differential locks up. The car crashes and burns with everyone trapped inside. Now, should we initiate a recall? Take the number of vehicles in the field, A, multiply by the probable rate of failure, B, multiply by the average out-of-court settlement, C. A times B times C equals X. If X is less than the cost of a recall, we don’t do one”.
And it will always be so, unless and until, employment protection rights are reinforced in the UK to adopt a more restrictive approach to dismissals, more akin to some jurisdictions in mainland Europe, or there is an increase to the ‘downside’ of the ‘recall equation’ (like removing the cap on compensation as there is in discrimination or whistleblowing claims). The arguments for and against will rage on.
If you have any queries about this matter, please contact Linky Trott or any member of the Employment team.
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