News and Publications

A case study on how not to dismiss 800 employees

Posted: 21/03/2022


On 17 March 2022, after cancelling a number of ferries that day, P&O Ferries announced by a video recording sent to its approximately 800 seafaring employees that they were to be dismissed with immediate effect by reason of redundancy. The employees were told in the video that the P&O Ferries business had lost £100 million for each of the last two years, that P&O Ferries had considered a wide range of options but that it had decided it had to restructure. This restructure would result in crewing being undertaken by a third party crewing agency at far lower rates of pay.

The employees were also advised that they would receive an enhanced redundancy payment in excess of their statutory rights and higher than that provided for in their collective bargaining agreement, provided that they sign a settlement agreement by 31 March 2022. The crew were also promised support in finding a new job and that counselling would be available until June 2022.

The effect of P&O Ferries’ actions brought instant and universal condemnation from employees, trade unions, politicians and the general public.

Subsequent to the dismissals, on 18 March 2022, Kwasi Kwarteng, Secretary of State at the Department of Business, sent a letter to Peter Hebblethwaite, the chief executive of P&O Ferries, confirming, amongst other things, that there were clear rules around the processes that employers must follow if they are making large groups of staff redundant. These included carrying out consultations with trade unions or elected employee representatives and notifying the Secretary of State via the Insolvency Service and the Redundancy Payment Service of the proposed redundancies in advance of the consultation. The letter added that failure to meet the notification obligation is a criminal offence and can lead to an unlimited fine.

On 22 March 2022, P&O Ferries responded by letter. They acknowledged that the redundancies came without warning but stated that the dismissals were a ‘last resort’. They stated that 575 of the ‘affected people’ had taken steps to accept the severance terms. They added that they had communicated news of the dismissals at meetings on the day for crew who were working and that 261 of circa 400 off-roster crew saw the videos. They further added that the off-roster crew were contacted by phone, email and text, and that dismissal letters and severance terms were ‘shared’ by courier and email. The letter concluded by stating that P&O Ferries did not consider that the P&O companies involved had committed any criminal offences, adding that ‘The very clear statutory obligation in the particular circumstances that applied was for each company to notify the competent authority of the state where the vessel [on which the crew worked] is registered. All relevant vessels are registered outside the UK. Notification was made to the relevant authorities on 17 March 2022.’

The actions of P&O Ferries create a number of potential legal issues.

Has there been a dismissal?

Whilst it might seem odd to suggest in the face of the P&O video that there has not been a dismissal, dismissal has to be effected in accordance with the provisions of the relevant contract of employment (which for all of the seafaring employees will be a Seafarer Employment Agreement (SEA), governed by the provisions of the Maritime Labour Convention 2006).

If a purported employee dismissal is not effected in accordance with the relevant contract, the action is nothing more than an offer to terminate the contract in breach. Unless the innocent party (the seafarer employees in this case) accepts that breach, the contract continues in effect until it is either terminated lawfully or the innocent party accepts the breach.

Depending on whether there is a payment in lieu of notice clause in each of the SEAs and whether there is a requirement to give notice in a particular form (for example, in writing), there is an argument that the purported termination by video on 17 March 2022 would be a nullity and that the SEAs subsisted until lawfully terminated. This could create anomalies if individual employees were not sent dismissal letters where notice of dismissal is required in writing. Indeed, often, contractual notice clauses specify that email is not a valid method of providing notice.

Claims for unpaid ‘wages’ and the right of arrest

A right of ship arrest exists to enforce a seafarer’s right to payment for wages in respect of time spent working on a particular ship.

Under the provisions of the Arrest Conventions (the International Convention Relating to the Arrest of Sea-Going Ships, 1952 and the International Convention on Arrest of Ships, 1999), until such time as all outstanding wages are paid to the employees, any claim for unpaid wages gives rise to a ‘maritime claim’ in favour of each affected seafarer employee, the effect of which is that the unpaid seafarer can apply for arrest of the vessel until such time as the claim is paid.

The right of arrest for unpaid wages is transposed into UK national law and is wide, including anything payable as recompense for performance of duties. It includes benefits as well as money, so long as what is sued for is attributable to service on a ship. This concept has been developed through various cases to cover: bonus payments; repatriation expenses; subsistence allowance; sick pay; employee's National Insurance contributions which are deducted from wages and paid to the authorities; employer's National Insurance contributions where these are paid pursuant to a term of the employment contract; pension contributions; contributions to a seamen's union; damages for failure to make payments to a third party (such as pension contributions); and damages for failure to make payment to an agent or third party to whom the seaman has agreed that the wages are to be paid by way of allotment.

Damages for breach of contract based on lost earnings or other benefits not paid or conferred also amount to wages, but statutory redundancy payments and unfair dismissal compensation are not covered. Further, a claim for pay in lieu of notice is not ‘wages’ where the employee worked for a management company and was employed on a number of ships owned by associated companies, if the pay in lieu of notice could not be attributed to service on any particular ship.

Claims for unfair dismissal under the Employment Rights Act 1996 (ERA), Part 10

As regards claims for unfair dismissal, it is difficult to imagine a more seemingly obvious claim for unfair dismissal for qualifying employees if the Employment Tribunal has territorial jurisdiction to hear the claims of the dismissed seafarer employees.

In relation to territorial jurisdiction, it is a mixed question of fact and law as to whether an Employment Tribunal would be able to hear the claims. In most cases, seafarers will be treated as peripatetic employees and their place of employment for determining whether an Employment Tribunal has the necessary jurisdiction is determined by where the seafarers are based. It could certainly be argued by those seafarer employees who are not bought off by P&O’s offered settlement agreements, that they are based in the UK.

Further, given that P&O Ferries are offering settlement agreements (which are a UK statutory construct), it suggests that P&O Ferries believe that the employment of their seafaring staff is subject to the jurisdiction of the Employment Tribunals.

If an Employment Tribunal were to accept territorial jurisdiction, for employees who have two years’ continuous employment, all they then have to do is show for the purposes of the claim that they have been dismissed.

It would then be up to P&O Ferries to show that it had a fair reason for dismissing and that it followed a fair procedure. Although P&O Ferries is seeking to argue that the reason for dismissal is ‘redundancy’ (that is, the employer’s requirement for employees to do work of a particular kind in a particular place has ceased or diminished), it will likely have difficulty proving that all roles are no longer required. For example, each of the ships will still need a Master/Captain and so it is difficult to see how it can be credibly argued that any Masters so dismissed occupied redundant positions.

Further, from a procedural point of view, it is necessary for a dismissing employer to show that the employees were notified that their positions were at risk of redundancy at the earliest opportunity, that they were effectively consulted with and that they were considered for suitable alternative employment. None of this appears to have happened; indeed, it seems that P&O Ferries has admitted as much in their letter.

It would also be interesting to see how an Employment Tribunal would approach the primary potential remedies of reinstatement or reengagement when P&O Ferries seemingly has vacancies for all of the crew dismissed, given that they are engaging third party agency staff to fill the roles. There is also no obvious loss of trust and confidence in the employees: they were seemingly dismissed because they were expensive.

As regards compensation as the alternative remedy, it could also be argued that the timing of the dismissals is particularly cynical, given that new increased compensation limits are due to come into effect in just a few weeks, on 6 April.

Claims for a statutory redundancy payment under the ERA, Part 11

In the event of an Employment Tribunal having territorial jurisdiction to hear a claim, there is a statutory presumption of redundancy for qualifying employees (those having two or more years’ continuous employment) for the purposes of claiming a statutory redundancy payment under the ERA.

In any event, P&O Ferries have openly stated that they have offered enhanced redundancy payments in excess of the statutory redundancy payments that are due.

Claims for failure to consult with appropriate representatives under collective redundancy consultation requirements under the Trade Union and Labour Relations (Consolidation) Act 1992 (TULRCA), s.188

Claims can arise under TULRCA, where an employer which is proposing to dismiss as redundant 20 or more employees from an ‘establishment’ fails to consult with ‘appropriate representatives’ (in this case, the trade union representatives) of the ‘affected employees’ for a mandated period of time (either 30 days or 45 days, depending on the number of employees to be dismissed).

There are a number of points in the above which are addressed in TULRCA and in the leading case on territorial jurisdiction in maritime collective redundancy, Seahorse Maritime Ltd v Nautilus International, heard in 2018, (in which the writer acted for the successful employer, Seahorse).

The first point is that territorial jurisdiction again arises as an issue. The Court of Appeal in Seahorse, in applying the principles from Lawson v Serco Ltd, held that territorial jurisdiction is established at the place that the ‘establishment’ at which the affected employees worked is located.  

In determining where the ‘establishment’ is located, according to the Court of Appeal in Seahorse, in a maritime collective redundancy situation, it is the local employment unit to which employees are assigned. In a maritime context, this will be the individual ship to which the seafarers are assigned at the time of the purported redundancy of their position.

Accordingly, there then needs to be an investigation as to whether the affected P&O ships are based in the United Kingdom (a mixed question of fact and law).

What does this mean for P&O?

Assuming for the purposes of argument that it would be possible to establish such a territorial connection, it would appear that there has been a total failure to comply with the TULRCA, s.188 consultation requirements. Indeed, this much appears to be admitted in the P&O Ferries letter. This would then give rise to a claim for a protective award in respect of each of the affected employees, the amount of which is up to three months’ remuneration.

There then arises a further issue in relation to the proposed settlement agreements offered by P&O Ferries: one of the few types of claim that cannot be settled by a statutory settlement agreement is a claim arising under TULRCA, s.188; such claims have to be settled by means of an ACAS agreement. The reason for this is that TULRCA, s.188 protective award claims can be pursued collectively by the ‘appropriate representatives’ who were not consulted, and this might be a trade union; trade unions are not covered by the statutory settlement agreement provisions.

Furthermore, because a protective award is described as ‘remuneration’ for a protected period under TULRCA, s.189(3), there is a question as to whether it would fall within the definition of ‘wages’ for the purposes of the Arrest Conventions, a matter which falls to be tested.

Finally, the statutory directors of P&O Ferries did not notify either the Secretary of State or the flag state of non-British flagged P&O Ferries vessels under TULRCA, s.193A (the latter being asserted to be the relevant provision in the P&O Ferries letter) of the proposed dismissals until 17 March 2022. However, the consultation obligation under TULRCA, s.193(1) requires that notification is provided by the dismissing employer to the relevant person (the flag state according to the P&O Ferries letter) before giving notice to terminate an employee's contract of employment in respect of any of those dismissals, and at least 30 or 45 days prior to the first dismissals (depending on the number of employees proposed to be dismissed from each establishment). If this timing requirement is not complied with as regards notification under TULRCA, s.193, then a criminal offence is committed (TULRCA, s.194). Both the company and any directors who consented or connived in the failure to notify can be subject to a fine at level 5 on the standard scale.

The P&O Ferries letter confirms that notification was made on 17 March 2022, the day of the first dismissals. Clearly there was an admitted breach of TULRCA, s.193A due to the timing requirement not being complied with. However, whether a criminal offence is committed under TULRCA, s.194 is doubtful because that offence arises only in relation to failure to notify the Secretary of State under s.193 at all – and not a failure to notify in time or a failure to notify the relevant flag state.

Dismissal on Grounds Related to Union Membership or Activities under TULRCA, s.152

One of the more speculative claims that could be presented is a trade union membership related unfair dismissal claim under TULRCA, s.152. In this regard, the P&O video announcement referred to the enhanced severance payments being offered being in excess of entitlements under the employees’ collective bargaining arrangements. A suggestion thereby might arise that the employees are being dismissed due to having used union collective bargaining to obtain higher salary levels than would otherwise have been paid. If that is the reason or a principal reason for the dismissals, it gives rise to a potential claim.

Any such claim is automatically unfair (if proven), there is no qualifying period of employment and there is also a minimum basic award of compensation (£6,634).

Conclusion

Whether any claims or prosecutions are presented in relation to the above matters will very much depend on the appetite of employees, unions and/or the Secretary of State to make an example of P&O Ferries.

In any event, the way in which the matter has been approached has caused a substantial amount of interest in what is typically a confidential and sensitive situation, which is not good for any of the participants.


Return to news headlines

Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority.

Penningtons Manches Cooper LLP