P&O ferries and the law of unintended consequences

Posted: 29/03/2022

In the 12 days since it announced it was dismissing 800 employees, P&O Ferries has attracted significant negative attention – not just from trade unions and the media, but from key government ministers, departments and agencies seeking to mitigate the impact of the decision. Nick Humphreys reviews the latest developments in this fast-moving case, including the letters exchanged over the last two days with Grant Shapps, the transport secretary.

On 17 March 2022, P&O Ferries took the decision to dismiss nearly 800 employees from their ships operating from UK ports. The legal implications of that decision can be found in our article here.

Following on from P&O Ferries’ decision and the uproar it created, a number of possibly unintended consequences arose from the decision.

The first was that Peter Hebblethwaite, the Chief Executive Officer of P&O Ferries and Jesper Kristensen, Group COO, Maritime Services, DP World (the owner of P&O Ferries), were summoned to appear before a joint hearing of the Business and Transport Parliamentary Select Committees.

During Mr Hebblethwaite’s televised ‘show trial’ Select Committee appearance:

• his salary was discussed and he refused to confirm whether he would miss out on performance related bonus
• he admitted that: “There is absolutely no doubt that we were required to consult with the unions, we chose not to do that … we will compensate everybody in full for that”, and added that if the same circumstances arose, he would “do it again”
• he was asked whether he was a “shameless criminal” by Darren Jones MP (one of the Committee chairs)
• he admitted that he had not seen the safety risk assessment of replacing experienced seafarers with agency workers before implementing the redundancies

It is fair to say that the appearance was not a PR success for P&O Ferries.

On 26 March 2022, following the Select Committee appearance and after the replacement of the dismissed employees with crew agency staff, the Maritime and Coastguard Agency (MCA) - an Executive Agency of the Department for Transport that is responsible for enforcing standards for ship safety, security, pollution prevention and seafarer health, safety and welfare - detained P&O Ferries’ ship, the European Causeway at Larne, Northern Ireland. According to the MCA, the reason for the detention was due to P&O Ferries’ "failures on crew familiarisation, vessel documentation and crew training which made it unfit to sail".

It is perhaps unsurprising that an entirely new crew, who had never worked together on a ship carrying up to 410 passengers and 55 crew, was detained on that basis, particularly given Mr Hebblethwaite’s admitted lack of knowledge before the Select Committee of the safety risk assessment.

On 28 March 2022, the detention of the European Causeway was followed by the MCA’s detention of P&O Ferries’ Pride of Kent, a 2,000 passenger ferry, to ensure that it was safe to go to sea.

A further blow to P&O Ferries on 28 March was Grant Shapps’, the Secretary of State for Transport, announcement in a letter to Mr Hebblethwaite of a comprehensive package of measures by which he intended to ensure that seafarers were protected. The proposed effect is that ferry operators operating from UK ports will be required, among other things, to pay the UK national minimum wage (NMW) to crew on their ships.

Currently, the NMW is not required to be paid for those operating to non-UK destinations as result of combination of the National Minimum Wage Act 1998 (NMWA), s.1 and the National Minimum Wage (Offshore Employment) Order 1999 (the 1999 Order) (as amended by the National Minimum Wage (Offshore Employment) (Amendment) Order 2020).

Under this legislation, a person only qualifies for the NMW if they are an individual who is a worker; is working, or ordinarily works, in the United Kingdom under his contract; and has ceased to be of compulsory school age. (NMWA, s.1(2)).

Further, Article 2(2) of the amended 1999 Order provides that the NMWA does not apply to individuals employed for the purposes of activities on a ship exercising the “right of innocent passage” or the “right of transit passage” (as construed in accordance with the United Nations Convention on the Law of the Sea 1982).

While there was no opportunity for any ferries (British or otherwise flagged) working wholly in UK territorial waters or on the UK continental shelf to escape paying the NMW, ferries working on routes with a non-UK destination are currently not covered by the NMW. However, the Secretary of State is now seeking to block that legislative gap which is seemingly being exploited by P&O Ferries and, according to P&O Ferries, other operators.

In his letter, the Secretary of State gave P&O Ferries one last opportunity to reverse their decision by offering all dismissed employees their jobs back on their previous wages and terms and conditions, if they wanted the job back. He concluded that P&O Ferries should drop its 31 March 2022 deadline for accepting the offered settlement terms and that he intended to ensure that such an outcome was prevented by law.

On 29 March 2022, P&O Ferries published its response letter to the Secretary of State. The letter rejected the offer of the Secretary of State, stating that the offer ignored the fundamental and factual realities of the situation and adding that 765 of the 784 dismissed crew had taken steps to accept the offered settlement terms. P&O added that the dismissed seafarers were entitled to expect that the accepted settlement terms would be binding. It also added that a reversal of the decision to dismiss would deliberately cause the collapse of P&O Ferries, resulting in the loss of 2,200 further jobs, and that the company could not imagine that the Secretary of State was compelling P&O Ferries to bring about its own downfall.

Finally, P&O Ferries stated that it was not seeking to challenge the application of the UK’s NMW. Its concern was that it needed a level playing field and a more flexible working model, whereby crew were paid for the time they worked rather than receiving a salary for working 24 weeks of the year. This was the reason that P&O Ferries had chosen to adopt the crew agency staffing model.

What could happen next?

There are a number of possible outcomes to the P&O situation, including the following.

P&O Ferries backs down and offers to reinstate all of the dismissed employees

This would be a humiliating outcome for P&O Ferries and it is difficult to see an outcome other than the dismissal of Mr Hebblethwaite in that situation given the cost and reputational damage to P&O Ferries which has been caused. Further, if Mr Hebblethwaite’s letter of 29 March 2022 is correct, it would result in the collapse of P&O Ferries.

P&O Ferries carry on regardless

In this case, P&O Ferries will effectively invite the government to legislate. Based on the Secretary of State’s letter dated 28 March 2022, this could involve a package of measures to seek to somehow reverse the dismissals, declare the settlement agreements a nullity, and increase wages in the maritime sector for businesses operating from UK ports.

Further, if P&O Ferries is correct in the analysis in its letter dated 29 March 2022, this would result in the potential legislative destruction of P&O Ferries and the loss of 2,200 jobs. It is not an enticing prospect for the Secretary of State. It is also difficult to see how the dismissed seafarers who have accepted the settlement agreements would be happy with that outcome.  

As Donald Rumsfeld once famously described, risks fall into one of three categories:

• known knowns - risks we know we know.
• known unknowns - we know there are some risks that we do not know
• unknown unknowns - the risks we don't know we don't know.

As Mr Rumsfeld added, it is the latter category that tends to create the difficult cases.

At the time that any advice on the dismissals was given to P&O Ferries, those providing advice would not have known that the public outcry would be so loud that the government would discuss a change in the law to provide the very thing that P&O Ferries had sought to achieve through its decision to fail to comply with the law (which Mr Hebblethwaite admitted he would do again) and would result in the law being changed to reverse his decision.

In fact, depending on the nature of the changes that are eventually implemented, it is possible that those employees who have been dismissed and accepted the offered settlement packages will become a wholly avoidable cost given what may become the on-going salary costs at the UK NMW.

Although P&O Ferries accepted that it had breached the law in the form of the Employment Rights Act 1996 and the Trade Union and Labour Relations (Consolidation) Act 1992, its failure to know of the risks caused by a breach of the Law of Unintended Consequences may well prove to be an even bigger problem.

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