Ferry bad news

Companies spend a lot of time these days trying to sell themselves as paternalistic guardians of their employees’ well-being with their mission statements, counselling sessions and monitoring programmes. In truth, it often feels like self-justifying fluff and to those of us who remember when capital and labour were frequently at odds with other, it can sometimes strike a jarring note. Nonetheless, it makes for a vastly superior workplace environment to the red in tooth and claw capitalism espoused by many extreme free-marketeers. For a reminder of the kind of outcomes this model can produce, we do not need to reach back to the go-go days of the 1980s. Earlier this month, P&O Ferries summarily dismissed 800 employees, announcing that it was replacing them with cheaper alternatives, in a message that was as crass as it was insensitive (here for a copy of the video).

This case matters for a number of reasons. The first concerns the legal implications. A second issue is the extent to which it is (or is not) entangled with Brexit. A third issue concerns the nature of employee protection and the economic implications of lax labour laws. Finally it is worth touching on national security issues raised by P&O Ferries’ parent company (note: P&O Cruises is a completely separate company that happens to share the same name).

The legal aspects

Turning first to the legal issues, the Trade Union and Labour Relations (Consolidation) Act 1992 states: “An employer proposing to dismiss as redundant 100 or more employees at one establishment within a period of 90 days or less shall notify the Secretary of State, in writing, of his proposal … at least 45 days before the first of those dismissals takes effect.” On the surface, therefore, P&O Ferries appears to be in direct breach of the law. Indeed, the company’s CEO admitted in testimony to MPs that there was “absolutely no doubt” the company had broken UK employment law. Or has it? It has since come to light that due to a change in the law in 2018 “if the employees concerned are members of the crew of a seagoing vessel which is registered at a port outside Great Britain … The employer shall give the notification required … to the competent authority of the state where the vessel is registered.” Sure enough, eight of the company’s ships are registered abroad, including those which ply the Dover-Calais route.

Legally, therefore, P&O Ferries can argue that they have complied with the letter if not the spirit of the law. An excellent blog post by Darren Newman, an employment lawyer, makes the point that “UK employment law seeks to punish employers who act in breach of it – but does not stop them from doing so. If an employer makes the calculation that the financial consequences of ignoring the law are outweighed by the business benefits of doing so then it is free to go ahead.” Newman points out that this problem has not been confined solely to the UK, and EU efforts at the turn of the century to introduce tougher legislation were blocked by a group of countries including the UK. Nonetheless, the degree of worker protection is far higher in the EU than in the UK and many lawyers believe that the British laws are so weak as to be near useless. Whilst accepting that the degree of labour market rigidity that characterised the 1970s was a primary feature of the British economy’s underperformance during that decade, it is not clear that swinging the pendulum too far in the other direction has improved the position of workers.

Is this anything to do with Brexit?

The short answer is no, at least not directly: The UK’s labour laws have not changed since it left the EU in 2020. That said, by reducing cross-channel freight volumes which pressure P&O’s finances, it did play an indirect role.  It is ironic that the RMT union, which represents maritime workers, advised its members to vote for Brexit in 2016 arguing among other things “it’s a myth that the EU is in favour of workers. In fact the EU is developing a new policy framework to attack trade union rights, collective bargaining, job protections and wages.” In fact, the consultation element of the process, which was so blatantly ignored in this case, was introduced partly in response to EU concerns and highlights the lack of understanding of the EU’s role in large areas of British life prior to the referendum.

Limits of the free market

P&O claims that if it had not taken action to reduce costs the business would have gone under, with the CEO telling a parliamentary committee that he would make the same decision if the same circumstances were to arise. The fact that P&O received £10 million in furlough payments from the British government during the lockdown seems to have slipped his memory. Nobody would suggest that companies do not have a right to make adjustments to turn around a failing business, but by failing to adhere to due process P&O has offended public opinion which may yet rebound on their business fortunes. Ironically, the company’s most recent strategic report contained the priceless gem that “the directors practice a culture of regular engagement with employees … the effect of these measures is an open dialogue across the organisation.”

The company has admitted that it will pay the replacements for the sacked workers a rate less than the British minimum wage, offering just £5.50 per hour compared to a rate of £6.83 for those aged 18-20 rising to £9.50 for those aged over 23 (this at a time of the biggest squeeze on living standards in decades). This action comes just a few months after the government blocked efforts by the opposition to introduce legislation preventing firing and rehiring following a similar tactic by British Gas last year, claiming that legislation was not the appropriate way to tackle the problem. A series of articles by the FT journalist Sarah O’Connor (here and here) highlighted similar disregard for the law in the UK clothing industry. Such was the resonance of her analysis that she was invited to testify before a parliamentary committee which made a series of recommendations, all of which were rejected by the government. It does not exactly give the impression of a government that cares.

Ironically, the empirical evidence from the economics literature suggests that minimum wages have little adverse impact on aggregate employment although their existence does have a small impact on profitability. There are some upsides associated with the presence of a minimum wage, notably it can lead to an increase in productivity by reducing worker turnover and increasing the incentive to invest in labour saving technology. If a company believes that slashing wages so far below the legal minimum is necessary to return to profitability, there is a lot more wrong with the business than its cost structure.

Does it serve the national interest?

One aspect of this case that has gone unremarked are the complications of contracting out vital parts of the infrastructure to the private sector. Cross channel ferry links constitute a vital element of the UK supply chain, with Dover handling 14% of UK merchandise trade prior to 2020. P&O Ferries is owned by DP World – the same company that in 2006 was barred from taking control of six US seaports on national security grounds. There is nothing necessarily wrong per se in allowing DP World to have a significant degree of control over the cross channel link, but the fact that it operates very close to the limits of employment law does raises questions about its probity. To add insult to injury, DP World is in line for £50 million of taxpayer support for its role in setting up freeports. Following recent concerns about the degree of Russian influence in areas of British public life, this case raises further questions about whether the UK government conducts sufficient due diligence when contracting out areas of national interest.

The case highlights the limits of untrammelled free markets, demonstrating that the absence of constraints can result in very bad social outcomes. It also highlights the weaknesses in employment law where employee protection is a lot weaker than often appreciated. A government that has taken a laissez faire attitude towards actions of the private sector in the past may believe that P&O has gone a step too far – the electorate seems to think so.