INDUSTRIAL RELATIONS ACTS, 1946 TO 1990
SECTION 26(1), INDUSTRIAL RELATIONS ACT, 1990
(REPRESENTED BY THE IRISH BUSINESS AND EMPLOYERS' CONFEDERATION)
- AND -
SERVICES INDUSTRIAL PROFESSIONAL TECHNICAL UNION
Chairman: Mr Flood
Employer Member: Mr Keogh
Worker Member: Mr Rorke
1. Goodwill payment.
2. In March, 1997, Associated British Foods (ABF) announced the sale of its shares in Power Supermarkets Limited (PSL) to Tesco Plc. The business which Tesco has acquired is based in the Republic of Ireland and Northern Ireland and includes Quinnsworth, Crazy Prices, Stewarts, Winebarrell, Lifestyle and two non-retail businesses in Northern Ireland. The Unions claim that the agreed price of £640 million sterling included net assets of £170 million, a £10 million dividend on completion and potential goodwill of £450 million. As the acquisition was not covered by the European Communities (Safeguarding of Employees' Rights on Transfer of Undertakings) Regulations, 1980, the Unions sought assurances regarding terms, conditions and security of employment of PSL employees. They also sought a goodwill payment on behalf of the employees in recognition of their contribution to the success of PSL which was reflected in the sale price of £640 million sterling.
Both Tesco and PSL advised employees that their terms and conditions of employment, including the pension scheme, would remain unchanged. However, management of PSL rejected the Unions' claim for a goodwill payment. The issue was referred to the conciliation service of the Labour Relations Commission and a conciliation conference was held on the 2nd May, 1997. As agreement on the issue could not be reached the Unions sought referral to the Labour Court in accordance with Section 26(1) of the Industrial Relations Act, 1990. The Company agreed and the Court investigated the dispute on the 13th June, 1997.
3. 1. Tesco paid a good price for an excellent Company with a proven track record which is reflected in the goodwill valuation of £450 million. The goodwill, knowledge and expertise of the employees were sold as part of the package and they are entitled to a fair share of the proceeds in recognition of the significant role they have played in creating and being part of this valuable ABF asset.
2. There are a number of relevant precedents within the retail sector including a goodwill payment of two weeks' pay per year of service, which was made to its employees by Five Star Supermarkets when PSL purchased the company in 1979. Some of the existing staff would have received the goodwill payment in 1979 and would, therefore, have an understandable expectation of a payment on this occasion.
3. The Company has never pleaded inability to pay. A company of this magnitude and profitability could comfortably pay a significant goodwill payment to its employees who have helped to generate profits of approximately £60 million per year. PSL did not operate a profit sharing scheme or a performance-related bonus unlike Tesco who paid £32 million in profit sharing to its UK employees this year.
4. 1. The acquisition of PSL is by means of a transfer of share ownership from ABF to Tesco. There is no sale of assets or property. PSL was, and will continue to be, the employer of the staff concerned, its legal identity has not changed and it did not receive any payment for the transfer of shares.
2. The European Commission does not see any change in the identity of the legal personality owning the company. The protection of the Transfer of Undertakings Regulations is not, therefore, required. However, the Company has provided undertakings equivalent to the Regulations to reassure all staff of the security of their terms and conditions of employment.
3. In 1979 PSL bought the assets and property of D.E. Williams t/a Five Star. The legal identity and personality of the employer changed. PSL offered staff employment from the 30th July, 1979, at the same salary and conditions as before. Upon the termination of their employment with D.E. Williams staff received an ex-gratia payment which was in effect a redundancy payment. There is no concern for job security in the present case and no termination of the old employment relationship.
4. There have been many mergers, acquisitions and sales of assets in the retail industry over the last two decades. There is no precedent of goodwill payments and any concession of the Unions' claim would lead to a flood of similar claims. As nothing has changed for the employees concerned there is no validity to their claim.
The Court considered carefully the written and oral submissions made by both parties.
The Company argued that nothing has changed in the status of the Company or, indeed, the security of employment of employees. Equally, the Company stressed that nothing was paid to Powers for the shares.
The Union argues that "the sale price included a goodwill element of £450 million" and quoted precedent for payments in other cases.
While the Company may put forward the method of transfer of share ownership as a defence, it is clear that the employees feel strongly that "someone has made a lot of money" (including £450 million for goodwill) and that they are entitled to a share.
Equally, the Company argues forcefully that it has given commitments on a number of issues that it did not have to undertake.
While the Union's aspirations may be that, in cases of transfer of ownership resulting in significant profits or transfers of money, employees would enjoy a share, no such agreement or contract existed in this case.
Equally, the precedents quoted are for different situations to this current case.
The Court, having considered all the issues involved, does not recommend concession of the Union's claim.
Signed on behalf of the Labour Court
29th July, 1997______________________
Enquiries concerning this Recommendation should be addressed to Dympna Greene, Court Secretary.