Unions approve social plan in pharmaceutical plant closure

The American pharmaceutical group Ely Lilly announced the closure of its research and development centre in Mont-Saint-Guibert in the Belgian province of Walloon Brabant. The closure will affect 330 staff members. Employees at the plant were surprised by this decision as the company had reported a positive growth rate of 5.7% in 2005. After a rejection of the social plan presented in October 2006, negotiations started again at the beginning of November and an agreement has been reached.

On 28 June 2006, the American pharmaceutical group Ely Lilly, based in Indianapolis, announced the closure of three of its European plants: two of its research and development (R&D) centres located in Mont-Saint-Guibert, Belgium, and in Hamburg, Germany, as well as its production plant in Basingstoke, United Kingdom. These closures will affect respectively 330, 150 and 450 staff members. All of these activities will be relocated to the company headquarters in the US. Thus, only two R&D centres will remain in Europe – Erl Wood in the UK and Alcobendas in Spain.

The Mont-Saint-Guibert R&D centre of the Ely Lilly group is one of the five biggest R&D centres in the pharmaceutical sector established in Belgium, together with UCB, Pfizer, GlaxoSmithKline Biologicals and Janssen Pharmaceutical. The Ely Lilly company is involved in all pharmaceutical R&D activities, ranging from molecular findings to production support; its most famous discovery probably remains the antidepressant drug Prozac.

Reasons for closing R&D centre

The management explained that the planned closure is due to an overcapacity in R&D within the group and increased competition in toxicology and chemicals development, which are in fact two specialities of the Mont-Saint-Guibert centre. Moreover, management underlined that the company has to be prepared to face globalisation in the pharmaceutical industry as the market situation is becoming more difficult due to high pressure on prices, steady increases in drug development costs and a stricter standard regarding the registration of drugs.

The company’s decision surprised employees at the Mont-Saint-Guibert centre since the Ely Lilly group is trading strongly, having achieved US$14.6 billion (€11.1 billion as of 10 December 2006) in sales turnover and profits of US$1.9 billion (€1.44 billion) in 2005. In October, the pharmaceutical group put forward a takeover bid of US$ 2.1 billion (€1.59 billion) for the Icos group, its partner in production of the erectile dysfunction drug, Cialis.

Negotiations on social plan

According to trade unions within the plant, the closure will become effective in 15–18 months time. Trade unions estimate that two thirds of the company’s employees, such as chemical engineers and pharmacists, would find a new job quickly. This could be in another pharmaceutical company, for example, with neighbouring GlaxoSmithkline, which is constantly expanding and recruiting. Overall, this may, in a way, reduce the social impact of the closure.

Nevertheless, the trade unions rejected the social plan that the company’s management presented in October 2006. Unions considered the proposed redundancy packages as ‘largely insufficient’, in particular because the closure is justified by profit advantages. Conversely, the management considered the unions’ propositions as unrealistic.

After the collective bargaining process came to a halt, the company headquarters in the US decided to attribute a supplementary budget for the social plan, which partly responds to the unions’ demands. Negotiations started again in November and most of the workers approved the preliminary collective agreement presented. It covers in particular early retirements, redundancy payments and benefits for the employees who will continue to work until the centre closes down. The preliminary collective agreement will be finalised and signed by the social partners; it also provides for the set up of a redeployment cell (for further information on the Belgian legal framework applying to collective redundancy, see the 2003 EIRO article on redundancies and redundancy costs in Belgium).

At the same time, the Walloon government supports the workers and is looking into whether some of the investment subsidies provided to the company can be recovered. Indeed, the Walloon Minister of the Economy, Jean-Claude Marcourt, stated that the company is known to the ministry in relation to previous and current issues. Ely Lilly management claimed that it would be willing to pay back the amount of money requested by the Walloon region.

Isabelle Vandenbussche, Institut des Sciences du Travail (IST), Catholic University of Leuven