Government curbs redundancy terms for banks

The Irish government’s finance department has confirmed that banks covered by the state guarantee on all bank deposits and liabilities must not pay better redundancy terms than those offered to public sector workers. The public sector limit was set in 2010 for almost 2,000 staff who left the Health Service Executive. It provides for an extra three weeks' pay for each year of service, on top of the statutory two weeks' pay for each year already provided by the state.

Two main banks

Controversy arose earlier this year when Ireland’s two largest banks, Allied Irish Bank (AIB) and Bank of Ireland (BOI) announced voluntary redundancy programmes due to the impact of the recession.

At Bank of Ireland, which is seeking 750 redundancies, management and representatives from the Irish Bank Officials Association (IBOA) initially discussed an agreement that would have allowed for eight weeks' pay for each year of service, which had been the norm before the bank was rescued by the state in early 2009. The Bank and IBOA later agreed to amend this to a total of six weeks, but this was rejected by the Department of Finance which told them they would have to agree terms that corresponded to the Health Service Executive (HSE) agreement.

Separately, at AIB, which is seeking a phased reduction of 2,000 jobs, management and the IBOA suggested asking an independent tribunal to draw up proposals for a redundancy agreement. The tribunal would comprise the chair of the Labour Court and one senior figure from the Irish Business and Employers Confederation (IBEC) and one from the Irish Congress of Trade Unions (ICTU). However, the Department of Finance told the independent weekly magazine Industrial Relations News (IRN) that it was against the move, a stance that led to the withdrawal of the Labour Court, IBEC and ICTU.

The case of Anglo

New management plan to wind down Anglo Irish Bank over 10 years. The bank, which was at the centre of the general banking collapse in Ireland, is now state-owned and called the Irish Bank Resolution Corporation ( IBRC). However, it made a severance offer of only four weeks’ pay per year of service – less than that to former HSE staff –which has been sanctioned by the Department of Finance.

Unlike AIB and BOI, Anglo has only a small number of union members in the IBOA. Anglo management and IBOA had initially agreed to refer the bank’s current offer to the Labour Court, to be heard in late January 2012. However, Anglo management were advised by the Department of Finance to withdraw from the hearing and to formally put its offer directly to its staff.

Commentary

Management in AIB and BOI banks are anxious to reduce staff on a voluntary basis. Problems could arise if, as seems likely from the strict stance adopted by the Department of Finance, their redundancy offers have to be within the set limits. The banks have traditionally offered generous voluntary parting terms and have no experience of compulsory redundancies, something they might be forced to contemplate if the Government’s imposed limits prove unattractive to their employees.

The hardline stance being adopted by the Government and the Department of Finance is being driven by the simple fact that the state-guaranteed banks are being underwritten, in effect, by the Irish taxpayer. While some senior bank managers, including those at chief executive level, have seen their salaries trimmed since the onset of the crisis in 2008, the pay of the average bank employee has remained unchanged. If their redundancy payments were to be more generous than those offered to public sector employees, this would prove to be enormously unpopular, regardless of whether this might make it easier for the banks to restructure more efficiently.

Brian Sheehan, IRN Publishing