Controversy over closure of Tobačna cigarette factory

In late January 2004, it was announced that the Tobačna cigarette-manufacturing plant in Slovenia would be closed, with the loss of 260 jobs, as part of European restructuring exercise by its owner, the UK-based Imperial Tobacco. The announcement led to a major controversy over whether Slovenian legislation requiring employee information and consultation over closures and redundancies had been complied with.

On 27 January 2004, it was announced that the Tobačna cigarette-manufacturing plant, located in Ljubljana, will be closed down as a result of a plan by its parent company, the UK-owned Imperial Tobacco, to restructure and concentrate its manufacturing operations in Europe. The closure means that 260 workers will be made redundant at Tobačna, while a further 30 jobs are threatened at the Gorenjski Tisk printing company, which supplies Tobačna. Although there had long been a rumour that Tobačna's owner was considering moving production abroad, the news came as a major surprise.

Imperial Tobacco, which became the owner of Tobačna after it acquired the German company Reemtsma in mid-2002, has decided to close three of its European plants. The Tobačna general manager, Peter Uhlig, told the press that the Slovenian plant will cease production at the end of May 2004 at the latest. He explained that Imperial Tobacco had made this decision because of its excess production capacity, which will become too expensive following EU enlargement. The closure of the plant is not related to its performance, but is is a matter of Imperial Tobacco's business policy, Mr Uhlig stressed. Half of the total Tobačna workforce will lose their jobs, and the company will help these workers to apply for new jobs. Only the production operation will be shut down, while the Tobačna distribution and retail network will remain, though marketing and management will move to another location. Imperial Tobacco, the world's fourth-largest tobacco company, said that it had decided to take this step because of the adverse effects that Slovenia's EU membership will have on Tobačna's operations.

History

Tobačna Ljubljana has a long tradition. In 1871, the K und K Haupt Tabak Fabrik Laibach company began to produce cigarettes in Ljubljana, and within a year it became the third-largest of the 30 tobacco factories in the Austrian part of the Austro-Hungarian Empire. After the Second World War, Tobačna became an important state company. In 1957 it was the first company in this part of Europe which introduced machines for making cigarettes with filters. In 1991, Tobačna became one of the first Slovene companies to sell some of its capital to foreign partners. The state sold three-quarters of the company, on the grounds of a loss of markets in the countries of the former Yugoslavia and of the modernisation of production technology. The new majority owner was the German tobacco company, Reemtsma, and part of the company was also bought by the French multinational, Selta. In 2001, Reemtsma bought out Selta. In 2002, Imperial Tobacco bought 90% of Reemtsma’s controlling stake to become to become the owner of Tobačna. Recently, as mentioned above, Imperial Tobacco announced the reorganisation of its European industrial plants and stated that it would cease production of cigarettes in Slovenia, Slovakia and Hungary.

Reactions

Surprise and annoyance at Imperial Tobacco's decision was expressed by the Union of Free Trade Unions of Slovenia (Zveza svobodnih sindikatov Slovenije, ZSSS), the country's largest trade union confederation, and its sectoral affiliate, the Trade Union of the Agriculture and Food-Processing Industry of Slovenia (Sindikat kmetijstva in živilske industrije Slovenije, KZI). According to reports in the Delo newspaper, the unions claim that it is very probable that Tobačna breached the Slovene legislation on the procedure for the dismissal of employees.

The general secretary of ZSSS, Milan Utrosa, said that the employer had most probably not acted in line with the Law on the Participation of Workers in Management (LPWM) (SI0311102F). Under this legislation, the employer should inform the employees’ council at least 30 days before taking a decision about terminating production or making redundancies, and should propose joint consultation at least 15 days before taking a decision on the closure of a company or a major part of it. This allegedly did not happen, and therefore Mr Utrosa expects the Slovene institutions responsible for implementing the relevant legislation to take measures if the legislation has been violated. The Tobačna general manager, Mr Uhlig, reportedly stated at the press conference announcing the closure that the owner had reached the decision already and did not consult the company employees’ council.

Vlado Dimovski, the Minister for Labour, Family and Social Affairs, expressed dissatisfaction, not least because the management of Tobačna did not inform the Employment Service of Slovenia (Zavod Republike Slovenije za zaposlovanje, ZRSZ) about the decision, as required by the Article 97 of the Law on Labour Relations (LLR). The actions of the Tobačna management were described as inappropriate by Tea Petrin, the Minister for the Economy, because neither the government nor the competent ministries and other bodies were informed in a timely way about its intentions. Anton Rop, the Prime Minister, stated that the owner of Tobačna had breached some rules. Later on, the Prime Minister's office stated that he was of the opinion that Tobačna management could have announced its decision in a different way.

The relevant legislation

The chapter in the 1993 Law on the Participation of Workers in Management (LPWM) on joint consultation states that the employer must keep the employees' council informed and request joint consultation on the status (legal situation) of the company, personnel matters and health and safety at work before taking decisions in these areas. The employer must give the council the necessary information at least 30 days before taking the decision and the deadline for the proposed joint consultation must be at least 15 days before the decision is taken (Article 91). Joint consultation involves a duty on the employer to (Article 92):

• inform the employees' council about planned decisions regarding the status of the company, personnel matters and health and safety at work;

• consult the council; and

• strive to harmonise its position with that of the council.

The company status issues concerned are (Article 93):

• changes in status;

• the sale of the company or of a major part of it;

• the closure of the company or of a major part of it; and

• major changes in ownership.

The personnel matters subject to joint consultation are (Article 94):

• the need for new workers (number and profiles);

• the classification of jobs into categories related to differences in pay;

• the transfer of a large number of workers (10% or more of all company employees) outside the company;

• the transfer of a large number of workers (10% or more of all company employees) within the company;

• the adoption of measures relating to supplementary pensions, disability and health insurance;

• workforce reductions; and

• the adoption of general disciplinary rules.

The Law on Labour Relations (LLR) (SI0206101N) states that, in the event of planned redundancies, an employer must as soon as possible inform in writing the trade unions in the company about the reasons for the redundancies, the anticipated categories of redundant workers etc. With the aim of reaching an agreement, the employer must consult the trade unions in advance about matters such as the proposed criteria for the selection of the redundant workers, and possible ways of preventing and limiting the number of redundancies when elaborating a 'resolution programme' for the redundant workers. The employer must send a copy of this written notification to the Employment Service (Article 97).

An employer must also inform the Employment Service in writing about the procedure for establishing the redundancies of a large number of workers and send a copy of this written notification to the trade unions in the company. The employer may terminate the employment contracts of the redundant workers, taking into account the 'resolution programme' for the redundant workers, but not before 30 days has elapsed since the Employment Service has been informed (Article 98).

The chair of labour and social law at the Faculty of Law, University of Ljubljana, was quoted in the Delo newspaper as saying that so far, Tobačna management had not breached any law because, for the time being, formally there was only an intention to close the factory. The final decision to close the factory had not yet been reached and it might in future be adopted in accordance with company law by the company's shareholders' assembly.

Janko Ciric, the president of the ZSSS company trade union organisation in Tobačna, claimed that Mr Uhling, the general manager, did not know about Imperial Tobacco's decision until the latter announced it publicly at international level. Imperial Tobacco keeps its development strategy secret because, according to the law, it must act on equal terms towards all shareholders. Therefore Imperial Tobacco was not allowed to announce its decision earlier, so as not to influence ownership relations and to prevent anyone taking advantage of 'insider' information.

Tobačna management and the company trade union promptly began negotiations over the job losses on 28 January 2004. The union achieved a relatively good deal for the redundant workers. For example, the redundancy payment will be 1.7 months' gross pay per year of employment, which is better than the compensation determined by the company collective agreement concluded in April 2003 (which provided for two-thirds of a month's gross pay per year). In addition, the Minister for Labour, Family and Social Affairs promised that these redundancy payments will be exempted from taxes. The rationale is that because Tobačna was the most profitable company in Slovenia in 2002 and indeed received an award for this, the employees were convinced that they would not lose their relatively good jobs and adapted all their plans (loans, investments, education of children etc) according to this belief.

Commentary

From a formal viewpoint, it seems that the Imperial Tobacco did not breach the Law on the Participation of Workers in Management (LPWM) over the Tobačna closure. However, in practice the procedure of joint consultation as prescribed by the LPWM was not implemented because the owner, which made the decision, is not the employer in the formal sense.

Many questions remain to be answered. Is it acceptable that in such cases it is not possible to apply the LPWM, or that the implementation of the LPWM is avoided? Is it possible to look for a solution to this problem at European and the international level? For example, did the Imperial Tobacco European Works Council discuss the issue of the European restructuring exercise (closure of its plants in Slovenia, Slovakia and Hungary etc)? Was the Imperial Tobacco restructuring discussed within the framework of the European sectoral social dialogue? The main issue is not that the implementation of the LPWM could prevent the closure of the plant, but to implement the consultation procedure properly. Imperial Tobacco has decided to close the Tobačna plant very soon after becoming its owner. Did it thus buy and then close it, regardless of its profitability and modernised production technology, in order to get rid of competitors on the market? Is the case of Tobačna an example of good practice in terms of corporate social responsibility (as, for example, promoted by the European Commission's Green Paper and Communication on the issue - EU0207205F)? Will the case of Tobačna promote an increase in foreign investment in Slovenia, which is relatively low? How should the government act in such cases and what measures should it implement? This controversy reflects to a great extent the differences between the EU Member States concerning the industrial relations and employee participation culture.

According to the Delo newspaper, Imperial Tobacco will also close its tobacco factory in Debrecen, Hungary, in May 2004. The sales and marketing department based in Budapest will continue to operate because Imperial Tobacco will import its products for the Hungarian market. The factory operated successfully and in 2001 a new production facility was opened and received considerable tax relief from the government. However, it will be closed mainly because of the considerable price rises for tobacco products. Most probably, 380 workers will lose their jobs. (Stefan Skledar, Institute of Macroeconomic Analysis and Development, IMAD)