Sugar refinery employees dissatisfied with closure deal

Following the closure of Latvia’s two sugar refineries – in line with EU common sugar market reforms – the redundant employees were granted tax-free compensation. However, the former employees of the Liepāja Sugar Refinery are dissatisfied with the scope of the compensation, along with the payment procedure and loss of state social guarantees. As a result, the Trade Union Centre of Liepāja is arguing the case of the refinery’s former employees.

Background

Until 2007, Latvia had two sugar refineries – the Liepāja Sugar Refinery (Liepājas Cukurfabrika) in western Latvia and the Jelgava Sugar Refinery (Jelgavas Cukurfabrika) in central Latvia. As EU Sugar Law became applicable in Latvia, it regulated the relations of sugar refineries and farmers and provided subsidies for sugar manufacturers. Owing to the favourable conditions, Latvian farmers were eager to grow sugar beet, transferring their produce to the country’s sugar refineries for processing, while the sugar manufacturing costs and sales prices continued to grow.

In line with EU common sugar market reform principles, at the beginning of 2007 the Ministry of Agriculture (Latvijas Republikas Zemkopības Ministrija, ZM) and the owners of the country’s sugar refining companies agreed on restructuring provisions for Latvia, with the help of EU sugar industry restructuring assistance funds. Both companies opted for complete restructuring, which meant the termination of sugar manufacturing in Latvia, liquidation of the refineries, and dismantling of buildings and equipment.

The dismantling of the sugar manufacturing companies quickly began at the end of 2007, and the majority of employees were gradually made redundant. In Liepāja, some 227 people were made redundant due to the sugar market reforms (see also the European Restructuring Monitor (ERM) Fact Sheet). In Jelgava, 300 employees were made redundant (see also ERM Fact Sheet). At the same time, the sugar beet growers had to cease their former farming activities.

Compensation procedure begins

On 20 March 2007, Latvia’s Cabinet of Ministers (Latvijas Republikas Ministru kabinets) adopted a regulation stipulating that the sugar industry restructuring payments to employees were to be in the form of compensation and therefore not subject to income tax (25% of income). Moreover, the regulation provided that the compulsory state social insurance contributions (33.09%) would not have to be paid out of the restructuring payments. By the beginning of 2008, all compensation at both sugar refineries had been paid out according to this procedure.

Due to the compensation procedure stipulated for the restructuring of the sugar industry, as prescribed by the Cabinet, the redundant employees have been deprived of state social guarantees. While the employees of the Jelgava Sugar Refinery were able to reach a fair compensation deal with the company’s shareholders, employees at the Liepāja Sugar Refinery did not reach any compromise. As a result, at the beginning of 2008, about 70 of the former Liepāja refinery employees, in cooperation with the Trade Union Centre of Liepāja (Liepājas Arodbiedrību centrs, LAC), issued a letter of complaint to Latvia’s finance, welfare and agriculture ministries, as well as to the Rural Support Service (Lauku Atbalsta dienests, LAD) – the managing authority for the restructuring process.

Redundant employees express dissatisfaction

The Head of LAC, Jānis Neimanis, explained that the employees consider that they have been misled, as they received a smaller compensation amount than expected when leaving the plant. When preparing for the restructuring, negotiations were held with the company’s management and employees and a social plan was adopted, which was approved by the European Commission. When implementing the Cabinet regulation on the payment of compensation, the principles of this plan were violated. By not paying the taxes, the refinery saved approximately €213,000, which was initially supposed to be put towards the social plan for the payment of pensions and allowances to employees. Furthermore, the employee redundancy schedule was speeded up, thus saving some of the funds intended for restructuring. Therefore, the former employees are demanding that the money saved should be returned to them in full or at least partly, either through a cash payment or by making a payment towards social insurance contributions.

However, the company’s administration insists that the full amount of money intended for compensation has been paid out to the former employees, and that the social plan principles have been complied with. The funds saved are instead being used for the plant’s demolition and the rehabilitation of the area. Moreover, the State Labour Inspectorate (Valsts Darba Inspekcija, VDI), which oversaw the restructuring process and the related redundancy procedure, stated that it did not detect any violations.

Nonetheless, LAC has insisted that it will not put up with what it claims is an open breach of Latvia’s labour legislation. It has also promised to refer the issue to the Latvian courts and the European Commission, which approved the restructuring plan for the Liepāja Sugar Refinery.

Commentary

The trade unions consider the closure of Latvia’s sugar refining industry as a great loss. Both sugar refineries were located outside of the capital city of Riga and played major roles in regional development and employment. The country’s sugar refining industry, the cessation of which has led to the loss of at least half a thousand jobs and social guarantees, had also contributed to sugar manufacturing and employment in other countries. In July 2007, the biggest Scandinavian sugar manufacturer Danisco Sugar had already established a trading company in Latvia – SIA Danisco Sugar – in order to supply the Latvian market. The company subsequently requested and received a permit to use the brand name Jelgavas Cukurs for produce sold in the Latvian market. It should be noted that the liquidation of the country’s sugar refineries has not only had an economic impact but is also perceived as a psychological blow to the country, as sugar refining in Latvia has long been considered a strategically important industry.

Raita Karnite, Institute of Economics, Latvian Academy of Sciences