BAT shuts down production in Cyprus

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British American Tobacco has decided to terminate operations in Cyprus, leaving 89 employees redundant by the end of March 2006. Here we present the reasons for the decision, along with the content of the agreement between the company and the employees on the terms governing the exit of the redundant workers.

On 31 March 2006 production of cigarettes will cease at the British American Tobacco (BAT) factory in Cyprus, following a decision to transfer all production to other BAT factories in the EU during the first months of 2006. The company, which has been operating in Cyprus since 1967, has in recent months faced serious difficulties in relation to its exports. In a statement issued on 15 September 2005, management noted that its customers had requested that it transfer the company’s export operations, which represent over half of its volume of production, to a location closer to the markets of destination for its exports. In the context of these developments, management decided to perform a viability study on the Cyprus factory, covering the following issues:

  • The possibility of obtaining other contracts for exports to third countries.
  • The factory’s viability on the basis of production for the local market only.
  • The possibility of permanent closure of the factory and transfer of all output to another factory.

Upon completion of the study, which lasted about six weeks, on 3 November 2005 the company wrote a letter to the competent ministries and employees’ unions, announcing its intention to begin consultations with the employees’ representatives in order to discuss its proposal to close down the factory. In the letter it noted that efforts to obtain alternative contracts for exports had been unsuccessful. Given the loss of exports in conjunction with high production costs in Cyprus compared to other BAT factories in the EU, the Cyprus factory was not considered to be viable. In the company’s view, this was a very difficult decision, and the employees, suppliers and associates who will be affected are among its basic priorities.

BAT employed a total of approximately 160 employees, of whom 89 will be made redundant. These employees will leave the company in two groups: most will exit before 28 February 2006 and the rest, around 10 employees, before 31 March 2006. It should be noted that the remaining employees will be employed in sales, and cigarettes will be imported from Hungary.

Although the loss of jobs was substantial, especially for a country as small as Cyprus, there was no strong opposition from the employees. On the contrary, the negotiations between company management and the employees’ representatives were carried out in a climate of cooperation, and the content of the agreement concluded on 8 December 2005 is seen as particularly satisfactory. The agreement on the employees’ terms of exit signed by company management and representatives of the Pancyprian Federation of Labour (PEO) and the Cyprus Workers' Confederation (SEK) provides for the following:

  1. Apart from the provisions of legislation on termination of employment, BAT will grant to everyone affected by the redundancies an ex gratia payment equal to two months’ pay for each year of service. In addition, the company will grant to all employees made redundant an ex gratia payment equal to two months’ pay. With regard to the above-mentioned compensation, both sides agree that the amounts granted to each redundant employee will in no circumstances exceed the amount they would have received if they had stayed on the job until retirement (at age 65).
  2. The above-mentioned compensation will be calculated on the basis of the pay of the redundant workers on the date that their employment is terminated. In this context, it is worth noting that the company-level collective labour agreement between BAT and SEK/ PEO, which expired on 31 December 2005, will be renewed before the company is finally closed down, so that the compensation granted may be calculated on the basis of the new pay increases.
  3. The employees affected must take all leave coming to them before the date of termination of employment (i.e. 28 February 2006 or 31 March 2006, according to the list provided and agreed between the two sides). The company will pay for any leave not taken.
  4. The employees affected will receive redundancy notification letters by 15 December 2005.
  5. Employees who exit before the agreed date (i.e. 28 February 2006 or 31 March 2006, according to the list provided and agreed between the two sides) will not be entitled to the amounts described in paragraph one above, but will receive compensation equal to one month’s pay for each year of service, on the basis of the former practice.
  6. The company undertakes no responsibility or liability whatsoever with regard to any income tax employees must pay on the above-mentioned amounts.
  7. The provisions of this agreement will apply exclusively to this specific case and will not constitute a precedent.
  8. Upon payment of the above-mentioned compensation, all employees’ claims on the company will have been settled, and thenceforth they will have no other claim or entitlement against the company.

It should be noted that on its own initiative the company decided to create a mechanism to enable it to monitor and assist employees until they are reintegrated in the labour market.

This information is made available through the European Industrial Relations Observatory (EIRO), as a service to users of the EIROnline database. EIRO is a project of the European Foundation for the Improvement of Living and Working Conditions. However, this information has been neither edited nor approved by the Foundation, which means that it is not responsible for its content and accuracy. This is the responsibility of the EIRO national centre that originated/provided the information. For details see the "About this record" information in this record.

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