Generous redundancy entitlements at Simplot Australia are affecting the performance of production staff, with some encouraging plant closures as a result.
Terry O’Brien, the managing director of Simplot, told Business Spectator Simplot faces paying out about $100 million in retrenchment and other payments if it were to close its six plants around Australia.
O’Brien said that enormous entitlements had become an incentive for many of the employees at Australia’s largest food manufacturer to encourage the closure of the plants.
About 20% of the 1,500 Simplot staff in six production centres have very large entitlements which, in many cases, amount to around two years’ pay. O’Brien told Business Spectator some of these people were attempting to “grind us into shutting down”.
O’Brien said Simplot was “on a hiding to nothing” in employee negotiations, with staff that would benefit from plant closures not responding to arguments that extra wage or other costs will make the plants uneconomic.
Andrew Douglas, industrial relations lawyer at M+K, warned earlier this year that businesses were being crippled by high redundancy payments, which made it cheaper to collapse than restructure.
This morning Douglas told SmartCompany that Simplot’s situation was not uncommon amongst manufacturing businesses forced to make provision in their balance sheets for uncapped redundancy, which was sometimes three or four weeks for every year of service.
“The provisioning for redundancy means there is no money for capital improvement; businesses are caught in a terrible trap of not being able to improve their manufacturing process,” says Douglas.
“What business is trying to do is to introduce capital to reduce its head count, but when the costs of removal of labour is so high through redundancy it cripples the business.
“Simplot is different because it has vested interests in sites saying, ‘We don’t care, let’s push ahead for the redundancy and get out of it’.”
Douglas says it is “distressing” to see the willingness of some unions to push an issue in order to close a business.
“It’s not the traditional way unions have done business in Australia, it’s just terrible and I don’t understand why anybody would participate in the destruction of a business,” he says.
Douglas says the tough labour market at the moment means that any push to get redundancy payments is a “short-term” view as unskilled workers are likely to struggle to find other jobs and even a generous redundancy payment only lasts so long.
SmartCompany contacted Simplot and O’Brien this morning but they were unable to comment.