The largest domestic steel company in the Czech Republic, Mittal Steel Ostrava, which currently employs almost 9,000 people, has announced plans to dismiss at least 1,000 employees by the autumn of 2006. As happened during the first phase of major internal restructuring in 2004, the company will again offer workers who take voluntary redundancy a severance payment well above the legal minimum requirement.
Mittal Steel Ostrava a.s. (formerly Ispat Nová hut) is the largest domestic steel producer in the Czech Republic, with almost 9,000 employees. The company is currently preparing for a second phase of mass redundancy, which will result in at least 1,000 job losses. According to management, the restructuring is necessary in order to strengthen the company, to ensure its prosperity and thus long-term stability through higher efficiency. The company has not yet matched the work productivity levels of western European companies nor even attained the European average.
Severance package
Employees who opt for voluntary redundancy, and whose application is granted by the employer, will be paid a severance package amounting to between 12 and 32 times their average monthly salary. According to the Labour Code, the severance payment issued in cases of termination of employment for reasons of organisational changes within a company should be at least double the amount of the average monthly pay, depending on the number of years an employee has worked in the company and the employee’s age. Most of the employees were scheduled to leave Mittal Steel Ostrava by August 2006, according to company management estimates, and one third of those to be dismissed would be administrative staff.
From the outset, the lucrative severance payment has drawn considerable interest from employees; the pay deal also applies to Mittal Steel Ostrava’s subsidiary, Vysoké pece Ostrava, a.s., which is included within the mass redundancy scheme. During the first day of the redundancy programme, almost 700 employees filed a request for termination of employment by agreement. Those who are interested in voluntary redundancy and who apply during the first three days of the programme’s launch will receive, as a bonus, one additional average monthly salary on top of the regular severance payment.
The company is reported to have reserved a total sum of one billion Czech crowns (about €35.3 million) for the redundancy programme. According to estimates, the average severance payment should amount to CZK 520,000 (about €17,340); however, a number of employees may receive as much as one million crowns (about €33,340).
Trade union concerns
After the experience in 2004 (CZ0411104N), when 1,730 employees left the company – availing of a generous severance package amounting to between 16 and 25 months’ pay – the trade unions are concerned that a further reduction of staff will again increase the volume of overtime work for the remaining employees.
There are also concerns that the high severance pay offered will encourage applications from the most skilled of the manual workers, vital to the company’s operations, who represent professions that are in short supply in the labour market, such as welders, metalworkers, maintenance workers and mechanics. However, the company management has reaffirmed that it does not want to put its business operations at risk and does not wish employees who have specialised experience and who perform key functions to leave.
Little regional impact expected
The Ostrava employment bureau anticipates that the redundancies at Mittal Steel Ostrava will not pose a threat to the labour market in the region, which is situated in the northeast of the country. It bases its expectations on the experience with the dismissal of employees in the former company Ispat Nová hut in 2004, when 618 people registered with the employment bureau, followed by a further 336 people in 2005, although these applications to the employment bureau were made more gradually over a period of time.
It is commonly recognised that people who encounter most difficulties in finding a job are usually those aged above 55 years or persons with disabilities. However, according to the employment bureau, the situation in the labour market should be more favourable even for these disadvantaged groups of applicants since there has been a significant increase in the demand for labour. In addition, a number of consultancy and educational programmes are now offered by the employment bureau, funded through the European Social Fund.
Jaroslav Hála, Research Institute for Labour and Social Affairs