Hooman Yazhari: Gate Gourmet

Last Monday (26 September), the Gate Gourmet row showed the glimmerings of a resolution when the company and the Transport and General Workers’ Union (T&G) struck a deal to end their long-running dispute over a proposed restructuring of the struggling airline caterer’s working practices.

The bitter row was triggered on 10 August after Gate Gourmet’s UK business sacked 667 Heathrow Airport-based staff for participating in unlawful industrial action.

The deal will result in Gate Gourmet reinstating some of the staff who were dismissed and allow the compnay to implement the proposed changes to working practices that were agreed in June. At the time The Lawyer went to press, the deal had not been ratified by the T&G’s members and Gate Gourmet’s board.

The Swiss-based company’s troubled relationship with its staff, however, goes back much further to when many of its employees transferred from British Airways (BA) and maintained BA work practices. Gate Gourmet claims that the company’s out-of-date work practices resulted in overmanning, excess overtime and excess sickness absence. It claims, for example, that some staff were being paid for eight hours despite working only three.

Gate Gourmet’s operation at Heathrow has made losses for four consecutive years to the tune of £55.9m and is forecast to lose £25m in 2005. The company claims that its financial woes have not only been exacerbated by excessive labour costs, but also by a punishing commercial contract with BA, which reduced income year-on-year.

In an exclusive interview with The Lawyer, Hooman Yazhari, Gate Gourmet’s European general counsel, who has been at the centre of the negotiations between the company’s workforce and the T&G, defends the actions taken by Gate Gourmet throughout the saga.

“Gate Gourmet’s new management team at Heathrow, upon commencing their roles in autumn 2004, were faced with a company that wasn’t commercially viable,” he argues. “It didn’t have sufficient revenues to meet its cost base and was tied into uneconomical customer contracts. The company also had a Organisation: Gate Gourmet
Sector: Airline catering
Employees: 1,400 (Heathrow)
Turnover for 2004: £1.06bn
Legal capability: Two (Europe)
General counsel, Europe and Asia: Hooman Yazhari
Reporting to: Executive vice-president and chief administrative officer Stephen Wood
Main law firms: Baker & McKenzie (commercial and dispute resolution), Clarks (employment), Cleary Gottlieb Steen & Hamilton (banking and finance) and Weil Gotshal & Manges (restructuring)workforce with out-of-date work practices.”

Since Yazhari joined Gate Gourmet in September 2004 from US firm Chadbourne & Parke, he has played an integral role in the turnaround strategy drawn up by the company’s new management last November to stave off Chapter 11 bankruptcy proceedings.

This strategy includes the renegotiation of Gate Gourmet’s contract with BA and reforming the company’s outdated work practices to increase productivity. Meanwhile, Gate Gourmet, which is owned by US private equity house Texas Pacific Group, is in ongoing negotiations with its mezzanine and senior lenders in a bid to reach a consensual refinancing. Yazhari declined to comment on exactly how much Gate Gourmet owes to its lenders. However, it is understood that the company has hundreds of millions of pounds in borrowings.

As first reported in The Lawyer (19 September), Gate Gourmet has called in regular legal adviser Weil Gotshal & Manges, led by partners Chris Mallon in London and Steve Karotkin in New York, for advice on the refinancing. Meanwhile, Bingham McCutchen partner Barry Russell is advising the senior creditors and Latham & Watkins London-based restructuring partner John Houghton is advising the mezzanine creditors.

In February Gate Gourmet embarked on a full consultation programme with both the T&G and its staff over potential redundancies and changes to working practices. Indeed, Yazhari claims that since February the company’s management, which was advised by Reading-based employment firm Clarks, met with T&G more than 30 times to discuss these issues. He argues: “The management tried to act in as compromising and fair a manner as possible. They didn’t propose any cutting of salaries or the termination of the final salary pension scheme.”

But while Gate Gourmet was locked in discussions with these negotiations, the company suffered another major blow. It lost its catering contract with Virgin – the company’s second-largest customer after BA. The move meant that some redundancies had now become inevitable.

Gate Gourmet eventually reached an agreement on working practices and a voluntary redundancy package with the T&G following several months of negotiations. The proposals included protected pay for current staff at above market rates, the continuation of the existing pension scheme for current staff and a redundancy package of more than double the statutory level for any staff who wanted to leave.

But although the deal that was accepted by Gate Gourmet was one that was recommended by the T&G to the company’s staff, it was overwhelmingly rejected on 23 June. Yazhari argues that the reason for this may have been because the proposal that the T&G put forward to Gate Gourmet’s staff was not the one that the company agreed with the union.

“We found a very confused and misinformed workforce. I’m not sure exactly what happened, but it was unfortunate that [T&G’s] members were confused and unclear about what they were voting on,” explains Yazhari.

The T&G declines to comment on this allegation, but a union spokesperson says: “This is the first we’ve heard of this allegation so we’re not going to comment.”

The industrial action on 10 August was triggered by Gate Gourmet’s decision to hire temporary seasonal workers to help its permanent staff out over the peak summer holiday period. Yazhari claims that the company had brought in additional staff during the summer for the past three years to deal with the short-term increase in demand and to enable its own staff to take annual leave. “The company consulted with the union on the hiring of temporary workers, which was part of Gate Gourmet’s annual practice as well as being perfectly legal,” argues Yazhari.

However, the T&G spokesperson hits back, saying: “We find it unacceptable for temporary workers to be brought in while our own members were threatened with redundancies.”

Gate Gourmet claims that it spent more than two hours trying to persuade staff to return to work. Eventually, after issuing numerous verbal warnings and a final written warning, the company sacked the workers.

Yazhari also defends Gate Gourmet’s decision to sack the striking staff. “Strikes like this can do significant damage,” he insists. “For every minute our deliveries are delayed to our customers, we lose significant sums of money. A single day’s action can cost the company more than £1m.”

The T&G spokesperson, however, claims that Gate Gourmet’s actions were premeditated and provocative. She adds: “We now appear to be in a position to move forward to a resolution to the dispute. We hope it will be to the satisfaction of our members and the Gate Gourmet board and also provide stability to BA.”

Nevertheless, Gate Gourmet offered to take back the majority of its sacked employees, admitting that many were swept up in the moment by the instigators of the illegal action. Additionally, the company has offered to give those staff it would not reinstate a goodwill payment equivalent to the amount they would have received if they had taken the voluntary redundancy package.

The next significant development was on 21 August, the date Gate Gourmet won a High Court injunction to limit the number of pickets outside its Heathrow South operation. The company also won an injunction against the T&G and 17 named individuals (this number was subsequently reduced to 10). The following week Gate Gourmet and the T&G agreed a non-binding framework allowing the company to adopt necessary work practice changes and to launch a voluntary redundancy programme.

Because the 10 August strike was not renounced by the T&G it became official. Therefore, as first reported in The Lawyer last Monday (26 September), Gate Gourmet will not be able to selectively reinstate dismissed staff until mid-November unless they all enter into compromise agreements waiving future rights to bring unfair dismissal claims.

“Gate Gourmet is perfectly willing to take some staff back, but we can only do this with the cooperation of the unions. For me, it’s distressing to see that certain illegal strikers have cynically and continuously seven times in three years attempted to take Gate Gourmet, a company in financial difficulty, hostage,” explains Yazhari.

UK employment law states that if staff are dismissed while taking part in an official strike action, those who are not selectively re-engaged gain the right to claim unfair dismissal for a period of up to three months unless they sign compromise agreements. In contrast, employees taking part in action not authorised by a trade union have no such rights.

Yazhari is optimistic that Gate Gourmet’s fortunes will eventually turn around and is hoping that, when the financing arrangements are in place and the company has a new cost base, it can look forward to expanding. In which case he can finally get back to business as usual.

Hooman Yazhari
General counsel, Europe and Asia
Gate Gourmet

Organisation Gate Gourmet
Sector Airline Catering
Employees 1,400 (Heathrow)
Turnover for 2004 £1.06bn
Legal capability Two Europe
General counsel, Europe and Asia Hooman Yazhari
Reporting to Executive vice-president and chief administration Stephen Wood
Main law firms Baker & McKenzie (commercial dispute resolution), Clarks (employment), Cleary Gottlieb, Steen Hamilton (banking and finance) and Geil Gotshal & Manges (restructuring)