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UK Scene: Pfizer Closes Site

Recession Bites?

Pfizer’s recent announcement of the closure of its UK R&D function spells the loss of around 2,400 jobs, and the generation of many press headlines. What does this tell us about the current economic climate and, in practical terms, what steps need to be taken by a pharmaceutical company to close a site down?

Any company operating in the pharmaceutical sector will be feeling similar pressures to Pfizer. Some of the bigger players in the sector, including Andrew Witty of GSK, put this down to government influence – and not just in the UK. With ever increasing pressures on drug prices and exclusivity, the pharmaceutical landscape is changing and the dilution of the big players’ dominance has to have an influence as to whether, and to what extent, pharmaceutical businesses continue to invest in UK operations.

There may also be a wider political conversation going on within the sector about the best locality for investment, not in general terms, but specifically in R&D. Such operations need to attract the top academic and technical talent in the business, and the large corporations may be asking whether the UK is the right place for that type of operation.Does the UK offer the working environment and lifestyle to attract that top talent? Is there a time bomb in our domestic talent pool with the decreasing interest in studying sciences at degree level, coupled with increasing tuition fees putting people off entering the higher education system? Or was it purely a commercial decision by Pfizer that drove their R&D function overseas? So, for other pharmaceutical companies that may also be facing these difficult decisions, what is the difference between doing it well and doing it badly?

It is Not What We Do, but Who We Are

In answering this question, there is much to be said for considering what is unique about pharmaceutical companies.Often they are substantially owned and managed externally to the UK – with their influence from the US or elsewhere, and their ‘corporate culture’ is often definitive to their identity – it is not what we do, it is who we are. Culture takes years to create, but can be undermined, and sometimes destroyed, in seconds. Therefore, a successful outcome of any closure or restructure project of this nature will be one where the necessary pain does not have an impact on that culture or corporate identity.

Consultation is key – and not just because UK employment law says so. While it is fully accepted that decisions regarding the future shape or direction of a company lie with a few individuals at very senior level, once those decisions have been made, the manner in which they are implemented will make or break the success of a project. Involvement of staff as early as possible in the process will be essential to maintaining the culture and respect for the corporate brand. Employees are never going to like losing their jobs, but better that that they leave your company with a positive impression of their career and how it came to an end. The pharmaceutical sector is a very close knit, and in many respects, incestuous environment, and the circulation of staff between organisations can be prolific.Your reputation amongst your peers and competitors is as important to your identity as your reputation with your customers and partners.

Approaching any such reorganisation with the intention to share as much, rather than as little, information as possible will always stand an employer in good stead. Rather than looking on the domestic collective consultation requirements as a burden that must be complied with before you can actually implement changes, try to approach them as an opportunity to involve staff and share views. Not only does this approach sweeten the taste an employee is left with should their employment ultimately end, but it can also provide real alternatives and opportunities.Not every restructure is going to result in job losses, and full and open consultation with affected employees may enable a greater rate of retention of highly skilled and loyal people.

The Practical Implications of Pfizer’s Cut

Of course, much of the commentary in the press has focused not on the loss of the 2,400 UK-based Pfizer jobs, but on the implications this will have for the Sandwich Monks Wall Nature Reserve, created on land owned by the company (the Pfizer site is around 300 acres in total) but leased free of charge to the local council.The reserve is used by school children and the local community alike, so the closure of the R&D operation can clearly be seen to have a much wider implication for the local community than possibly first envisaged from the straightforward loss of employment.

This is an important perspective, as companies who recognise these wider implications and deal with them as part of their project will manage the associated press interest in a much more positive way.This wider perspective is also important in considering related matters when dealing with closures, not just employees.

Another major factor to consider is the company’s premises.Depending on whether the premises were used solely for R&D purposes or included a manufacturing capability, there may be a need to consider what environmental issues are to be addressed if the property is to be mothballed or sold/leased to new occupiers.

Clearly, where the use or storage of any hazardous chemicals is involved, steps need to be taken to ensure that these are removed safely to avoid any spillage or leakage into any watercourses or drainage ways, or indeed into the subsoil,giving rise to contamination and potential criminal action against the company by the Environment Agency and/or a civil claim by a subsequent or neighbouring landowner.

Similarly, the disposal of waste requires careful consideration and, depending on the nature of the materials involved, failure to address this issue adequately could, again, lead to prosecution.

In both cases, such issues need careful consideration as well as sensitive PR – the risk of a factor being overlooked or a situation worsening is important both from a practical sense and in the way such issues are perceived by the press.

In addition, action will need to be taken in respect of the transfer, variation or surrender of any relevant permits issued by the Environment Agency for the commercial operations that were carried out – for example, with respect to discharges to surface water and groundwater, or the storage of hazardous materials that are no longer required by the company at that site. It is not a case of turning off the lights and shutting the door behind you, as it might be with a standard office building.

What will need to be done in respect of the premises and buildings that will be vacated, whether by a wholesale or partial closure, will to a large extent depend on whether they are owned freehold or leasehold. Clearly there is more ‘control’ where premises are owned outright by a company, but there will still be the headaches of securing a site and minimising deterioration in either case, and the ongoing property issues with their associated costs may well extend far beyond the timescale envisaged with other aspects of closure or relocation of the business activity.

If the company is a tenant it will be bound by the terms of its lease and, though there may be opportunities to dispose of the premises by assigning or sub-letting, this would be quite an achievement in the current market. The company’s most likely route would be to seek to negotiate to break or surrender the lease (at a price, no doubt) with the landlord if the end date of the lease is not in the timeframe of the closure. Consideration will also be needed for ongoing repairing obligations and potential dilapidations claims from the landlord. While a possibility of a break clause may appear attractive, there may be unforeseen tax consequences and, as always, whatever decisions have to be made will come down to a numbercrunching exercise. Deals may have to be negotiated, but with a site closure they will almost certainly come with a hefty price tag for the company.

Conclusion

Whatever impact the closure of a site will have on the company and its immediately affected employees, the effect of an empty site on the larger community will have ramifications that may not be initially apparent.Many organisations have established links with schools and other establishments, as with Pfizer’s nature reserve, or offer work-experience opportunities. It may pay its employees to participate in local voluntary work which may no longer be possible. The already suffering property prices will be affected, particularly if highly skilled workers leave the area and the inevitable smaller industries that emerge where a large employer used to operate also declines. Major efforts have to be made, not only by the company involved in the closure, but also by the other interested parties – be they local, county or national, to re-establish alternative uses to fill the vacuum left and sustain the local and wider economy.


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Esther Smith is a Partner at law firm Thomas Eggar LLP, in their Southampton office, and has been with the firm since 1998. Esther obtained her law degree from the University of Wales, Aberystwyth before completing the professional examinations at Guildford College of Law. She has obtained her Masters Degree in Law and Employment Relations at Leicester University. Esther is responsible for employment law, drafting employment contracts and policies, employment tribunal representation, discrimination and maternity rights.
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