There is an unwritten law in Cyprus by which banks and semi-governmental organisations cannot make staff redundant. They can only offer a voluntary exit scheme by which it is up to an individual worker to decide whether he or she will take the ultra-generous pay-off and leave, while the employer has no real say in the matter. An application to the voluntary exit scheme, in theory, could be rejected by the employer, but there is no way of stopping a worker determined to leave.

The problem with such schemes is that a company often loses good employees, who are confident they will find a well-paid job elsewhere, while under-performing or highly paid older workers choose to stay. In an economy that was not run by powerful unions, backed by the political system, this would not have happened. The employer would decide who would be made redundant, considering that an extremely generous compensation that is three or four times higher than what is stipulated by the law would be paid.

These schemes, which cost the banks huge amounts of money – some employees were paid as much as €200,000 – have been used several times by both the Bank of Cyprus and Hellenic Bank in the last few years, to streamline operations and cut labour costs that were an unjustifiably high proportion of overall costs. Digital banking has enabled banks to close many branches and drastically reduce staff numbers.

Now, Hellenic Bank is facing a real voluntary exit scheme problem. The bank has been taken over by Eurobank, so staff reductions are inevitable but the scheme it has put in place has not yielded the desired results. By last Tuesday’s deadline, only 150 employees applied to the scheme, significantly lower than the bank’s target of 400. The bank announced that the deadline would be put back by a week, presumably in the hope that more would apply.

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What happens if the target is not met by the new deadline? Would the bank do the unthinkable – issue redundancy notices to workers it no longer requires – which is standard practice in most countries? Legally, it has every right to follow this course of action which is open to all other companies operating in Cyprus. In no other sector of the economy is a business obliged to use a voluntary exit scheme to reduce staff numbers.

In fact, according to the law, if a company can justify job cuts, citing a reduction in business or a major restructuring, the state’s redundancy fund (to which businesses contribute every month) is obliged to compensate redundant workers, based on years of service. This is the reason governments fully back the bank employees union Etyk’s demand for voluntary exit schemes – there is no cost to the state redundancy fund. Bank boards play along so they can be on good terms with the government of the day and to avoid the negative publicity that would come from not using their own funds for redundancy compensation.

This practice will be severely tested in the coming days if the number of workers seeking to leave Hellenic Bank remains well below the bank’s target. It could, however, offer the opportunity to end this irrational, voluntary exit scheme practice imposed by a union bank board have always been terrified of.