Irish Ferries will receive €4.3 million from the Government to compensate the company for redundancy payments to more than 500 Irish seafaring staff who were replaced last year with eastern European workers on significantly less pay.

Minister for Enterprise, Trade and Employment Micheál Martin told the ferry operator yesterday that the Government will pay out the rebate under provisions in the social insurance scheme that allow companies to claim back 60 per cent of the cost of statutory redundancy payments.

The development was severely criticised by trade unionists and Opposition politicians.

"I'm reacting with utter disbelief that Minister Martin would use over €4 million of taxpayers' money to subsidise the replacement of Irish workers with foreign workers," said David Begg, general secretary of the Irish Congress of Trade Unions.

There was no comment from Irish Ferries, which sought payment of the rebate after it made hundreds of Irish seafarers redundant in a manoeuvre to radically reduce its wage bill. The company maintained it had no choice but to outsource crew if it was to remain viable, but such claims were questioned at the time.

Asked whether the Government's decision to pay the money was a "perverse" use of public funds, Mr Martin's spokesman said he had no discretion.

"That's the reality. We've received extensive legal advice on this issue and the decision to pay the rebate was made on the basis of fact and law. It is not a matter for departmental or ministerial discretion," he said.

The spokesman said the Government would enact new legislation before the general election to prevent non-seafaring companies from using public money to displace their workers with cheaper staff.

"The fact that Irish Ferries is a shipping company meant that other factors came into play."

He said provisions in the Towards 2016 social partnership agreement allowed for the establishment of a group that can ask the Minister to refer certain redundancy schemes to the Labour Court for an opinion on whether they were "genuine" redundancies.

"The Redundancies Bill is now at an advanced stage of drafting. It will address cases of collective redundancies where specific situations apply and provide for the establishment of the new body, the Redundancy Panel. It's our hope that the Bill will be signed into law before the election."

Asked whether the new laws would prevent a repeat of public money being used to fund the displacement of Irish workers, he said the Government's aim was to prevent an "Irish Ferries on land" situation.

Labour's Tommy Broughan TD said: "The Irish Ferries ploy to discard their 534 workers and replace them with staff that will be paid a pittance, endure unacceptable working conditions and not be protected by even the minimum of Irish labour laws, should not be financed in any way by the Irish taxpayer," he said.