An Post was dealt a major setback last night when the main union rejected proposals that management hoped would restore the company's financial fortunes.

The Communication Workers Union (CWU), said it could not accept a set of Labour Court proposals issued back in mid-July relating to the postal company's collection and delivery system.

The union's general secretary, Steve Fitzpatrick said this "unnecessarily divisive cumbersome deal is a bridge too far for our membership in its current form".

An Post said it was disappointed with the CWU response to the proposals.

An Post hoped major savings would flow from union acceptance of the package, but this now appears unlikely.

The CWU said it had several reasons for turning down the Labour Court proposals.

The first of these was that most of the change was demanded from just one section of the company.

"The decision to alter conditions of service to collection and delivery staff while other staff retain their existing conditions is seen as divisive," said Mr Fitzpatrick.

He said postal workers were facing a range of changes, including new leave entitlements, reductions in holiday pay and the compulsory removal of protected allowances.

He said the ability to apply for and hold a particular delivery route was also threatened.

The CWU claimed recent deals involving An Post managers had been handled differently to the collection and delivery issue.

"The decision to treat the management pay and structures (including team leaders) so differently in comparison to those in all other recently completed agreements is a major issue," said the union. Despite rejecting the Labour Court proposals, the CWU said it was conscious of its obligations under Sustaining Progress to observe a three-week cooling-off period.

During this time the union said every effort would be made by parties to resolve the issues.

After this period, the union will convene a special one-day forum for delegates to discuss all possible options.

The union said the Labour Court's findings would "decimate the national postal service and, hugely diminish its reach and quality of service, particularly on a regional basis".

The CWU said it issued its own document, An Post: a new vision, suggesting a way forward for the company.

An Post reported a modest operating profit of €1.7 million for 2004, although its position has been improved by once-off gains from the sale of two mobile top-up companies for about €80 million earlier this year.

However, the company claims that it has underlying cost problems that make its future uncertain.

It recently pleaded inability to pay when asked to pay the full terms of Sustaining Progress.

The company is currently disposing of non-core businesses, including two small courier firms.