The Insolvency Directive
Council Directive 80/987/EEC of 20th October 1980 was introduced in order to protect employees in the event of an insolvency of their employer. Article 8 of the Directive 80/987/EEC provided as follows:-
“Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of the rights conferring upon them immediate or perspective entitlements to old age benefits, including survivors’ benefits, under supplementary company or intercompany pension schemes outside the national statutory social security schemes”.
Following the 1980 European Insolvency Directive, the Irish Government was committed to ensuring that all 'necessary measures' were taken to protect the interests of employees and former employees in the event of their employer's insolvency with respect to the protection of their pension entitlements. This is particularly relevant when one considers the current status of former Waterford Crystal employees where the company pension fund was found to be insolvent.
In the UK in 2007 a claim was pursued by members of an insolvent pension scheme which was wound up in 2003. In this case, Robins .v. Secretary of State for Work and Pensions (Case C-278/05  2 CMLR 2692007, the European Court of Justice (“ECJ”) found that the Member States themselves could be liable for pension shortfalls in the event of 'manifest and serious disregard' of their obligation to ensure minimum levels of protection for employees' pensions. In that case the Claimants were deferred pensioners who would receive only 20% and 49% respectively of their contractual entitlements, after taking into account the various forms of government support available. While the ECJ declined to lay down any firm rule as to the minimum level of benefits which had to be guaranteed in order to ensure compliance with Article 8 it did hold that a guarantee of benefits limited to the 20% or 49% of the benefits to which an employee was entitled was not adequate protection within the meaning of the Directive. The clear implication of the decision is that a loss of more than 50% of a Member’s contractual entitlement would normally involve an infringement of Article 8. However, the fact of improper transposition of the Directive did not of itself automatically entitle the plaintiff to damages.
The UK immediately acted upon this ruling and established the Pension Protection Fund whose main function is to provide compensation to members of eligible defined pension schemes when there is a qualifying insolvency event in relation to the employer, and where there are insufficient assets in the pension scheme to cover the pension protection fund level of compensation.
In 2012 a group of former Waterford Crystal employees pursued a similar claim to that of Robins to the ECJ. In the case of Thomas Hogan & Ors .v. The Minister for Social and Family Affairs, Ireland and the Attorney General, Record No. 2010/2922P the plaintiffs sought a Declaration that Ireland had failed to fully or properly transpose the Insolvency Directive and a Declaration that pursuant to Article 8 of the said Directive the plaintiffs were entitled to a guarantee of the totality of their pension entitlements, or in the alternative a portion in excess of 49% of their pension entitlements in addition to damages for breach of EU law. The High Court directed a reference to the ECJ for a preliminary ruling in relation to seven agreed question which reference was heard by the ECJ on the 3rd October 2012. A decision was handed down by the ECJ on the 25th April 2013 and ruled that:
- Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer must be interpreted as meaning that it applies to the entitlement of former employees to old-age benefits under a supplementary pension scheme set by their employer.
- Article 8 of Directive 2008/94 must be interpreted as meaning that State pension benefits may not be taken into account in assessing whether a Member State has complied with the obligation laid down in that article.
- Article 8 of Directive 2008/94 must be interpreted as meaning that, in order for that article to apply, it is sufficient that the pension scheme is underfunded as of the date of the employer’s insolvency and that, on account of his insolvency, the employer does not have the resources to contribute sufficient money to the pension scheme to enable the pension benefits owed to the beneficiaries of that scheme to be satisfied in full. It is not necessary for those beneficiaries to prove that there are other factors giving rise to the loss of their entitlement to old-age benefits.
- Directive 2008/94 must be interpreted as meaning that the measures adopted by Ireland following the judgment of the Court of Justice of the European Union of 25 January 2007 in Case C-278/05 Robins and Others do not fulfil the obligations imposed by that Directive and that the economic situation of the Member State concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme.
- Directive 2008/94 must be interpreted as meaning that the fact that the measures taken by Ireland subsequent to Robins and Others have not brought about the result that the plaintiffs would receive in excess of 49% of the value of their accrued old-age pension benefits under their occupational pension scheme is in itself a serious breach of that Member State’s obligations.
The case will now return to the Commercial Court where McGovern J will consider the issue of damages.
The ECJ ruling is relevant not only to former Waterford Crystal workers, but to all workers in occupational pension schemes in Ireland. It is imperative that the Irish Government establish a similar Pension Protection Fund to that of the UK in an effort to ensure that adequate insurance is in place in the event of a pension fund becoming insolvent.
Augustus Cullen Law specialise in the area of pension litigation. We have represented former Waterford Crystal employees for almost 20 years and continue to advise the former employees in relation to their pension entitlements.
25 April 2013