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 [2007] 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 is still awaited.

This case is relevant not only to former Waterford Crystal workers, but to all workers in defined benefit 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.

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19 March 2013

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