PROTECTION OF EMPLOYEES IN THE EVENT OF
THE INSOLVENCY OF THEIR EMPLOYER
Draft Directive amending Council Directive 80/987/EEC on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer.
||Article 137(2) EC; co-decision; qualified majority voting
||15 January 2001|
|Forwarded to the Council:
||17 January 2001|
|Deposited in Parliament:
||6 February 2001|
||Trade and Industry|
|Basis of consideration:
||EM of 3 March 2001
|Previous Committee Report:
|To be discussed in Council:
||No date set|
||Not cleared; further information requested
10.1 The original Insolvency Protection
Directive, which was adopted in 1980, was a partial harmonisation
measure under which each Member State was required to set up a
"guarantee institution" to meet certain debts (pay arrears,
for example) owed to former employees of insolvent employers.
As the UK had already had such provisions in place for some years,
no substantive amendment was considered necessary in order to
implement the Directive.
10.2 The provisions in question are now
contained in the Employment Rights Act 1996 and the Pensions Scheme
Act 1993. Under these provisions the Redundancy Payments Service
(RPS) makes insolvency payments from the National Insurance Fund
, on the Secretary of State's behalf, to qualifying former employees.
The RPS then becomes a creditor in the insolvency proceedings
in the former employees' stead. The amounts payable from the National
Insurance Fund are subject to statutory upper limits. Any debts
to former employees that cannot be met under the statutory provisions
remain for consideration in the insolvency proceedings.
10.3 The draft Directive is intended to
amend the original Insolvency Protection Directive. In its explanatory
memorandum, the Commission states its view that the basic structure
of the measure should be retained. However, as a result of new
conditions in the job market and restructuring within companies,
the Directive needs to be brought up to date on specific points.
There are three main areas where revision
definitions. The Commission considers that the range of insolvency
proceedings should be broadened, as should the categories of employee
covered by the measure.
limiting liability of Member States'
guarantee institutions. Member States can currently choose
between three options for specifying and limiting the period of
pay arrears in respect of which their national guarantee institutions
are liable. Under the option on which the UK relies, the length
of the period is eight weeks. Under the other two options, on
which most other Member States rely, it is three months. The Commission's
proposal is that the three options would be replaced by a single
requirement for a minimum three-month period.
transnational situation. The current
Directive contains no guidance on how its provisions should be
interpreted in cases with a transnational dimension - where, that
is, the employees work in one Member State but their employer
is established and made insolvent in a different one. In recent
years there have been a number of ECJ judgments in cases of this
kind, but these have left the legal position somewhat confused
and uncertain. The Commission's proposal aims to clarify the matter
by introducing new provisions which will identify, in respect
of a number of different situations, the guarantee institution
responsible for meeting outstanding pay claims.
The Government's view
10.4 In his Explanatory Memorandum, the
Minister for Competitiveness at the Department of Trade and Industry
(Mr Alan Johnson) comments as follows on the draft Directive:
"This is a very new
proposal and the Government is still examining its provisions
to determine what its precise impact would be. If adopted in its
present form, this draft Directive would require some amendment
of the insolvency payments provisions of the Employment Rights
Act 1996; the three main areas would be as follows:
Types of insolvency proceedings covered
"Our initial view, subject to further consideration,
is that this would have little or no impact in the UK context.
Limiting Liability of Member States' guarantee
"If adopted, this would entail some amendment
of our domestic implementing provisions, resulting in some increase
in public expenditure on insolvency payments from the National
Insurance Fund. It is likely that the increase would be a relatively
modest one. We will however be preparing a full costing. There
would be no significant cost implications for business.
"The practicability of this proposal needs to
be considered. If adopted, it would be likely to lead to an increase
in administrative expenditure by the RPS, although only a modest
one, particularly as at present, at least cases
with a transnational dimension are relatively uncommon."
10.5 The Minister has made it clear that
the Government is still considering its position on this new draft
Directive. We will, therefore, maintain the scrutiny reserve until
we hear more about the progress of negotiations and the Government's
10.6 We assume that the Minister's lack
of comment about the proposal to broaden the categories of employee
covered by the Directive means that it presents no problems for
the United Kingdom. It would be helpful if he could confirm this
point when he reports on progress.