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Dáil Éireann debate -
Tuesday, 26 Jun 1984

Vol. 352 No. 3

Protection of Employees (Employers' Insolvency) Bill, 1984: Second Stage.

I move: "That the Bill be now read a Second Time."

One of the distressing features of the present recession has been the number of companies which have been forced to cease trading because of insolvency and the consequent loss of employment involved. To lose one's job is a traumatic experience at any time. It is more unacceptable still when one's employer simply goes out of business and is unable to pay even the most basic entitlements. We have all heard of the sad cases where workers who suddenly found themselves out of a job went to collect their wages only to be told that there was no money in the kitty to pay them. There have been cases too where workers were given cheques which could not be honoured. I sometimes wonder about the degree of consideration which some employers give to the welfare of their workers when financial difficulties loom. Most employers, I am sure, take all the steps necessary to protect their workforce in such situations. Equally I am sure that there are other employers who afford a low level of priority to the just claims on them by their employees. When workers enter into a contract of employment with an employer and give of their labours to that employment we must accept that, by so doing, they build up rights and entitlements. The Bill before the House gives further formal recognition to this fact.

This Bill is designed to protect workers' entitlements in regard to wages and other matters and to ensure that these are paid in situations where employers become insolvent. My approach to this Bill has been directed towards protecting workers to the greatest extent practicable in insolvency situations. The existing redundancy payments legislation provides a degree of financial compensation for those losing their jobs and this Bill will ensure that this compensation is complemented by protection for the employee of his normal entitlements in regard to wages, minimum notice, holidays and similar payments.

While workers already enjoy priority in respect of certain claims under the Companies and Bankruptcy Acts in winding up and bankruptcy situations, these priorities afford little or no protection in cases where there are no assets available for distribution or where assets are inadequate. Even where adequate assets are available, people often have to endure long delays, sometimes as long as 18 months, while the liquidator or receiver is attempting to dispose of these assets and then they must take their place in the queue behind financial institutions and other secured creditors. This Bill guarantees the payment, subject to certain limits, of workers' outstanding claims and, as such, it represents a major advance in the area of worker protection legislation.

The Bill will also give effect to the provisions of an EEC directive which contains measures to protect workers in insolvency situations. Workers have been entitled to claim for the benefits set out in the directive as from 22 October 1983 and I am providing in the Bill for the payment of claims relating to pay in insolvency cases arising on or after that date. What I mean is that it is from the time a receiver or liquidator was appointed on 22 October or any date subsequent to that the entitlements and rights come into effect within this legislation.

The Bill contains detailed provisions in section 1 to cover the various types of insolvency situations which can arise. It also outlines the criteria to be used to determine when an employer will be regarded as being insolvent. As the date of the insolvency will be of vital importance for the calculation of amounts due, the Bill specifies, in section 4, the date on which an employer will be regarded as having become insolvent. Section 4 will also enable me to specify by regulations the circumstances in which employers who are of a class or description specified in the regulations are to be taken to have become insolvent. This provision will enable me to cover situations which might arise where no formal winding up or bankruptcy proceedings are initiated. Tragically in many cases that is what happens. Companies literally disappear and employers do not turn up.

The EEC directive to which I have referred requires the setting up of a fund — referred to in the directive as a guarantee institution — which will guarantee the payment of employees' outstanding claims relating to pay and I propose to extend the existing redundancy fund to meet this requirement. In my view this is the simplest and most satisfactory way of doing so. The extended fund will be known as the Redundancy and Employers' Insolvency Fund and this retitling is provided for in section 2 of the Bill. The redundancy fund is financed by way of contributions from employers, including the Government in its role as an employer and this will continue to be the case with the extended fund. The increase of .49 per cent in the employers' PRSI contribution rate, announced in the budget includes provision to cover the anticipated expenditure in insolvency cases. It is difficult to predict what the expenditure from the fund in respect of the claims covered by this Bill will be, but the income of the combined fund should be adequate to meet liabilities under the Redundancy Acts and this legislation for some time to come. Given that workers are unlikely to be in a position to continue to work for long periods without remuneration, I consider that in the majority of cases, claims in respect of ordinary pay should not be substantial. The experience in the United Kingdom, where a similar fund is in operation, has been that the major items of expenditure are in respect of minimum notice and holiday pay.

Section 3 provides that the Bill will apply to those in employment which is insurable for all benefits under the Social Welfare Acts. The effect of this will be that the benefits provided for in the Bill will be available to those who are covered by the Redundancy Payments Acts. At present these Acts apply only to persons who work 20 hours or more a week for the same employer, although employers pay contributions to the redundancy fund in respect of people who work 18 hours a week and over. Eighteen hours is also the limit for eligibility under the Social Welfare Acts and this is the threshold I propose to adopt for the purposes of this Bill. I have also provided in the Bill at sections 11 and 12 for the reduction of the thresholds operated in a number of other pieces of worker protection legislation to 18 hours. These changes involve a reduction from 20 hours in the case of the Redundancy Payments Acts and from 21 hours in the Minimum Notice and Terms of Employment Act, 1973 and the Unfair Dismissals Act, 1977. These changes will secure the harmonisation of the eligibility thresholds for protection under the various Acts. The changes are also in line with present trends in European Community labour practice.

Since the circulation of the Bill there has been some criticism of the fact that it will apply only to those who work for 18 hours or more per week and it has been suggested that, as a result, the Bill might not meet with the requirements of the EEC directive. During the negotiations on the directive in Brussels most member states took the line that they should be in a position to exclude certain categories of workers from its scope where the protection proposed would be unnecessary, impractical or impossible to administer. The basic approach adopted by this country was to exclude workers not covered by the Redundancy Payments Acts. Because of difficulties in agreeing on exclusions it was decided to provide for these in an annex to the directive rather than in the body of the directive. Among the categories whose exclusion is provided for in the case of this country are persons who normally work for less than 18 hours a week for one or more employers and who do not derive their basic means of subsistence from this work. As I mentioned already, 18 hours is the eligibility threshold under the Social Welfare Acts and I feel that it would be impractical to operate a lower threshold for the purposes of the directive. In my view payments should be made from the fund only to workers whose employers pay contributions to the fund on their behalf, that is those who are fully insurable under the Social Welfare Acts. I am taking power in the Bill, however, to enable me to extend the protection being provided to cover other categories of employees should I consider this to be desirable at a later stage.

Sections 5 and 6 outline the payments which will be made from the fund. While the EEC directive refers specifically to outstanding claims relating to pay, it allows member states freedom to adopt their own definition of this term. I am providing in the Bill for the payment of claims in respect of the following: wages, arrears of statutory minimum wages, holiday pay, payments on foot of company sick pay schemes, entitlements under the Minimum Notice and Terms of Employment Act, 1973, the Anti-Discrimination (Pay) Act, 1974, the Employment Equality Act, 1977, the Unfair Dismissals Act, 1977, and outstanding contributions to company pension schemes. A limit of eight weeks will operate in the case of wages, holiday pay and amounts due under company sick pay schemes. This is fully in line with the terms of the EEC directive. The directive also allows member states the option of setting a ceiling on the weekly amounts which will be paid. As the measures provided for in the Bill are tied in, in many ways, with the Redundancy Payments Acts, I propose to limit the amount of payments, where these are related to wages, to the amount provided for in the Redundancy Payments Acts. At present this limit is £211.54 a week. I will of course be keeping the limit under review — the Bill gives me power to revise it and also to vary the period of weeks in respect of which payments will be made. A limit of 12 months contributions will operate in respect of unpaid contributions to company pension schemes. The payments which I am providing for in the Bill go further than the requirements of the EEC directive in a number of areas — for example, payments relating to company sick pay schemes, unfair dismissals and pension contributions. I regard this extension of the basic requirements of the directive as essential in the context of the needs of the Irish working people.

In order to ensure the smooth operation of the provisions of the Bill I am providing that the officer appointed in connection with an employer's insolvency — for example, a liquidator or receiver — will be required to supply certain information and perform certain duties in relation to the amounts being claimed by employees or by those competent to act on behalf of a pension scheme. These duties will mainly involve certification that amounts claimed are due and arranging for the completion of various forms. These forms are referred to in the Bill as prescribed forms and will be set out in regulations which I will be making when the Bill has been passed.

The Bill provides in section 8 that persons who have applied for payments in respect of wages, sick pay, holiday pay or arrears of pension contributions may, within a period of six weeks beginning on the day on which the decision on the application was communicated to them, or if that is not reasonably practicable, within such further period as the Employment Appeals Tribunal considers reasonable, present a complaint to the tribunal that no payment has been made or that any payment made was less than the amount which should have been paid. This appeals procedure will not extend to entitlements under the Minimum Notice and Terms of Employment Act, the Unfair Dismissals Act, the Anti-Discrimination (Pay) Act, the Employment Equality Act or in respect of arrears of statutory minimum wages under the Industrial Relations Acts, as disagreement in relation to the amounts involved is unlikely to arise in such cases. The question of providing for appeals by employers or their representatives was raised in the consultations with employer interests when the Bill was being prepared. While I agree that an argument can be made for providing for appeals by employers or their representatives in order to protect the interests of other creditors, I have decided not to provide for such appeals. A major consideration in arriving at this decision was that to allow for such appeals would cause undue delay in the making of payments to employees and the purpose of the legislation is to protect the interests of working people. If such appeals were provided for, it would be necessary to defer making payments until appeals had been determined or the time for lodging appeals had expired, and the whole purpose of the legislation would have been undermined.

As I mentioned earlier, workers enjoy priority in regard to certain payments when winding-up proceedings are taking place in accordance with the Companies Acts or in bankruptcy situations under the Bankruptcy Acts. I am providing in the Bill in section 9, for the transfer to me of any priorities which exist in respect of amounts paid to the employee from the fund, so that the fund can be reimbursed in cases where money is available on the distribution of the employer's assets. This could take place as late as 18 months after the declaration of insolvency.

The remaining sections of the Bill provide for the production of records and information, offences and penalties for offences, the making of regulations and other standard provisions.

In addition to providing for the protection of workers' claims relating to pay, the EEC directive also imposes an obligation on member states to protect workers' interests in the matter of company pension schemes. I am very concerned that the entitlements of employees under company pension schemes should be protected. As I mentioned earlier, I am providing in the Bill for the payment from the fund of unpaid contributions to such schemes.

I have given very detailed consideration to the question of how workers' rights under company pension schemes could best be safeguarded and have come to the conclusion that it would be unwise to take further action in relation to pension schemes in this Bill, in advance of proposals for a national income-related pension scheme which are at present under consideration by my colleague, the Minister for Social Welfare. As Deputies will be aware, that Minister told the House in December last that it was part of the Programme for Government to initiate a national income-related pension scheme and that proposals in this regard would be published in the form of a White Paper. He said it was the intention that the proposals would include the establishment of a pensions board representative of all the interests involved, including trade union organisations. This board would advise on the standards and conditions which should apply in occupational pension schemes and have the subsequent task of overseeing the development of these schemes in line with whatever standards might be adopted. The Minister also said that it was envisaged that the overall question of security of occupational pension schemes and the protection of benefits against inflation would be among the matters to be examined.

Deputies will appreciate that this is a very complex area and that it is essential that all aspects of company pension arrangements be thoroughly and carefully examined. It is only prudent to have the position researched in full rather than making some hasty provision which might not afford full protection to workers' rights. I consider that the statement by my colleague in regard to a national income-related pension scheme taken together with the conditions and requirements which must be met at present in order that employers and employees can obtain the benefits of the various tax concessions operated by the Revenue Commissioners in respect of contributions to pension schemes, will meet the requirements of the EEC directive in this regard. I will, however, maintain the closest possible liaison with my colleague, the Minister for Social Welfare, in this matter.

This Bill represents a very significant and worthwhile addition to existing worker protection legislation and comes at a time when tragically far too many workers and employers have experienced the traumatic impact of insolvency. I commend the Bill to the House.

To lose one's job at any time is a traumatic and serious blow not only for the individual but for his family but this can also have repercussions on the social fabric of our society and how people who lose their jobs contend with this new situation. No compensation is ever adequate, but where some financial compensation is available it helps to soften the blow and helps a person to face the new situation.

The principle of this Bill helps to alleviate the problem which has arisen for so many workers in recent times. We will not prevent the passage of this Bill. We will support this measure but will question a number of sections and perhaps seek to make some amendments. The main purpose of this Bill is to provide payment of employees' rights on insolvency, liquidation and so on. I am assuming that the section concerned covers all eventualities and that the relevant dates will meet the situations as they occur. The Minister outlined the compensation that will be available for the various losses that can be incurred by the employees but I am not happy with his approach to the pension situation. I suggest that it is further window-dressing when the Minister says that no action will be taken in this respect until the national income-related pension scheme is introduced by this Government. At the present rate of progress that will not be introduced for some time yet.

I can only cite a very sad case of former employees of Murphy's Brewery in Cork. Many of the employees had been in receipt of company pensions when the company went into receivership. The receiver refused to accept any responsibility for payment of pensions which morally were due to the employees. Although a purchaser was found and most of the jobs were saved, accommodation was not made for the pensioners. The provisions of the Bill will not meet such a situation and it is rather surprising that a Labour Minister should say we must await a national pensions scheme. One might expect an improvement in the position following Labour's abysmal failure at the recent elections, but I would not be optimistic.

The Redundancy Fund is now being retitled. That is understandable. It is to be combined with a new fund and I understand we are talking about a 0.49 per cent employers' contribution. Can the Minister tell us the present state of the Redundancy Fund, how much is in it, and whether a substantial additional sum from employers will be needed? Can the Minister tell us if the fund is at adequate financial strength and if, when the time comes, the Government will make up any shortfall? It seems unfortunate that employers would appear to be asked to finance the shortcomings of ailing or cowboy companies.

The Bill became necessary because of an October 1983 EEC directive and the Minister should consider whether that directive is appropriate or suitable for conditions here. In view of the many known cases of job losses through insolvencies in Ireland, the Minister, I suggest, should make implementation of the directive date from January instead of October 1983. I do not think there is anything in the directive to prevent that. Earlier implementation would be an added bonus for workers affected by insolvencies and I hope the Minister will consider that, between now and Committee Stage. I am sure there have been instances of employers disappearing, in which case there would not be receivership. I hope the Bill covers such situations.

This measure comes late after the closure through liquidation of many companies, leaving many employees in a very bad state. It is unfortunate that company law has not been altered though we were promised drastic changes last autumn. There does not appear to be any advance towards introduction of such legislation. This Bill implements an EEC directive and is only a minimum provision pending major changes in company law to give protection to workers who should have the first priority from liquidators for the remuneration they deserve for their contributions to production. This Bill does not provide such adequate protection for workers. We are all aware of the need to protect workers against insolvencies and liquidations and from the operations of fly-by-night employers who can go insolvent deliberately to deprive workers of their rights. This has been typical of some of the smaller companies, but workers and the public have had very little protection from them.

It should not devolve on employers generally and on the Government to make up for the losses of criminal activities of many companies. The limit of the amount which can be paid per week under this Bill is too restricted. It covers only eight weeks and imposes a maximum limit of £1,688 for a worker. Under the old, bad, inept 1963 Companies Act the limit was £300 in 1963 values. That limit excluded statutory entitlements to redundancy. That was approximately 25 times the average industrial wage in 1963. Twenty-five times the present average industrial wage would be in the region of £4,000, so this Bill is giving about half the total entitlement of workers under the 1963 Act. Confined to eight weeks, it makes the amount £211.54p which results in a total entitlement of £1,688 — half the total sum under the old Act. The Minister should examine those figures again because, with continuing inflation, what will the situation be in three to four years' time? It is already way behind what should be given. There are many other EEC directives which have not been implemented. Presumably the Government will be proceeding to implement these, also.

We are told that the economy is booming or lifting and everything is going great but, nevertheless, that unemployment will continue to increase considerably. In other words, the new form of boom will mean more unemployment. There will be more small company closures, more redundancies, insolvencies and so forth which will require the protection of the law.

As far as I understand it, this Bill goes back only to autumn of 1983. The directive dates from about three years previous to that and I ask the Minister to backdate the Bill to 1981. Very many workers have suffered very severely and are still suffering because of the total loss of all possible assets during that time and some compensation is due to them.

This Bill is one which I welcome. It is required because the increasing number of insolvencies over the last number of years have cut short people's basic entitlements. There are technical and detailed aspects of the Bill which require further refining on Committee Stage. It is important that we deal with the question of insolvency in general and of preferential creditors. Money payable out of this fund will go to the employees who have been short-changed. The Minister for Labour will then step in as the preferential creditor in this instance. We must examine the current situation in relation to unsecured creditors and others who are in difficulties in the event of insolvencies.

First, I should like to put some points on insolvency generally on the record. Many small companies here, especially in the manufacturing area as we have seen in our work on the Joint Oireachtas Committee on Small Businesses, are the unsecured creditors of today. In the event of receiverships, insolvencies, liquidations, or even voluntary winding up of companies, they are the very last to get money which they are owed. Their money is put into whatever they supply and there is no recoupment. Therefore, we should talk not just about the needs of former employees but about the whole area of insolvency. As was the case with the PMPA, small unsecured creditors and trading companies should have the right to appoint an administrator to recoup their losses. The whole question of preferential status should be reviewed. In many cases the winners of that status are the banks who in many instances have circumvented preferential status by looking for personal guarantees from small firms and other creditors. The importance of preferential status should be downgraded. All who are owed should be paid so much in the pound, as opposed to strong people like the banks getting all. There would be no need for this legislation, perhaps, if every creditor got his fair share.

Second, application for an administrator in the event of insolvency should be available to small companies who are creditors. My principal concern is in relation to employers' PRSI payments. At the moment, they stand at 12.5 per cent, which is excessively high. In Nigel Lawson's budget in the UK this year, the employers' contribution to social insurance is being abolished. I totally endorse the view that employers' PRSI is a tax on employment. There is nothing that the employer gets from this contribution. The employee, rightly, is covered in the event of becoming sick or unemployed, for unemployment, disability, occupational injuries benefit and also for pension purposes. The employers' PRSI bring about the black economy. If employers take on staff for in excess of 18 hours, they must pay 12.5 per cent for nothing. This amounts to £11.50 on an average wage. No wonder the employers look for every trick of the loop to avoid paying this.

In this year's budget the employers PRSI contribution was increased by .49 per cent. I understand that .02 per cent of the employers' PRSI contribution will be used for this fund. These contributions are going in the wrong direction and are out of line with our EURO competitors. We are not in isolation in a free trading situation. This fund presents employers with a further burden.

I have some specific concern about the Bill and the way this fund could be open-ended. I am subject to correction because I did not have the time to study this in the manner I would like to have studied it, but from an early perusal of the Bill, and from discussions I have had with certain people, it seems to me that some matters are as yet unclarified.

What is meant by insolvency? Does it mean a receivership? Does it mean a voluntary liquidation? Does it mean a liquidation in the form of stripping all the assets and appointing a liquidator? Could it be a judgment registered against a particular company by a creditor, and a petition to the court, not necessarily meaning that the company would not survive?

The broader the definition of insolvency the more demands there will be on the fund. There is no solid, watertight definition of insolvency in the 1963 Companies Act, or in the various amending Acts. This Bill is based on quicksand. We are extending a weak definition and this could create major difficulties. While particular terms of insolvency are defined, if we look at sections 2 and 3 of the 1963 Companies Act we see that insolvency is a loose term.

If we take the widest possible view or interpretation of insolvency, we could very quickly have a run of demands on the fund set up under this Bill. This would mean that the .02 per cent contribution out of the employer's PRSI was totally inaccurate to cater for the needs. This bring me back to my original fear that if .02 per cent is inadequate, the PRSI contributions will have to rise. When the Minister is replying to Second Stage, I hope he will answer my question about the definition of insolvency.

Section 5 deals with a whole series of debts which are applicable under the Bill and covers holiday pay, redundancy, unfair dismissal payments and so on, and ordinary pay awards. I have a slight fear about the wording of section 5. I understand that the contractual terms of employment, that is, the contractual arrangement between the employer and the employee, are in line with the EEC directive. In relation to holiday pay, the definition is far too wide and needs to be tightened up so that only statutory holiday pay is covered. The Bill should specify that it is only statutory holiday pay.

There could be collusion between the employer and the employee to maximise the benefit from this fund on a shared basis. I know there are penalties for collusion, but some very convincing stories could be told which, morally speaking, would not stand up. There should be no possibility of arguments or differences of interpretation. Statutory holiday pay as laid down in the Holidays (Employees) Act, 1977 should be the norm and the standard under section 5.

I have a slight concern that, under the procedure whereby the Minister recoups the money paid out from this fund to employees because of the liquidation or the insolvency, there might be areas where the Minister would fall short in his collection and therefore the fund would be at a loss. The Minister pays out £X to the claimants upon the fund and when he acts as a preferential creditor to recoup that money he may find that there is a shortfall. My concern about the Minister falling short is that that can be financed only in two ways: by a general loss to the Exchequer, or an increase in the PRSI contributions. Both of those are undesirable.

The area where this may happen is in relation to the anti-discrimination and employment equality legislation. I do not believe section 285 of the Companies Act has been amended sufficiently to cover this point. It has been amended sufficiently to cover unfair dismissals and redundancy legislation. It should be specified in this Bill that there will be an amendment to the Companies Act whereby amounts which have to be paid for damages, pay awards, and whatever, under the anti-discrimination legislation can be made good. There is a weakness in section 9 dealing with rights and remedies and I would like to see it tightened up. It is only in the area of employment equality legislation that I see this problem.

I will give two examples where the Minister may fall short when he comes to recoup the money as a preferential creditor. The first is that the upper limit which can be claimed by the Minister on behalf of any single employee on the fund is £2,500 per employee. Even given the redundancy ceiling of £211.54 per week, it is technically possible that the amount owed to the employee may be in excess of that. There is no upper limit on the fund itself. In other words, company X goes bust and Mr. Murphy is owed £2,800 by his former employer who has not got it. He goes to the fund under this Bill and gets £2,800. In recouping that in the insolvency situation, the Minister can recoup only £2,500. That should be amended because we get back to the same problem of a drain on the fund and an increase in PRSI. The upper limit should apply equally in both situations so that whatever maximum the claimant can get from the fund, the Minister can get the same maximum as the preferential creditor.

The second example is that if, as often happens in a liquidation — and this is a most important point — a person is owed £25,000 as a preferential creditor and, on settlement of all creditors, having stripped the assets or sold the company as a growing concern, the settlement is only so much in the £. If it is anything less than 100p in the £ there is an obvious loss to the Exchequer. The claim from the worker is £2,000 for holiday pay, or redundancy, or whatever, and the fund pays out £2,000. The Minister's total claim on behalf of all the employees may be £20,000. The bank is owed money and the Revenue Commissioners are owed money. At the end of the day every creditor gets 33p in the £, and the Minister will get only one-third of the money he is looking for. In this instance the upper limit which the Minister can claim is £2,500 and in a creditor situation one has to settle for so many pence in the pound. The effect of this measure will be that the employers' PRSI contribution will have to increase to 14 per cent. This is anomalous and discriminatory and it should be considered again. Everything should be pro rata. Whatever an employee or group of employees can claim from the fund, the Minister should be able to claim no more or no less. I should like to see the Bill amended.

I have a general reservation about the Bill, namely, in relation to the speculator, the cowboy and the fly-by-night who will see this Bill as another opportunity to run a horse and cart through the Act dealing with limited liability. Underlying all of this is the problem of limited liability. It is quite outrageous the way delinquent directors can make such an abuse of employees and creditors simply by flouting the weakness in the law dealing with companies and limited liability. The speculators and the rogues will look at this Bill for its potential for abuse. In many instances Irish subsidiaries of American, British or continental parent companies are surviving on a day-to-day basis of injections of capital and subventions from their parent company. This type of legislation could make such companies think about pulling out the plug in the knowledge that they could run away from their responsibilities. A weakness of the Bill is that there are no sections to cover the more subtle form of abuse that is possible. As we have seen with other Acts dealing with insolvency, people are very adept at finding loopholes. There should be a major reform of the Act dealing with companies and the whole matter of collusion between employers and employees will have to be tightened up.

In section 6 occupational pensions schemes are covered as part of the debts owing. I should like to hear the Minister justify this. I understand there have been submissions to the Minister that this should be deleted. I have an open mind on the matter but I consider that pension schemes are different from current payments immediately owing by an employer. They are separate in terms of their form and type of payment and they should be reviewed separately.

With regard to this Bill, my major fear is that we have missed the point. We must ask ourselves why so many people who become insolvent can start up operations within a week. Europe and the western world is suffering from a grave recession but the question must be asked by so many people who were registered in the ITB magazine, who were in Stubbs Gazette, very quickly find themselves in new companies. Frequently people do this several times without getting caught. In the United States in the small firms area the success rate of two out of ten is acceptable. There are people who honestly fail because of some marketing error or for some other reason. I am not talking about them. I am talking about the vultures of the commercial world, about people who deliberately shift assets and capital out of one company into another, leaving a debt-ridden company in their wake. All the other legitimate concerns are left holding the baby while the culprit is trading again in a new company and making a sizeable living.

The legislation we are proposing, if taken in isolation, will be weak unless we have a new Companies Act. The Act dealing with limited liability needs to be tightened up. Delinquent directors should be made personally liable for debts and they should be barred from managing any company for ten years as determined by the courts. There would not be the need for this type of legislation if there were stringent measures that could be taken against delinquent directors.

There is nothing wrong with protecting employees and giving them their honest due but it is unfair if the Minister should step in and act as a preferential creditor on their behalf. The genuine traders who give credit should not get less money in the pound simply because legislation is brought in to protect employees but not to protect unsecured creditors. It is very unfair that the banks, and now the employees, should be treated as preferential creditors. We must also take account of the major domino effect here. If a large company goes bankrupt owing sums of £20,000 or £30,000, a series of smaller companies who are creditors of that firm will also go bankrupt. I welcome the Bill and support it but there should be a tightening up of the Act dealing with limited liability to deal with delinquent directors and there should also be the appointment of an administrator to deal with small firms and unsecured creditors. Thus, as in the instance of the PMPA, they could have some chance of getting their money.

Another reason for this Bill is due to the operations of the banks and the question of personal guarantees. In my opinion personal guarantees are outdated. Company law was introduced to set up the corporate body where personal guarantees were obsolete. The banks are so powerful they are circumventing that and insisting on personal guarantees and this is why employees and unsecured creditors are left high and dry. I should like personal guarantees to be dropped.

My overriding concern is that the employers' share of PRSI contributions standing at 12½ per cent are a tax on employment. If the Minister looks at trends in other countries he will see that there is a move away from a disincentive form of tax on employment. I fear that the fund will run short very quickly, that what he recoups will be less than he pays out and that, very quickly, the 0.2 per cent share which was part of the 49 per cent increase in the employer's share of PRSI in this year's budget will be well short. The net effect will be that next year and the year after, because of this legislation, employers' PRSI will be increased. I believe it is still possible to have a good Bill passed through this House and also to overcome that problem. I hope the Minister in his reply and on Committee Stage will be able to meet the specific points I made to tighten up the Bill to make it self-financing so that everybody gets their entitlements.

I welcome the Bill which is overdue. My grievance is in relation to the date on which the legislation applies — in other words, when the company becomes insolvent or on 22 October 1983. I fully appreciate the difficulty the Minister has in fixing any date going back as far as 1983 since there will always be arguments about the date on which it should apply. Deputy Fitzgerald suggested that any time in 1983 should suffice and Deputy Mac Giolla suggested it should go back as far as 1981.

I am sure the Minister is aware that in the last year or so there have been a number of closures causing severe hardship in many cases to employees who for one reason or another have lost out substantially in relation to payments which are morally, if not legally, due to them. I wish to make the case very briefly regarding Kilrush Pottery, to emphasise the importance of that industry and the hardship which many people suffered as a result of its closure. The plant had been in operation for 20 years and there were highly skilled people employed there. Eighty-seven former employees of the plant took their case for payment to the Employment Appeals Tribunal and were awarded £25,941. Because of the fact that this legislation applies to companies which closed in October 1983 they will lose out by a few weeks in relation to the amount awarded. It is not clear at this stage whether that will arise, because until such time as their assets are realised and preferential creditors are paid they may have at least some prospect of getting that money. However, it is recognised by everybody involved that there is a distinct possibility that they will not get a substantial amount of the money due to them.

The reasons have already been pointed out in an Adjournment debate why Kilrush Pottery are a special case. In relation to the date which the Minister has fixed, 22 October 1983, it would be more suitable if he had decided that the effective date should be when the company is finally wound up. This may lead to delays in some cases but in the case of Kilrush Pottery it is likely that there may be some money available to pay the employees the money that is due to them. However, it may not all be available when the company is wound up and it would be desirable if, in the event of £10,000, £15,000 or £20,000 still being due to those employees at the final winding up date by the receiver, it would be at that stage possible to lodge a claim on the fund for whatever amounts by way of minimum notice, holiday pay or whatever statutory payments may be due and that that could be claimed from that fund. When everything is concluded and completed, there should be something in the legislation to allow for outstanding payments to be made by way of the fund.

Generally speaking, the other points in the Bill can be dealt with on Committee Stage although I am not sure that the Minister has given a very satisfactory explanation in relation to his reasons for not having an appeals procedure. Many people feel that the Minister's argument is weak when he says that lodgment of appeals could delay payments which are due. Perhaps he would look at this area again to satisfy people who may have a genuine grievance in this regard. It may well be possible to speed up an appeals procedure so that there would not be too long a delay. Overall the Bill is desirable and brings us into line with the EEC directive, even though there have been complaints that it will not fully meet those terms. However, I would be completely satisfied with the Bill if we could get an assurance from the Minister that he will look at the situation in regard to the company I have mentioned — and I am sure there are others — and realise that there are cases which have almost been concluded. Their employees have suffered hardship and distress as there is no prospect of reopening the firms involved. We should make provision to cover employees who have a genuine grievance, who are expecting something from this Bill and who will now be disappointed. I hope the Minister can devise an amendment on Committee Stage which will cover this point.

This legislation is welcome from the point of view of employers and employees. A terrible situation in the life of any employee is recognised and also the point of view of the employer. Unfortunately, it is the employee who has been at the wrong end of the stick and his losses have to be taken into consideration.

With regard to the comment by the Minister that he wondered about the degree of consideration some employers gave to the welfare of their workers when financial difficulties loom, it is fair to say that employers are so engrossed in trying to make a success of their business that they do not consider it in that light. That is one of the reasons I welcome the Bill. The Minister is taking that position into consideration and is introducing an easy payment method for a fund which will not hurt businesses, provided of course that there are not too many drains on it. In this case because employees are part of the business and their future is so much tied in with the employer, it is only just and equitable that they should be protected.

I believe these provisions will be welcomed by both sides. Genuinely, I do not think businesses consider that they are likely to become insolvent. They do not know it will take place at a certain time. Inevitably, there will be a period when things are not going too well, when there is a financial strain on the company and orders are not too healthy. At that point it is too late to sit down and consider how the employees are to be paid if the business has to close down within a few weeks or months. Seldom is a company in a position to decide when it should close down and pay off everybody.

The criticism by Deputy Yates in regard to foreign companies generally is not true in the case of multi-nationals and others. When they close down subsidiaries it is usual that they pay employees and clear all debts in full. They post notices of that intent. It is not good for any concern to remain in business having had close downs in other countries with people suffering as a result. I can imagine the position of employers when it comes to the question of a shut-down. It has happened all too frequently here in recent years. The pressure is acute from all angles, particularly from the banks, if a small business is involved. In the case of a limited company if most of the shares are owned by one or two people there will be personal guarantees involved and a threat on the property of the owners. There is the prospect of the transition from owning a business to becoming an employee. There is a great analogy between the owner and the employee who can suddenly be thrown out of work. Today I was approached by a person who has been on strike for a few days. That person indicated to me that he would not be able to last much longer than a week before he would feel the effect of the strike. In a recession things are tight and people are not able to save money for such occurrences. They spend all of their earnings weekly.

I appreciate that an employer is in the driving seat in such a situation and could, if neglectful, make the position very serious for the employee, who would not know the condition of the business. An employee may not know that things are not going too well. He may be working under an illusion and it is hard for him to make decisions in his private life if he decides to buy a new house, buy new furniture, invest money, go on a holiday or try to improve his lot. It does not matter what position an employee is in, everything is relative. It does not matter if he is working on the shop floor or is an executive in the company. He may have his children at school or a big mortgage. We also have unemployed managers and executives as well as unemployed general operatives and tradesmen.

I notice that the Minister will make regulations in regard to a company becoming insolvent. That is fine, because I can understand the complexity of that situation. However I hope it does not become bureaucratic in the decision-making process in that area like some other arms of State, particularly in regard to VAT decisions or arrears of tax. I hope that we will have an all-embracing understanding of difficulties that can arise on both sides and that there will not be any disputes about this area.

I should like to mention the inequitable position that can arise in regard to non-contributory pension funds. An employee after working ten or 20 years with a company may be told, when he or she decides to leave the company that the company has the option of deciding to allow that person take the pension. Although it is non-contributory, it is to the disadvantage of the employee that an employer has such a hold over him or her. I would like to see that regulated for. I was involved with a person who had worked for 20 or 25 years with a company and on leaving was not given the benefit of the accumulated pension fund because it was non-contributory. A time limit should be introduced so that in the case of non-contributory pension funds an employee who serves a reasonable number of years will have the right to take that fund with him or her if a decision is made to leave. Some years ago it was explained to me that this was an advantage for an employer to have over an employee. It was also described as a method of saving for an employer and that the one who suffered most was the employee. If that happened on a big scale in a large company employees would suffer a great deal.

The attractive feature of the Bill is that is provides an easy payment schedule. It is so small as not to affect the running of a business. It takes a worry away from employers. I was going to suggest that it should be done in that way and then I was told that it was so provided in the Bill.

Given a company of a certain size who are paying into a fund such as this, does there not come a time when they will have paid enough money to cover the costs of a shut down and the eventualities specified in the Bill and would therefore not need to continue paying this amount? The money would seem to be going into a general fund. The Minister referred to an increase of 0.49 per cent in the employers' PRSI contribution rate announced in the budget. That included provision to cover anticipated expenditure in insolvency cases. It may be that the continued payment will be put to other uses. If a fund is accumulated in which there is enough money available in the unfortunate event of a shut down, I do not see the absolute necessity of paying further into it. We do not want to increase the tax squeeze but to reduce it. I will raise the matter again on Committee Stage.

The Bill is generally welcome. I know the employee will be the one to benefit most. He is in the disadvantageous position of not knowing when his company will close down, especially in recessionary times. It is a balanced form of legislation in that it helps the employer in the way it has been worked out. I congratulate the Department and the draftsman since it causes the smallest ripple in the financial make-up of any business. It gives reassurance to employees. Perhaps some day we will be able to bridge the gap between this position and the time when other employment is available. At present there is little likelihood of getting another position for any employee, from the chief executive down. I welcome the Bill as a first step along the road to greater security and equity. It recognises the injury which has been inflicted in the past, although in recent years it has not been as brutal as decades ago when these things happened at the whim of companies and individuals. This is a progression and I hope the Minister and his Department will keep it under review so that the transition from one employment to another can be eased to the maximum possible extent.

I gave an unqualified welcome to this Bill. I do so in the spirit of the Minister's own words that his approach to the Bill has been directed towards protecting workers to the greatest extent practicable in insolvency situations.

I listened very attentively to Deputy Yates. He talked about the tremendous burden of 12.5 per cent on employers but forgot that he voted for it in the budget. All of us, including Deputy Yates, welcome the Bill because we have come across situations where people have been left without protection for weeks and months. There is nothing as degrading as having to go to public representatives or community welfare officers looking for a pittance to keep body and soul together while cases like these are being resolved.

I agree with the Minister in wondering about the degree of commitment on the part of some employers. There are a number of categories. There are those who, through no fault of their own, become insolvent, perhaps as a result of bad luck or bad judgment. Then there is the person to whom Deputy Yates referred to as a "cowboy" and there are some women also who might be referred to as "cowgirls". The Bill is designed for this type of person. The vast bulk of employers are considerate and place a high priority on the just claims of their employees. It is unfortunate that the sins of the few are visited on the many and that all employers will now have to pay.

Closer co-operation between the Department of Labour and the Department of Social Welfare could help to prevent some insolvencies. For many years there has been an early warning system in the Department of Labour. The Department of Social Welfare must know the position in relation to the non-payment by employers of PRSI contributions. That should be taken as a warning that things are not as they should be.

If I have any other fault to find with the Bill it is the period of eight weeks specified in section 5, but section 10 probably gives the Minister the opportunity of amending that if he so desires. Eight weeks is a short period of time when a person finds himself without a job and I would ask the Minister to look at it to see whether it could be extended.

I accept the Minister's argument in relation to sections 11 and 12. I question the relevancy of section 14 in that I feel there is very little use in instituting proceedings against people who are insolvent. The fine mentioned is a figure not exceeding £500 but it should be remembered that some genuine people will not have any money at that point. There should be other legislation for those who walk away from the situation. I wonder what is meant by the use of the phrase "knowingly or recklessly makes any false statement he shall be guilty of an offence." in section 14(3).

Like Deputy Gene Fitzgerald I wonder what is the situation in relation to the fund. In his introductory remarks the Minister said:

It is difficult to predict what the expenditure from the Fund in respect of the claims covered by this Bill will be, but the income of the combined Fund should be adequate to meet liabilities under the Redundancy Acts and this legislation for some time to come.

It would be important that the fund should not be allowed to be dissipated. I disagree with the Minister when he says:

Given that workers are unlikely to be in a position to continue to work for long periods without remuneration, I consider that in the majority of cases, claims in respect of ordinary pay should not be substantial.

In a number of closures in my constituency the biggest problem was that of pay rather than the actual holiday; that was my experience in four or five closures in the Ballina area.

I welcome the fact that the Minister has seen fit to go beyond the terms of the EEC directive in that he is taking into account wages and arrears of statutory minimum wages, holiday pay and payments on foot of company sick pay schemes.

I would add my voice to that of other Deputies who asked the Minister to consider the operational date of the provisions of this Bill. The cases mentioned by Deputy Daly could be covered by an amendment which would adopt an operative date or the date on which a company winds up. I understood the Deputy to say that the company concerned had not yet been fully wound up and that their employees might possibly be covered under the terms of this Bill.

Apart from the need for one or two minor amendments this is a much welcome Bill which will give some solace to people who, in these difficult times — in many cases after a lifetime in one job — find themselves suddenly without work and, worse still, without money and wages over a long number of weeks. The Minister can be assured of our full co-operation in ensuring its speedy passage through both Houses.

Before calling on the next speaker I should like to remind the House that proceedings on this Bill will be interrupted at 5.30 p.m.

I welcome this Bill and, along with my colleague, Deputy Calleary, wish it a speedy passage through both Houses.

When workers and employers enter a mutual contract to work together, at that stage neither party thinks that, at some later stage, problems might develop within the company through no fault of theirs, and it is in this situation that the Minister is endeavouring to protect workers' rights. It is only right that any workers entering any employment should feel that, if the worst comes to pass and the company has to cease trading for one reason or another, and goes into liquidation, they will have some rights. We must award full marks to the EEC Commission for having proposed this legislation which should meet full co-operation in its passage through both Houses of the Oireachtas. The obtaining Redundancy Payments Act is a fine Act which has worked well but it needs to be and is being complemented by the introduction of this Bill.

In my constituency recently there was a situation in which workers suddenly found, on a given afternoon, that a company was going into liquidation and workers there — who had spent a lifetime giving good honest work — because they had worked a week in hand and would not be paid for the week in which they were working, were left without wages for two weeks. These honourable employees were put out on the street having to beg assistance of the social welfare officer to tide them over the worst period. I do not believe any employee should be placed in that position. With the introduction of this Bill I would hope that employees in all industries will feel a little more secure.

I must question one aspect of the Bill, that is the proposal to increase the employers' PRSI contribution. While I accept that this fund must be financed from some quarter, it is regrettable that its funding is being thrown back on the employer. I presume that the Government as an employer, will pay their contribution and, bearing in mind the 4.9 per cent increase authorised under the last budget, I find myself wondering will it be another 1 per cent next year.

In the course of his introductory remarks the Minister said:

It is difficult to predict what the expenditure from the Fund in respect of the claims covered by this Bill will be, but the income of the combined Fund should be adequate to meet liabilities under the Redundancy Acts and this legislation for some time to come.

The part of that that needs to be underlined are the words "should be adequate" because in the current economic climate I question that. I would ask the Minister to seriously consider alternative methods of financing this fund.

I should like to question also the position of employees who, during the course of their employment, contributed to group insurance schemes and the like, because I have heard recently that certain employees who contributed to group insurance schemes were treated very shabbily by the insurance companies concerned. It is not good enough for such financial institutions to deal with employees in that manner just because their group insurance scheme is then called into question. Insurance companies should endeavour to be more helpful and ensure that employees who find themselves unemployed are properly treated and that claims for the winding-up of their group insurance schemes are at least treated with somewhat more sympathy and urgency than are some at present. There should be some monitoring by the unions involved of the early warning system operated by the Department of Labour. It is a dangerous and sensitive area and unions involved in companies should be given some little warning, in whatever veiled terms are necessary, that problems may be ahead for the employees.

Finally, I congratulate the Minister on bringing in this legislation and I hope it will not be too long before it is enacted.

I, too, compliment the Minister on bringing forward this Bill as part of worker protection and reform of legislation dealing with that. The Bill covers all aspects required by the EEC Directive. I am concerned about the date of the coming into force of the legislation, which the Minister indicates is 22 October 1983. My colleague, Deputy Daly, has explained, as did Deputy Taylor-Quinn and I on the Adjournment some time ago, that companies in our constituency had employed people who have been left high and dry and who possibly come under the scope of this Bill. Deputy Daly has suggested that the winding-up date be the effective date. I do not know if that is possible in legal terms. The date 22 October 1983 was the last effective date from which the EEC required the law to apply. I do not think the Minister is limited to this final date. Therefore, I appeal to him when he is examining this Bill on Committee Stage to consider accepting amendments that might change that date.

The fact that the Minister is providing funds for employees is to be commended highly. Employees who find themselves with insolvent companies generally panic and the fact that they will be cushioned from this fund will be of great benefit to industry itself because it will bring a certain sense of protection to those employees. As Deputy Calleary said, perhaps the eight weeks could be extended to provide a greater cushion. However, the Minister has done a good day's work in bringing in this Bill and I hope he will consider what I have asked him to examine.

I thank the House for its co-operative attitude and the way in which Deputies have handled this legislation. We are taking Second Stage today and, therefore, many of the detailed points that were raised can be referred to when we go through the sections on Committee Stage.

I would like to repeat what I said in my initial speech, picked up by Deputy Calleary, that this is work-oriented legislation. For that reason I make no apology for the fact that there is no appeals procedure in it for employers. Evidence shows that in other aspects of labour legislation employers are using the appeals procedure with the possible intent — let me choose my words carefully — and certainly with the effect of delaying the payment of moneys that would otherwise be the entitlement of the workers. Many public representatives will recognise that.

I hope that the House did not take any insult from or umbrage at the fact that I had to leave the House for a time when Deputy Yates spoke. The officials have given me a clear note of what he said. I want to reiterate a fundamental principle that I will follow while I am Minister for Labour. Yes, we are in a difficult time; yes, the western world is going through a crisis; yes, western Europe in particular is suffering unemployment of unprecedented levels some of which perhaps is structural. However I do not believe we should throw the baby out with the bath water. The panic reaction of some people is to dismantle the entire package of labour legislation. That was not given to working people gratuitously by some Santa Claus employer backed up by right-wing and centre politicians throughout the various assemblies. Every gain on the Statute Book that protects workers' rights in the main has been hard fought for and was not given gratuitously.

Therefore, because we are now in a crisis it is a mistake to think that you can blame worker protection legislation as the cause of it or, to use the phrase that Deputy Yates used, that it was somehow or other a tax on employment. Many things are a tax on employment. You could say that ESB charges and the cost of various other services are a tax on employment. Therefore, the principle to be followed for the duration of the time I happen to be Minister for Labour and, I suspect, for the duration of time that the Labour Party participate in or support any Government is this. By all means let us update, reform and revise the legislation so that any anti-employment content it may inadvertently contain is removed. Let us remove those contradictions, for that is what they are. But in so doing let us keep our heads and not throw out the baby with the bath water and not undo the work that has been achieved over many years.

The reference that Deputy Yates made to the extraordinary level of employment creation that took place in the US relates to areas of employment where there is absolutely no worker protection whatsoever. We have seen in the present administration in the US a President who has systematically dismantled worker protection and workers' rights in a whole range of areas. If that is what Deputies of this House on either side — only one Deputy has said it — are suggesting, then they should state that view and face the consequences of it. However, I agree with Deputy Yates that what is required is simultaneously a reform of company legislation. I assure him that that difficult task has been initiated, a great deal of work has been done on it and the Minister for Industry, Trade, Commerce and Tourism, Deputy Bruton, is in the process of advancing that legislation.

However, there are reasons why this insolvency legislation is required in the manner in which it has been offered. Some Deputies raised the question of the date of insolvency. To get over the Kilrush Pottery problems and others an effective way would be to use the date from which the company is would up as that would relate to reality rather than tentative insolvency and also enable one to see what assets were left and what net additional moneys would be required from the fund. That has a certain neatness and tidiness and commends itself as a general principle, and would undoubtly meet the requirements in Kilrush. However, it does not meet the fundamental requirement that workers simply cannot afford to wait between 12 and 18 months, which on average is the time they must wait. The Kilrush potteries have been closed for over 12 months and the workers may be waiting for a long time for their payment. The purpose of the legislation is to ensure that workers whose employers have not provided for money to cover payments they are entitled to are not out of pocket for an undue time, as is the case in Kilrush. That is why we are doing it in this manner. There are many other points which we will take up on Committee Stage. On the question of the date we could go back and back. It has been suggested that 1 January 1983 is the tidier date. The cost provisions we have made provide an estimate and it can be no better than that, of about £1 million a year. There is no perfect date to start with and I would sooner take an objective date. I will examine the Kilrush Pottery situation to see if the rights of the workers could be protected in perhaps a parallel but separate manner. It is not appropriate to do it in this legislation.

Finally, I thank the House for the tributes that have been paid. They shall be passed on to those officials in the Department who drafted the legislation and who went through it so carefully. Included in those tributes also must be some of my predecessors, notably the present Minister for the Environment and, to a certain extent also Deputy Fitzgerald, MEP, who must have been some kind of godfather in relation to all of this legislation.

Question put and agreed to.
Committee Stage ordered for Wednesday, 4 July 1984.
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