I thank the Chair and committee for the opportunity to discuss the general scheme of the protection of employees (employers’ insolvency) (amendment) Bill 2024. I am accompanied by my departmental colleagues, Mr. Peter O’Brien Hogan and Mr. Josh Byrne.
We welcome the opportunity to contribute to the committee’s scrutiny of the scheme and to assist in any way we can. Our Department is responsible for employment law generally, including the Protection of Employees (Employers’ Insolvency) Act 1984. This general scheme proposes to amend the 1984 Act, which is legislation that protects certain employee entitlements where their employer becomes insolvent.
Before turning to the specific provisions of the general scheme, I wish to give the committee some background on the 1984 Act and the reasons this Bill is required. These protections derive from European law, specifically Directive 2008/94/EC, which is a recast of an earlier directive. This was transposed into Irish law by the 1984 Act, as amended. The Act provides for the payment of certain sums to employees from the Social Insurance Fund on the insolvency of their employer. This is colloquially known as the “insolvency payments scheme”.
Access to the insolvency payments scheme is contingent on the employer being insolvent. Insolvency is currently defined in the Act as where the employer is in liquidation, receivership, bankruptcy, has died and the estate is insolvent or is insolvent under the laws of another EU member state or the UK. Where an employer becomes insolvent, employees can often be owed moneys such as arrears of wages, minimum notice or holiday pay. When this happens, employees are protected under the insolvency payments scheme. A liquidator or similar appointee will make applications on the employees’ behalf to the Department of Social Protection which administers the scheme on behalf of the Minister for Enterprise, Trade and Employment. When a claim is accepted, payment is made from the Social Insurance Fund to the liquidator who in turns pays out to the employees. Payments under the scheme are subject to certain limits relating to salary level and number of weeks claimed.
However, there are gaps in the legislation this general scheme is intended to address. Some businesses cease trading but do not fully wind up. This may be because the directors have insufficient assets to fund the liquidation or for other reasons. This is often known as informal insolvency, although that has no actual formal legal meaning itself. Where this occurs, former employees who have moneys owed to them have no legal mechanism to claim these payments from the insolvency payments scheme. The Supreme Court found, in the case of Magdalena Glegola v . The Minister for Social Protection,
Ireland and the Attorney General,
that this does not meet the requirements of the directive. The Supreme Court held that the State has therefore failed to transpose Article 2(1)(b) of the directive.
To address this gap, this general scheme provides for a new "employer deemed insolvent" application. Using this new application, an employee can apply to have their employer deemed insolvent and, if successful, may obtain payment of certain outstanding debts from the Social Insurance Fund. This new process will address the shortcomings in the Act identified by the Supreme Court. An employer being “deemed Insolvent” under this process will not have any implications for other definitions of insolvency, such as in the Companies Act or Bankruptcy Act, to avoid unintended consequences. The general scheme also provides for a historical employer deemed insolvent application. I will give more detail on that when I discuss the detailed provisions. Some further technical changes to the Act are also proposed to improve its operation.
There are four main policy objectives of this general scheme. The first is to ensure Directive 2008/94/EC is fully transposed into Irish law. This will ensure that employees of employers who do not wind up their business formally will benefit from the directive’s protections. The second is to ensure the scheme’s operation is in alignment with broader Government policy on personal insolvency. The third is to further improve the operation and administration of the scheme by reducing policy uncertainty in how the salary ceiling applies to certain payments. Finally, we want to ensure that Circuit Court awards for gender discrimination are brought back within the ambit of the scheme.
The scheme itself is comprised of 27 heads, divided into six Parts. I will provide a brief overview of its main aspects. Part 1 deals with the standard Short Title and definitions used in the Bill. Part 2 inserts new definitions into the principal Act, that is, the 1984 Act. It also inserts a provision to ensure that the statutory salary ceiling applies to all types of payments from the scheme and will specify how that ceiling is applied. Part 3 provides for a new employer deemed insolvent application. This will allow the Minister to deem an employer insolvent where they cease trading without formally winding up their business. This will be subject to certain checks on employer status and will enable employees of those employers to apply for payment from the scheme. This is intended to address the Glegola
judgment by extending the protections of the Act to those employees.
Part 4 provides for the historical employer deemed insolvent application. This will cover employees who were unable to access their directive entitlements for payment of moneys owed to them during the period from October 1983 up to the commencement of this Part. This historical employer deemed insolvent application will be open for applications for the first two years following the Bill’s commencement.
Part 5 expands the scheme’s coverage to another category of employee. These are employees of sole trader employers who entered into personal insolvency arrangements introduced in 2012 as an alternative to bankruptcy. Where moneys are owed to such employees and they receive only a proportion of those moneys under the relevant insolvency arrangement, they will be able to claim the balance via the insolvency payments scheme. We understand these cases are extremely rare but we believe it is appropriate to make this change.
Part 6 allows for the making of regulations for Revenue to share employer data for the purposes of assessing employer deemed insolvent applications. It also specifies the decisions that are not appealable to the WRC for technical reasons. Finally, it amends the Employment Equality Act 1998 to ensure that Circuit Court awards for gender discrimination are covered under the insolvency payments scheme.
I hope this overview has been of benefit to the committee. Parts 2 to 4, inclusive, of the general scheme will complete the proper transposition of Article 2(1) of the directive. These proposals reflect the recommendations of an interdepartmental working group that examined the issue in 2023. The Department published that working group report and I understand it has been made available to the committee.
We recognise that this general scheme is quite intricate. It will be difficult for employees to understand and we do not expect them to have to do so. In this regard, we have been working closely with our colleagues in the Department of Social Protection on how we can make the expanded scheme operational. Our shared aim is to make the customer journey straightforward for employees who may need to avail of the employer or historical employer deemed insolvent applications.
If the general scheme ultimately proceeds through the legislative process to enactment, we will undertake a communications campaign to ensure that people who may be entitled to claim are made aware of those entitlements and how to access them. We will make that process as easy as possible while also making sure we protect the public purse. My colleagues and I are happy to take any questions the committee may have.
