This proposal for a Directive relates to the approximation of the laws of Member States concerning protection of employees in the event of the insolvency of their employer.
As a result of an examination which the Commission have carried out in the Member States it was found that the rights arising through contracts of employment are inadequately protected in the event of insolvency of the employer. The proposals would oblige Member States, and particularly Ireland from our point of view, to set up institutions to satisfy unfulfilled claims of employees arising before insolvency in respect of remuneration or payments arising from a training relationship (covering at least three months) and also unfulfilled claims in respect of cash or other equivalent benefits in connection with sickness, holidays, or termination of employment or gratuities, bonuses or indemnities and so on (covering at least twelve months).
The Directive proposed would be to the effect that the guarantee institutions to be established in the different Member States should not be financed solely by employee contributions. It is at large on how they should be financed otherwise than that financing should not be limited to employees' contributions. Being at large means that employees' contributions could be one of the methods of partly financing the institution. The institution must be required to meet undisputed or substantiated claims on the employee's verbal request and payment must be made whether the employer has discharged his obligations—if he had any obligations to the institution being called on to make the payment—or not. Applications by employees would be admissible by the institution from the moment of the insolvency or at any time within six months after it had taken place.
The Directive would also oblige Member States to ensure that any failure to pay social security contributions by the employer would not affect the employee's entitlement. It would also require Member States to protect pension rights of employees and former employees, that is pension rights outside the social security system.
The position of Ireland in present law is that preference in the event of insolvency, whether it is individual insolvency or corporate insolvency, is given to certain debts owing to employees. The wages or salary of a clerk or servant for four months, subject to a maximum of £50, and the wages of a labourer or workman for two months, subject to a maximum of £25, get preference in bankruptcy, but that is in the case of an individual employer going bankrupt. There is an analogous provision in the case of winding up of limited companies which as a result of a recent change in the law reflected by the Industrial and Provident Societies Act of this year would include industrial and provident societies, the only difference being that in the case of an insolvent company or society there is no limit on the amount and the period is four months whether the employee is, in very antique language, described as a clerk or servant or a workman or labourer.
With regard to other types of protection which our legislation provides, the labour legislation administered by the Department of Labour does not give protection to workers in bankruptcies although the Unfair Dismissals Act, 1977, and the Minimum Notice and Terms of Employment Act, 1973, provide that certain moneys are treated as preferential payments, and accrued holiday remuneration ranks as a preferential payment in the case of a company but not in the case of a bankruptcy. As regards redundancy lump sums, there is a provision under the Redundancy Payments Acts entitling the employee to apply to the Department of Labour for payment and if the Minister is satisfied that the employee is entitled to a lump sum it must be paid to the employee from the Redundancy Fund.
Article 6 of the Directive would require Ireland and the other Member States to adopt measures to protect the entitlement to social security benefits of employees where insolvent employers fail to pay social security contributions. At the moment in Ireland there is already power to treat unpaid contributions as paid where the failure to pay is not due to any consent, connivance or neglect by the employee. Therefore that would require no change at all in our law.
Article 7 of the Directive relates to the interests of employees under occupational pension schemes. In regard to this a Green Paper entitled " A National Income-Related Pension Scheme " raised for discussion the need to ensure protection of occupational pension rights in the event of closures.
It is proposed that we should report our agreement in principle that employees should have a guarantee that they will receive payments due to them when their employers become insolvent and that merely granting preferential status does not give adequate protection. With regard to the financing of this proposed guarantee scheme there are differing views. The Federated Union of Employers point out that liquidations and receiverships might be delayed and assets exhausted if debts are known to be guaranteed by the State. It is suggested we say, notwithstanding the view that has been expressed, that this is not sufficient reason for failing to provide better protection for employees when their employers become insolvent.
The proposed Directive contemplates unpaid remuneration and other debts arising under a contract of service being paid by State institutions before bankruptcy and winding-up proceedings are concluded. That would involve, as the Sub-Committee see it, that State institutions would be subrogated to the rights of the employees, that is to say, that the State institution, if it shelled out the money to the employees, would step into the shoes of the employees and would in fact follow the liquidation as if it were the employees. At the moment there is a limited provision for that kind of thing in the case of advances to a company in liquidation, which advances give this subrogation where they are provided for the payment of wages and this includes holiday payments. If advances were made for other entitlements priority is not given under that Act and some amendment would be required and it seems desirable to give them that preferential status.
In relation to bankruptcy proceedings the Committee draws the public's attention to the fact that the Bankruptcy Law Committee reported that all these preferential payments should be abolished. But we think that the possible adoption of this Directive should be a factor to be taken into account when that Committee's report is being finally considered. We are also saying that, from general experience in insolvencies, the debts due to an employee on the insolvency of the employer are more likely vested in unpaid debts. The ones that do not get paid off are more likely to relate to holiday pay and payments other than wages and salaries, but generally the employee does get his money in so far as it is due to him in wages or salary. In the rare cases when he does not it is generally in relation to additional benefits such as holiday pay.
Not having any estimate of what is involved in all this, we thought it prudent to abstain from making any recommendation as to how an unknown sum of money should be financed. We do not know the amount involved so we are leaving it open. The Federated Union of Employers are of the opinion that the employee must be required to contribute to any fund established on the grounds that liquidation is very often a risk and a responsibility shared by both employees and management. The Irish Congress of Trade Unions does not accept that and argues that as employees would only be getting back what they had earned, they should not be required to finance the fund.
So far as the Draft Directive goes, as I have already told the Joint Committee, it only proposes that there should not be in our law requirement for sole financing of funds by employers' contributions and with regard to that proposal the Sub-Committee is suggesting that that should be accepted. The Directive would require Member States, as I have already said, to adopt the measures necessary to protect the rights of employees under private occupational pension schemes. The Green Paper says that the majority of occupational pension schemes are in fact funded in advance and the employee has the assurance that funds have been set aside to cover this. In the Sub-Committee's view, which we suggest to the Joint Committee should be accepted, problems can in fact arise notwithstanding that observation in the Green Paper on insolvency cases where an employer, knowing he is in difficulties, postpones topping up the pension scheme to provide for the employees in the event that he goes under.
Then there is the question of employees moving from one employer to another and some provision being made whereby his pension rights under one scheme may be transferred to his new employment. With regard to all that kind of thing we feel that the matter should be settled in the whole context of whatever is going to come out of the consideration of the Green Paper proposals. The pension schemes should be looked at and account taken of the pension decisions that are in fact made. I will conclude by saying that we wish to thank the Irish Congress of Trade Unions and the Federated Union of Employers for their assistance.
