I thank the Chairman and committee for inviting me to this hearing.
I am the senior research manager at Eurofound. I will provide some European and international context for the discussions of the committee on the proposed amendments to the Companies Bill in relation to protection of employee rights in cases of company insolvency. I am not a lawyer but a labour market researcher so I will leave the finer legal details to the other expert witnesses.
Eurofound is a tripartite European Union agency. It is comprised of representatives of EU institutions and bodies, but also member state and social partner representatives from employers and trade unions in each of the 27 member states. Eurofound is based in Dublin. It was established in 1975 in order to assist the development of better social, employment and work-related policies in Europe, and to contribute to the planning and design of better living and working conditions throughout the Union. The organisation employs around 100 full-time staff, including around 40 researchers. Eurofound provides research, information and expertise on working conditions and sustainable work, industrial relations, labour market change and the quality of public services among other subjects.
Of relevance to today’s hearing, Eurofound has developed databases on the employment and working condition impacts of restructuring practices within Europe. These are intended to support the development of policymaking in this area. The European Restructuring Monitor includes online databases. These databases are regularly updated. They detail recent large-scale restructuring events in Europe, as well as providing a database of support instruments and relevant legislation, thus contributing to good practices in restructuring throughout the Union.
The EU has played an active role in establishing a legal framework for better anticipation and the socially responsible management of restructuring for many years. Eurofound’s restructuring monitor can be seen as a complement to the set of EU policies in this area.
Relevant legislation includes the EU collective redundancies directive, the information and communications directive and the transfer of undertakings directive. All of these are designed to ensure that company restructuring, with all of the disruption that these cause for employers but especially for the employees affected, are carried out in ways that are socially responsible with proper notice and consultation with social partner representatives.
This body of EU law includes the directive on the protection of employees in cases of employer insolvency, which is directly relevant for the proposed legislation under consideration today. This EU directive builds on a bedrock of international law in the form of International Labour Organization, ILO, conventions on the protection of worker’s claims in cases of insolvency. As it is an EU directive, it requires transposition into national legislation taking account of differing national legal systems, employment law as well as bankruptcy law. Differences, in particular, in national insolvency law mean that developing a common, harmonised approach acceptable across a wide range of countries, even within the EU, can be very challenging. The EU directive on the protection of employees in cases of employer insolvency establishes a set of core or basic provisions that member states are obliged to follow.
The main provisions of Directive 2008/94/EC are the establishment of a wage guarantee fund at state level - the Social Insurance Fund in the case of Ireland - with funding from general taxation or employer or employee wage contributions; the insolvency situations in which employees can make a claim on the wage guarantee fund; the entitlement of all employees to such a guarantee, including part-timers and temporary workers, and without exclusions based on tenure or length of contract. Very concretely the directive sets limitations on the liability of the wage guarantee fund, notably as regards the periods covered but member states are obliged to guarantee a minimum of between two and three months' pay in the case of non-payment, depending on the reference period post insolvency; and member states are also allowed to cap entitlements. Generally, they do this in terms of a certain weekly or monthly maximum, which is sometimes calibrated in terms of the minimum wage rate or average wage rate in this country. These ceiling limits, however, should be “compatible with the social objective of the Directive”, according to the wording of the directive and so should be revised regularly to reflect changes in the cost of living.
The directive, like many EU directives, allows in practice plenty of room for regulatory divergence across member states. For example, according to an earlier Commission implementation report from 2011, Ireland does not apply the guarantee in cases of examinership nor in the case of winding up partnerships.
Ireland opts for an 18-month reference period for outstanding pay claims, where a number of member states opt for a shorter six-month reference period. This has the effect of limiting the minimum payout to eight weeks of regular pay and benefits in Ireland, where in other countries it is a 12-week minimum guarantee according to the directive provisions.
Perhaps most importantly, especially given the provisions of this Bill, the definition of the term, "pay", is left to the national legislators. There is a diversity in the wage or remuneration elements that are covered by the guarantee, though all should cover unpaid regular, holiday, sick or other leave pay and the directive stipulates that severance pay, "where provided for by national law", should be covered. In practice, some countries exclude severance pay from the guarantee, for example, Greece.
In a summary review of the national legislation carried out in 2021 for the European Restructuring Monitor, there are examples of countries, such as France, where the guarantee covers broader pay elements. The French fiche, prepared by our French national expert, states:
Wage guarantees [in France] cover everything that is owed to the worker on the day of filing for insolvency including indemnification in case of termination of the employment contract, claims from financial employee participation and social plans.
In France, as social plans could comprise collectively-agreed redundancy provisions, this broader coverage of pay elements is reflected in a higher ceiling for individual claims in France, of more than €80,000 in 2019, for claims in cases of employer insolvency.
For comparison, ceilings for individual claims in other member states, such as Finland and Sweden, are in the €18,000 to €20,000 range. In Luxembourg, the guarantee is for six months of pay, which is more than the three-month minimum, but it is capped at minimum wage rates. Thus, an individual claim was limited to just over €13,000 in 2021.
With regard to the other proposed provision in the Bill, that is, the priority of employee claims on the wage guarantee funds over other creditors in the case of insolvency, some countries such as Spain are explicit in their national legislation about the priority of employee claims. Other countries are explicit about the super-priority of employee claims in the cases of employer insolvency.
In the relevant ILO convention, the national law should provide workers with a higher priority than most other claims, notably those of the state and social security system, with the caveat that where a wage guarantee fund is in place, as is now the case throughout the EU, this ranking is reversed and employees "may be given a lower rank of privilege than those of the State and the social security system".
I am sorry for taking up too much of the committee's time, but I tried to be a little bit clear and I am happy to answer any questions.
