Employee protection in the event of an insolvent employer

SUMMARY OF:

Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer

WHAT IS THE AIM OF THE DIRECTIVE?

It sets out to guarantee payment of employees’ remuneration if their employer is in a state of insolvency.
It requires EU countries to establish guarantee institutions and lays down procedures which apply when cross-border employers become insolvent.

KEY POINTS

This directive protects employees who have a claim for unpaid remuneration against an employer who is in a state of insolvency.

The state of insolvency follows a request made under judicial proceedings involving the partial or total divestment of the employer’s assets and the appointment of a liquidator, where the competent judicial authority has:

decided to open proceedings; or
established that the employer’s undertaking or business has been definitively closed down and that the available assets are insufficient.

EU countries may, by way of exception, exclude claims by certain categories of employee if other forms of guarantee offer them equivalent protection. EU countries may exclude domestic servants employed by a natural person.

However, apart from these exceptions, all employees may benefit from this directive irrespective of the duration of the contract of employment or the employment relationship. It therefore applies to part-time employees, fixed-term contracts and temporary contracts.

Guarantee institutions

EU countries must establish guarantee institutions which guarantee payment of employees’ claims and, where appropriate, severance pay on termination of employment relationships. They may set ceilings on the payments made by the institution, which must be sufficiently high to contribute to the social objective of the directive.

The minimum period of remuneration by the guarantee institution must be calculated on the basis of:

a minimum reference period of 6 months, giving rise to the payment of claims for at least 3 months;
a reference period of at least 18 months, giving rise to the payment of claims for at least eight weeks. In this case, those periods which are most favourable to the employee shall be used for the calculation.

Employers must contribute to the financing of these institutions, unless it is fully covered by the public authorities.

Social security

EU countries may stipulate that the payment guarantee does not apply to:

social security contributions;
contributions under supplementary company or inter-company pension schemes outside the statutory social security schemes.

Moreover, if the employer has not paid the compulsory social security contributions but they have been deducted from the remuneration paid, employees shall enjoy their full benefit entitlement in respect of the insurance institutions.

The interests of employees are protected in respect of old-age benefits, including survivors’ benefits, under supplementary pension schemes. This protection also applies to employees who left the business before the insolvency occurred.

Transnational situations

If the insolvent employer operated in the territories of at least 2 EU countries, the authority responsible for meeting claims is the one in the country where the employee habitually worked.

Similarly, the extent of employees’ rights with respect to guarantee institutions is determined by the national law applying to the guarantee institution.

FROM WHEN DOES THE DIRECTIVE APPLY?

It has applied since 17 November 2008. Directive 2008/94/EC codified and replaced Directive 80/987/EEC and its subsequent amendments. The original Directive 80/987/EEC had to become law in the EU countries by 1983.

MAIN DOCUMENT

Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer (Codified version) (OJ L 283, 28.10.2008, pp. 36-42)