61995C0094

I - Introduction

1 In the present cases, the Court of Justice has been asked for a ruling pursuant to Article 177 of the EC Treaty on three questions submitted by the Pretura Circondariale (District Magistrate's Court), Bassano del Grappa, concerning the interpretation and validity of provisions of Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer. (1)

2 The facts which gave rise to the reference to the Court are new and are as follows. A Member State which failed to transpose a directive into national law (a failure confirmed by judgment of the Court of Justice) and is consequently under an obligation to make reparation to those who have suffered loss or damage as a result of its failure to transpose the directive (on conditions likewise prescribed by the Court) has attempted, in the measures it takes to comply with the directive, to establish directly the scope and level of the reparation.

3 The national court, called upon to rule on claims for compensation based on the national measures, has asked the Court for the necessary interpretation of the directive to enable it in turn to decide whether the national measures, in particular the definition of the reparation, comply with Community law.

4 The answer given to the national court will thus constitute an extension and addition to the Court's case-law on the liability of Member States for damage caused by breaches of Community law, a subject first addressed in the judgment of 19 November 1991 in Francovich and Others (`Francovich I'). (2)

II - Legal background and facts of the case

Relevant Community provisions

5 Article 1 of Directive 80/987/EEC (`the Directive'), in Section I (Scope and definitions), provides that:

`1. This Directive shall apply to employees' claims arising from contracts of employment or employment relationships and existing against employers who are in a state of insolvency within the meaning of Article 2(1).'

6 Article 2, in the same section of the Directive, states that:

`1. For the purposes of this Directive, an employer shall be deemed to be in a state of insolvency:

(a) where a request has been made for the opening of proceedings involving the employer's assets, as provided for under the laws, regulations and administrative provisions of the Member State concerned, to satisfy collectively the claims of creditors and which make it possible to take into consideration the claims referred to in Article 1(1), and

(b) where the authority which is competent pursuant to the said laws, regulations and administrative provisions has:

- either decided to open the proceedings,

- or established that the employer's undertaking or business has been definitively closed down and that the available assets are insufficient to warrant the opening of the proceedings.

2. This Directive is without prejudice to national law as regards the definition of the terms "employee", "employer", "pay", "right conferring immediate entitlement" and "right conferring prospective entitlement".'

7 Article 3, in Section II (Provisions concerning guarantee institutions), provides that:

`1. Member States shall take the measures necessary to ensure that guarantee institutions guarantee, subject to Article 4, payment of employees' outstanding claims resulting from contracts of employment or employment relationships and relating to pay for the period prior to a given date.

2. At the choice of the Member States, the date referred to in paragraph 1 shall be:

- either that of the onset of the employer's insolvency;

- or that of the notice of dismissal issued to the employee concerned on account of the employer's insolvency;

- or that of the onset of the employer's insolvency or that on which the contract of employment or the employment relationship with the employee concerned was discontinued on account of the employer's insolvency.'

8 Article 4, in the same section, reads:

`1. Member States shall have the option to limit the liability of guarantee institutions, referred to in Article 3.

2. When Member States exercise the option referred to in paragraph 1, they shall:

- in the case referred to in Article 3(2), first indent, ensure the payment of outstanding claims relating to pay for the last three months of the contract of employment or employment relationship occurring within a period of six months preceding the date of the onset of the employer's insolvency;

- in the case referred to in Article 3(2), second indent, ensure the payment of outstanding claims relating to pay for the last three months of the contract of employment or employment relationship preceding the date of the notice of dismissal issued to the employee on account of the employer's insolvency;

- in the case referred to in Article 3(2), third indent, ensure the payment of outstanding claims relating to pay for the last 18 months of the contract of employment or employment relationship preceding the date of the onset of the employer's insolvency or the date on which the contract of employment or the employment relationship with the employee was discontinued on account of the employer's insolvency. In this case, Member States may limit the liability to make payment to pay corresponding to a period of eight weeks or to several shorter periods totalling eight weeks.

3. However, in order to avoid the payment of sums going beyond the social objective of this Directive, Member States may set a ceiling to the liability for employees' outstanding claims.

When Member States exercise this option, they shall inform the Commission of the methods used to set the ceiling.'

9 Under Article 9 of the Directive, Member States also have the option to apply or introduce provisions which are more favourable to employees.

10 Article 10 reads:

`This Directive shall not affect the option of Member States:

(a) to take the measures necessary to avoid abuses;

(b) to refuse or reduce the liability referred to in Article 3 or the guarantee obligation referred to in Article 7 if it appears that fulfilment of the obligation is unjustifiable because of the existence of special links between the employee and the employer and of common interests resulting in collusion between them.'

11 Lastly, Article 11 provides that Member States are to bring into force the provisions necessary to comply with the Directive within 36 months of its notification.

Facts

12 The Italian Republic failed to adopt the necessary measures to transpose the Directive into Italian law within the period Member States were allowed under Article 11 of the Directive, which expired on 23 October 1983. The Commission brought an action before the Court which subsequently confirmed, in a judgment delivered on 2 February 1989, that Italy had failed to fulfil its obligations. (3)

13 On 20 April 1989, while the Directive had not yet been transposed into Italian law, Danila Bonifaci and 33 other employees of Gaia Confezioni Srl, which was declared insolvent on 5 April 1985, brought proceedings against the Italian Republic before the Pretura Circondariale, Bassano del Grappa. It was stated during the proceedings that when the employment relationships were discontinued the plaintiffs were owed more than LIT 253 000 000, which was proved as a debt in the insolvency of the undertaking, that five years after the insolvency they had been paid nothing and that the receiver had told them that even a partial distribution in their favour was highly unlikely. Consequently, they claimed that, in view of its obligation to implement the Directive, the Italian Republic should be ordered to pay them the amounts due as arrears of wages, at least for the last three months of their employment, or in the alternative to pay compensation.

14 To enable it to resolve the dispute, the national court made an order on 9 July 1989 referring to the Court for a preliminary ruling a number of questions which the Court answered in the judgment in Francovich I mentioned above. (4) The operative part of that judgment reads as follows:

`1. The provisions of Council Directive 80/987/EEC ... which determine the rights of employees must be interpreted as meaning that the persons concerned cannot enforce those rights against the State before the national courts where no implementing measures are adopted within the prescribed period;

2. A Member State is required to make good loss and damage caused to individuals by failure to transpose Directive 80/987/EEC.'

15 After that judgment was delivered, Decreto Legislativo (Legislative Decree) No 80 of 27 January 1992 (5) was issued, transposing the Directive into Italian law.

Article 1(1) of that Decreto Legislativo provides that where proceedings have been brought against the employer for insolvency, composition with creditors, compulsory administrative liquidation or the extraordinary administration procedure provided for in Decreto-Legge (Decree-Law) No 26 of 30 January 1979, his employees or their legal successors may obtain on application to the Guarantee Fund established and operating pursuant to Law No 297 of 29 May 1982 payment of the outstanding wages referred to in Article 2.

16 Article 2 of the Decreto Legislativo prescribes, in paragraphs 1 to 6, the method for determining the amount of the sums to be paid to those entitled thereafter by the national guarantee institution (under the basic, or `a regime', system in the terms of the order for reference) and in paragraph 7 the methods for determining the compensation to be paid to those who have suffered loss or damage as a result of the failure to transpose the Directive, by reference to the `a regime' system.

17 Article 2(1) of the Decreto Legislativo provides that:

`The payment made by the Guarantee Fund within the meaning of Article 1 relates to wage claims, other than those relating to severance pay, appertaining to the last three months of the employment relationship falling within the 12 months preceding: (a) the date of the measure opening one of the procedures listed in Article 1(1), (b) ..., (c)...'. (6)

18 Article 2(2) provides that:

`Payment effected by the (Guarantee) Fund pursuant to the first paragraph may not exceed a sum equal to three times the maximum amount of the special supplementary monthly pay net of social security and welfare deductions.'

19 Lastly, Article 2(7) provides that:

`For the purposes of determining any compensation to be paid to employees under the procedures referred to in Article 1(1) by way of reparation of the loss and damage resulting from the failure to transpose Directive 80/987/EEC within the prescribed period, the relevant time-limits, measures and procedures shall be those referred to in Article 2(1), (2) and (4). The action for reparation must be brought within a period of one year to run from the date of entry into force of this Decree.'

20 After the publication of the Decreto Legislativo, Danila Bonifaci and others (plaintiffs in the main proceedings in Case C-94/95) brought an action before the Pretura Circondariale, Bassano del Grappa, pursuant to Article 2(7) of that Decree, seeking compensation from the Istituto Nazionale della Previdenza Sociale (`the INPS'). (7) A similar action was also brought, before the same court, by Wanda Berto and 136 other employees of various undertakings that had been declared insolvent after 23 October 1983 and before Decreto Legislativo No 80/1992 entered into force (plaintiffs in the main proceedings in Case C-95/95). It appears from the observations of the plaintiffs in the main proceedings that in many cases their applications to the INPS for compensation had been rejected altogether because none of the periods of work fell within the 12 months preceding the judicial declaration of insolvency. In other cases, the applications had been partly accepted, inasmuch as the compensation awarded to the applicants for work within the 12 month period had either been limited to three months' remuneration in accordance with Article 2(1) of Decreto Legislativo No 80/1992 or had been reduced because of the ceiling set in Article 2(2) of that Decree.

Questions submitted by the national court

21 In the light of that factual and legal background, the national court before which the cases were brought had serious doubts as to whether the rules contained in the Decreto Legislativo it was required to apply were consistent with the provisions of the Directive and the principles stated in the Court's judgment in Francovich I, which it also had some difficulty in interpreting.

22 In particular, it points out in the order for reference that the Italian legislature, in exercising the option offered under Article 4(2) of the Directive, limited the liability of the guarantee institution with respect not only to the future (as it was entitled to do) but also to the past. Thus it set a `retroactive' limit on the compensation payable in respect of the failure to transpose the Directive, indeed doubly so, in that the compensation pursuant to Article 2(1) and (7) of the Decreto Legislativo, taken together, is based on claims which (a) appertain to the last three months of the employment relationship and (b) fall within the 12 months preceding the date of the measure opening the procedure for satisfying collectively the claims of creditors (in this case the date of the judicial declaration of insolvency). That limit may, however, make it impossible for employees to obtain compensation since, given the delays in hearing insolvency cases in Italy, the judicial declaration of insolvency may well be issued more than a year after the creditors have lodged their petition. Thus, because of the delay in the administration of justice, that is to say for reasons beyond the employees' control, it is likely that, as in the present case, they will not have worked for the employer concerned during the crucial reference period of 12 months preceding the onset of the insolvency. The first question submitted to the Court is therefore whether Article 4(2) of the Directive means that the national legislature may limit the compensation payable even in a case such as the one I have just described.

23 The national court adds that such an interpretation also entails disparity of treatment between employees in the same situation (that is to say employees with claims outstanding against their employers) because whether or not they benefit from the guarantee provided under the Directive depends on fortuitous factors, namely whether the judicial insolvency declaration was issued in time. This prompted it to ask in the second question whether, in the event of the first question being answered in the affirmative, Article 4(2) of the Directive was valid from the point of view of the principles of equal treatment and non-discrimination.

24 Lastly, the national court points out that on the basis of Article 4(3) of the Directive the Italian legislature first set a ceiling on the guarantee afforded to employees thereafter (Article 2(2) of the Decreto Legislativo) and then imposed a similar limit on the liability arising from failure to transpose the Directive into Italian law within the prescribed period (Article 2(7) of the Decree, which refers to Article 2(2)). It adds that the provisions of Italian law governing non-contractual liability (Articles 2043 et seq. of the Civil Code) are based on the principle of full compensation for damage and do not set a ceiling on the amount of compensation. The Court had however already stated, in paragraph 43 of its judgment in Francovich I, that `the substantive and procedural conditions for reparation of loss and damage (8) laid down by the national law of the Member States must not be less favourable than those relating to similar domestic claims'. In the light of these considerations, the national court asked a third question which raised the following problem. What are the `similar domestic claims' the conditions governing which are to serve as a yardstick for the purpose of determining the compensation in the case at issue? Are they the guarantee afforded to employees thereafter under the Decreto Legislativo or compensation under the general law on non-contractual liability in the event of failure to transpose the Directive?

25 The questions submitted by the national court read as follows:

`1. Must Article 4(2) of Council Directive 80/987/EEC be interpreted as meaning that the Member States may opt to limit the liability of the guarantee institutions to pay remuneration to a particular period of time - in this case, 12 months - even in cases where the period in time in question was exceeded not because of inertia amounting to fault on the part of the employee concerned and, in particular, where the employee claims compensation for damage on account of the non-implementation or the belated implementation of the Directive itself?

2. In the event that question 1 is answered in the affirmative, must Article 4(2) of the Directive be considered valid in the light of the principle of equal treatment and non-discrimination?

3. Must paragraph 43 of the judgment of the Court of Justice of 19 November 1991 in Joined Cases C-6/90 and C-9/90 Francovich and Others v Italian Republic be interpreted as meaning that the substantive and procedural conditions laid down by the national law of the Member States concerning claims for reparation of damage on account of failure to implement a Community directive must be the same as (or in any event not more unfavourable than) those laid down by the national legislator in belatedly implementing the Directive itself?'

III - Admissibility

First question

26 The INPS contends essentially that the first question is inadmissible because the answer sought is irrelevant for the purpose of resolving the dispute, inasmuch as Article 4(2) of the Directive is in its opinion concerned with defining the guarantee afforded to employees from the time when the Directive is transposed into national law and not with determining the compensation payable in the event of failure to implement the Directive, as in the present case.

It also points out in the same observations that the Directive does not make payment of the guarantee conditional on the conduct of the employees, as the Pretore appears to believe.

In the light of these considerations, the INPS concludes that the Court has no jurisdiction to answer the first question.

27 It must be noted, in this connection, that the Court has consistently held that, in the context of the cooperation between the Court of Justice and the national courts provided for by Article 177 of the Treaty, it is solely for the national courts before which actions are brought, and which must bear the responsibility for the subsequent judicial decision, to determine in the light of the particular facts of each case both the need for a preliminary ruling in order to enable them to deliver judgment and the relevance of the questions which they submit to the Court. (9) Consequently, where the questions submitted by the national court concern the interpretation of Community law, the Court of Justice is, in principle, bound to give a ruling. (10) A request from a national court may only be refused if it is clearly inadmissible, for example `where it is quite obvious that the interpretation of Community law or examination of the validity of a Community rule sought by that court bears no relation to the actual facts of the main action or its purpose'. (11)

28 This is not so in the present case. The national court, having to determine whether the national legislature was acting lawfully in the light of Article 4(2) of the Directive when it imposed certain limits on the compensation payable, found it necessary to ask the Court of Justice for an interpretation of that provision - an interpretation which is, moreover, essential to its consideration of the second question, which concerns the validity of the provision. Consequently, the answer sought is clearly relevant for the purposes of the national court and the Court of Justice has jurisdiction to give it.

29 The INPS's observations set out above are concerned with the substance of the case, inasmuch as they take for granted the very subject of the national court's reference, namely the interpretation of Article 4(2) of the Directive. Accordingly, while they may be taken into account in examining the substance, they have no bearing on the jurisdiction of the Court and the admissibility of the questions submitted to it and must therefore be rejected. (12)

Second question

30 The Commission expresses doubts as to the usefulness of the second question, as it considers the legal and factual background provided by the national court to be inadequate. That objection must be rejected, as the details provided by that court are sufficient for the purpose of answering the question.

Third question

31 The INPS contends that the third question is concerned with the compatibility of Article 2(7) of the Decreto Legislativo with the judgment in Francovich I and the Court has no jurisdiction to answer it because its allotted task is to interpret Community law, not to review the national measures taken to implement that law, which is a matter for the national courts alone.

That plea of lack of jurisdiction must be rejected. It should be noted in this connection that the Court has consistently held that although it has no jurisdiction under Article 177 of the Treaty to rule on the compatibility of a national measure with Community law, it does have jurisdiction to provide the national court with interpretations of all relevant points of Community law to enable it to assess that compatibility for the purpose of deciding the case before it. (13)

32 In the present case, the national court has not asked the Court directly to examine the compatibility of the national measure with Community law, as the INPS wrongly supposes, but has asked for interpretations of all the points of Community law it considers necessary to enable it to examine that question itself. Consequently, the Court has jurisdiction to rule on the question submitted to it.

33 Moreover, the INPS's further argument, that the Italian Constitutional Court has already ruled, or is about to rule, on the compatibility of Article 2(7) of the Decreto Legislativo, or the enabling Law, with the Italian constitution or with Community law, is irrelevant for present purposes.

34 Lastly, the INPS contends that, in so far as the answer to the third question presupposes an interpretation of the provisions of Directive 80/987, which are not directly applicable, the Court has no jurisdiction to rule on the matter, since its jurisdiction under the second paragraph of Article 177 of the Treaty is limited to the interpretation of Community provisions that are directly applicable.

That objection must in any case be rejected, since, as has been held, `the Court of Justice has jurisdiction to give preliminary rulings concerning the interpretation of acts of the institutions of the Community, regardless of whether they are directly applicable'. (14)

IV - Substance

35 It is clear from the points I have quoted from the grounds of the order for reference that the first question raises two issues. The first is whether, in principle, Member States may also apply the limits referred to in Article 4(2) of the Directive to compensation for damage arising from failure to implement the Directive within the prescribed period. The second is whether compensation is precluded for employees who, not because of inertia amounting to fault on their part, had no employment relationship during the reference period laid down by that provision.

36 It is also clear from the statement of reasons in the order for reference that the third question likewise raises two issues. The first is whether, in view of the circumstances described above, the Member State may set a ceiling on the compensation decided, pursuant to Article 4(3) of the Directive. The second, more general, issue is to determine from the point of view of Community law the relationship between the compensation laid down in the belated transposition of the Directive and the compensation due for failure to transpose the Directive within the prescribed period.

37 These questions arose from the attempt by the Member State to comply with the Directive, albeit belatedly, and to remedy the consequences of its failure to transpose it into its national law within the prescribed period. The first step must therefore be to examine the prerequisites for correct application of the Directive in the event of belated transposition. The questions submitted to the Court will then be considered and I propose, on logical grounds, to take them in the following order: first, the second part of the third question, then the first and second questions and, lastly, the first part of the third question.

Conditions for correct belated implementation

38 The combined effect of Article 5, which imposes an obligation of cooperation, and the third paragraph of Article 189 of the Treaty is that Member States to which a directive is addressed must adopt within the prescribed period all the necessary measures to ensure that the result sought by the directive is fully achieved.

39 The State to which the directive is addressed may fail to fulfil that obligation either by failing to adopt any measures to implement the directive within the prescribed period, or by adopting, within the prescribed period, measures which are, however, inadequate, or by adopting measures - adequate or inadequate - belatedly.

40 In all three cases, the breach causes a hiatus and an anomaly in the Community legal order after the period allowed for implementation has elapsed, whether or not it is confirmed by a judgment of the Court of Justice, which is of a purely declaratory nature. This `unhealthy' situation, for as long as it lasts, is the complete antithesis of the fundamental requirement that the rules of Community law must apply generally, uniformly and at the same time over the whole territory of the Community (15) and must be remedied.

41 Clearly a State that is in breach must adopt as soon as possible, albeit belatedly, all the necessary measures to implement the directive thereafter. However, a question arises as to its obligations, with regard to Community law and to individuals with rights under that law, (16) in respect of the period during which the breach persists and, in particular, the period during which the directive is not (or not correctly) transposed.

42 It must be pointed out first that, as the Court has stated, `the aim of the Treaty is to achieve the practical elimination of infringements and the consequences thereof, past and future'. (17) Moreover, the Court has also held that Member States' obligations under Article 5 of the Treaty include `the obligation to nullify the unlawful consequences of a breach of Community law'. (18)

43 Since the Treaty contains no provision expressly and specifically governing the consequences of breaches of Community law by Member States, the Court has ruled that it is for the Court itself, in pursuance of the task conferred on it by Article 164 of the Treaty of ensuring that in the interpretation and application of the Treaty the law is observed, to rule on such a question in accordance with generally accepted methods of interpretation, in particular by reference to the fundamental principles of the Community legal system and general principles common to the legal systems of the Member States. (19)

44 Thus, as a means of defending individuals who have suffered loss and damage as a result of a State's inaction, the case-law has laid down, first, the principle that wherever the provisions of a directive appear to be unconditional and sufficiently precise, those provisions may, in the absence of implementing measures, be relied upon as against any national provision which is incompatible with the directive or in so far as the provisions define rights which individuals are able to assert against the State. (20) As the Court has stated, `that conclusion is based on the fact that directives are binding on the Member States and on the principle that a Member State which has not taken measures to implement the directive within the prescribed period may not, as against individuals, plead its own failure to fulfil such obligations'. (21)

45 Secondly, the Court has then derived from Article 5 of the Treaty, in conjunction with the principles of the full effectiveness of Community rules and the effective protection of the rights which they confer, the principle of State liability for loss and damage caused to individuals as a result of breaches of Community law for which the State can be held responsible, a principle inherent in the system of the Treaty. (22)

46 However, although State liability is thus required by Community law, the conditions under which that liability gives rise to a right to reparation for individuals depend on the nature of the breach of Community law giving rise to the loss and damage, (23) that is to say according to each type of situation. (24)

47 The case-law draws a distinction between such situations depending on whether the State has a wide discretion when it acts in a field governed by Community law or in a field in which it has a wide discretion to make legislative choices, or whether on the contrary it has considerably reduced, or even no, discretion. (25)

48 In the first case, individuals are entitled to reparation if (a) the rule of Community law infringed is intended to confer rights on individuals, (b) the breach is sufficiently serious, (26) and (c) there is a direct causal link between the breach and the damage sustained by the individuals. (27)

49 In the second case, which occurs when, as in Francovich I, the directive prescribes a result but the State fails to adopt any measure to transpose the directive into national law, individuals are entitled to reparation if (a) the result prescribed by the directive entails the grant of rights to individuals, (b) the content of those rights can be identified on the basis of the provisions of the directive, and (c) there is a causal link between the breach of the State's obligation and the loss and damage suffered by the injured parties. (28)

50 The difference in wording in the two cases does not reflect a difference in substance. In fact, as the Court stated in its judgment in Dillenkofer (footnote 22):

- `In substance, the conditions laid down in that group of judgments are the same, since the condition that there should be a sufficiently serious breach, although not expressly mentioned in Francovich, was nevertheless evident from the circumstances of that case' (paragraph 23).

- That is because `where, as in Francovich, a Member State fails ... to take any of the measures necessary to achieve the result prescribed by a directive within the period it lays down, that Member State manifestly and gravely disregards the limits on its discretion' (paragraph 26).

- Such failure `constitutes per se a serious breach of Community law' (paragraph 29) which gives rise to a right to reparation on the conditions described above and `no other conditions need be taken into consideration' (paragraph 27).

51 The aforementioned conditions are necessary and sufficient to found a right in individuals to obtain redress, `although this does not mean that the State cannot incur liability under less strict conditions on the basis of national law'. (29) The State must make reparation for the consequences of the loss and damage caused in accordance with the domestic rules on liability, but subject to the right to reparation which flows directly from Community law where the conditions referred to above are satisfied. (30)

52 As regards the conditions for reparation of loss and damage laid down by national law, the Court has repeatedly held that they `must not be less favourable than those relating to similar domestic claims and must not be such as in practice to make it impossible or excessively difficult to obtain reparation'. (31)

53 Although the Court has confirmed that these rights are conferred on individuals in cases of inaction on the part of the State, the problem I have already mentioned (point 41) remains and it is consequently raised again here. Does the fact that, in cases where a directive is not transposed, or is transposed belatedly, into national law, Community law confers on the injured parties a right to rely on the provisions of the directive that are directly applicable and a right to reparation from the State mean that the State is exonerated from any further obligation for the period during which the breach persists?

54 The answer must clearly be in the negative, for many reasons including the following:

- First, in particular, the possibility of relying on the directly applicable provisions of directives is, by its nature, limited because such provisions are few. (32)

- Second, as I shall explain, during the period in which the Directive was not correctly transposed into national law, the persons concerned were unaware of the rights conferred on them by the Directive itself and consequently could not exercise them.

- Third, it is excessively difficult for individuals to avail themselves of the possibility described above since it requires a knowledge of the case-law of the Court in which it was established, a - necessarily imperfect - knowledge of the Directive which confers the rights and, lastly, an action before the courts to assert them, with the result that very few of those entitled enjoy the advantages conferred by the Directive and the practical result it seeks to achieve is frustrated.

55 Consequently, the above possibility recognized by the case-law of the Court is a `substitute' (33) for the correct implementation of the Directive. On the other hand, correct implementation in the event of belated transposition of the Directive should, in my view, as I shall explain, be retroactive, full and express.

Retroactive implementation

56 I hold retroactive implementation of the Directive to be a requirement of the Community legal order. In fact, as a State is required under Article 5 and the third paragraph of Article 189 of the Treaty to take all appropriate measures to implement the Directive from the date specified in the Directive (34) and as it is a requirement of the Community legal order that Community law must be applied uniformly and at the same time, (35) it follows that, no matter when the State transposes the Directive into its domestic legal system, the transposition must apply from the date prescribed in the Directive. Thus, when the Directive provides for individuals to enjoy a certain advantage, that advantage must be accorded with retroactive effect.

57 This view is confirmed in the case-law of the Court. Certain judgments interpreting Directive 79/7 (36) and in particular Article 4, which lays down the principle of equal treatment of men and women, and Article 8, which requires all the provisions necessary to comply with the Directive to be adopted by a specified date, namely 23 December 1984, are significant. In a preliminary ruling on the question whether it is compatible with that Article for certain belated national implementing measures to be given retroactive effect, (37) the Court stated in its judgment in Dik: (38)

`As the Commission has rightly stressed, if national implementing measures are adopted belatedly, namely after the expiry of the period in question, the simultaneous entry into force of Directive 79/7 in all Member States is ensured by giving such measures effect retroactively as from 23 December 1984.'

58 However, while such retroactive effect meets a requirement of the Community legal order, the validity of that effect is subject to certain conditions. In its judgment in Dik, the Court stated in this connection in answer to the question submitted by the national court:

`It must nevertheless be made clear that such belatedly adopted implementing measures must fully respect the rights which Article 4(1) has conferred on individuals in a Member State as from the expiry of the period allowed to the Member States for complying with it ...' (paragraph 14). (39)

`The answer to the ... question must therefore be that Article 8 of Directive 79/7 must be interpreted as meaning that a Member State which adopts implementing measures after the expiry of the period prescribed by the Directive may fix the date of their entry into force retroactively to the date of expiry of that period, provided that the rights which Article 4(1) of the Directive confers on individuals in the Member States as from the expiry of the said period are respected' (paragraph 15).

59 It is clear from the last two points that an essential prerequisite for the validity of retroactive effect is the validity of the measures which are intended to be retroactive. In other words, the retroactive effect of belated implementing measures is valid in so far as and provided that the measures themselves comply with the Directive. It follows, as the points made above indirectly but clearly imply, that a national court ruling on the validity of retroactive implementing measures must decline to apply a retroactive measure that does not comply with the Directive. (40)

Full implementation

60 Secondly, the retroactive implementation must be full, in the sense that it must ensure that those who are deprived of the rights conferred by the Directive are placed in the position, in fact and in law, that they would have occupied had the Directive been transposed into the domestic legal order within the prescribed period.

61 In fact, as the Court emphasized in paragraph 15 of the judgment in Dik, (41) cited above, the retroactive effect of belated implementing measures is valid provided that `the rights which ... the Directive confers ... as from the expiry of the (prescribed) period' are fully respected.

62 The rights at issue in Dik, as in Cotter and McDermott and Roks, (42) were rights denied to women as a result of the delay in adopting implementing measures but enjoyed by men during the period in which Directive 79/7 was not implemented. In those cases therefore, in view of the direct effect of Article 4 of Directive 79/7, (43) the setting aside of the implementing measure that was incompatible with the Directive meant that women were automatically entitled to have the same rules applied to them as men, since `where the directive has not been implemented, those rules remain the only valid point of reference'. (44)

63 However, in a case where the Directive does indeed confer a certain advantage but its provisions do not have direct effect and cannot therefore be relied upon during the period when it has not been implemented, (45) the only right secured to those entitled during that period is the right to reparation based on Community law, to which I have already referred. (46)

According to the case-law of the Court, such reparation must be appropriate in that it must allow full compensation to be made for the loss and damage sustained by the claimants as a result of the failure to comply. (47) It must therefore comprise, first, as its `capital' component, any advantage whose content can be determined sufficiently precisely on the basis of the provisions of the Directive alone (48) and, second, any consequential claims such as interest, (49) loss of profit, (50) or other more specific forms of compensation that may be available under domestic law (51) for the purpose of making good subsequent loss and damage suffered by the persons concerned in the period during which the State failed to act.

64 In determining the advantage provided for by the Directive and according it retroactive effect in its belated implementing measures, the State is essentially granting those entitled only the `capital' component of the compensation to which they are entitled for the period during which it had failed to transpose the Directive. But the right to reparation is safeguarded in Community law to its full extent. Therefore, and this is the first conclusion to be drawn from the foregoing considerations, if retroactive implementation is to be `full' in the sense described, it must include both the grant, with retroactive effect, of the advantage provided for in the Directive and compensation to those entitled for any additional loss and damage they may have suffered as a result of being denied that advantage at the proper time.

65 The second conclusion, with respect to the said safeguarding of the right to reparation, is that the advantage now conferred with retroactive effect must not be less than the `capital' component of the compensation payable in the event of failure to transpose the Directive (that is to say, less than the advantage as it would have been determined had retroactive implementation not occurred).

Express implementation

66 Thirdly, the full and retroactive implementation I have just described must be express, that is to say it must be effected by means of clear and express provisions, without loopholes, which will have the same legal force as the implementing provisions covering the future.

67 In this connection, it should be remembered that the Court of Justice has consistently held that:

`the provisions of a directive must be implemented with unquestionable binding force and with the specificity, precision and clarity required in order to satisfy the requirement of legal certainty', (52)

`... so that, where directives are intended to create rights for individuals, they can ascertain the full extent of those rights and, where necessary, rely on them before the national courts.

...

So long as a directive has not been properly transposed into national law, individuals are unable to ascertain the full extent of their rights. That state of uncertainty for individuals subsists even after the Court has delivered a judgment finding that the Member State in question has not fulfilled its obligations under the directive and even if the Court has held that a particular provision or provisions of the directive are sufficiently precise and unconditional to be relied upon before a national court.

Only the proper transposition of the directive will bring that state of uncertainty to an end and it is only upon that transposition that the legal certainty which must exist if individuals are to be required to assert their rights is created.' (53)

68 For the same reason, those principles must also apply to retroactive implementation of the Directive. It is in my view obvious that, if the Member State does not make the full and retroactive implementation of the Directive, as described above, known to all its citizens by means of clear and express measures, those concerned cannot know that the Directive has conferred rights on them, nor a fortiori the precise extent of those rights, so as to be able to assert them effectively before the national authorities, either by means of an action for compensation or in some other way.

69 The foregoing observations relate to the substantive conditions for correct retroactive implementation. The procedural conditions for compensating those entitled are governed by national law but they must not be less favourable than those relating to similar domestic claims and must not be such as to make it impossible or excessively difficult to obtain reparation. There is nothing in the order for reference that calls for a more detailed examination of the question. I shall therefore confine myself to that general observation, but will develop my views on the subject in my Opinion of today's date in the related case, Case C-261/95 Palmisani.

Review of retroactive implementation

70 There remains the problem of review of the retroactive measures implementing the Directive and, in particular, the problem of the consequences of failure to observe the principles mentioned above. If it is accepted that those principles, which apply to the retroactive implementation of the Directive, are principles of Community law, then the consequences of failure to observe those principles are likewise a problem of Community law, on which the Court of Justice has jurisdiction to give a ruling. Subject to that reservation, it is for the national courts to review the validity of national implementing measures.

71 Those consequences, most of which have already been set out and examined in the judgment in Dik, depend on the nature of the principle that has been breached. Thus, if the State has adopted measures to implement the Directive without expressly stating that they have retroactive effect, the national court must in principle interpret them in the light of the principles of Community law described above. (54) So in cases where the national court, making use of the margin for interpretation available to it under national law, concludes that retroactive effect is precluded, those with claims that fall within the period concerned (that is to say, between the expiry of the period allowed for implementation and the adoption of transposition measures) must be recognized as having a right to reparation arising from the State's failure to adopt any implementing measures, provided that they meet the conditions laid down in the judgment in Francovich I. (55)

72 In cases where the State defines the advantage conferred by the Directive (using its discretion, where necessary, to choose among a number of options, etc.) and adopts a measure expressly giving retroactive effect to that advantage, it must be considered whether the other two conditions are met.

73 It must first be ascertained, on the basis of the foregoing observations, whether the retroactive effect is valid. To that end, it must be considered whether the measure adopted is valid in itself, that is to say whether or not it complies with the provisions of the Directive.

If it does, the retroactive effect is in principle valid, on condition that the advantage expressly conferred is not, in any event, inferior to the advantage that can be determined on the basis of the provisions of the Directive alone. (56)

If it does not, inasmuch as it does not comply with the Directive, the measure adopted cannot apply either to the future or to the past. Consequently, there can be no retroactive effect.

74 Lastly, the State may choose, as a method of belated implementation, to determine the compensation for the period in which the Directive was not transposed. In that case, it is important to determine the `capital' component of the compensation, in relation to the advantage the Directive seeks to confer, since any consequent claims are dependent on that main claim. (57) To be more precise, in cases where the determination of the `capital' component of the compensation is accompanied by a decision to give retroactive effect to the advantage expressly determined, the considerations contained in the preceding paragraph will apply mutatis mutandis.

It follows that the compensation established in the implementing measures cannot be lower than the compensation due in the event of failure to transpose the Directive.

75 I come now to the measures at issue, which transposed Directive 80/987 into Italian law and determined the compensation for the period during which it was not transposed.

76 In those measures, as already stated, (58) the Italian legislature first established the guarantee to be accorded to employees thereafter on the basis of the Directive (Article 2, paragraphs 1 to 6, of the Decreto Legislativo), thereby complying with the Directive thereafter. It then proceeded, by reference to those provisions, to determine also the compensation to be paid for the period during which the Directive was not transposed (Article 2, paragraph 7), thereby complying with the Directive retroactively. In fact, in so far as this second provision refers for the purpose of determining the compensation to the provisions determining the guarantee to be accorded thereafter, it essentially accords the same guarantee, albeit retroactively, to those whose entitlement related to the period of the infringement.

77 It follows from the foregoing considerations that, if this method of determining the compensation is to be valid, the guarantee expressly determined and the compensation based on that guarantee must not fall short of the `capital' component of the compensation and the full amount of the compensation, respectively, that may be determined on the basis of the provisions of the Directive alone. It is therefore necessary, first, to ascertain what guarantee the Directive affords to employees and what compensation they can claim if the Directive is not transposed within the prescribed period.

Directive 80/987

78 The object of the Directive at issue, whose main points I will recapitulate, (59) is to approximate the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer and for that purpose it lays down in particular specific guarantees for the payment of employees' outstanding claims. (60)

To that end, it guarantees payment of employees' outstanding claims relating to pay prior to a given date (Article 3(1)).

That date must be one of three listed in Article 3(2), at the choice of the Member States.

In relation to the date they choose, the Member States have the option to limit the liability of guarantee institutions by establishing that payment of claims is ensured only for a certain time within a reference period prior to the date chosen. The minimum times and reference periods for each of the dates listed in Article 3(2) are laid down in Article 4(2).

Moreover, Article 4(3) provides that Member States may also set a ceiling to the guarantee of payment, in order to avoid the payment of sums going beyond the social objective of the Directive.

79 In normal circumstances, (61) the Member State may therefore determine the guarantee by applying Article 3(2) in conjunction with Article 4(2). To assess whether those Articles can also be applied with retroactive effect, it is necessary first to address certain problems of interpretation they pose.

Meaning of Article 4(2)

80 Article 4(2) is not self-contained but depends directly on Article 3(2) and the two provisions will therefore be considered together.

The key point for the purposes of both provisions is the date of the onset of the employer's insolvency. The reason for this is that that date is either the starting-point for calculating a reference period (cf. Article 3(2), first indent, and Article 4(2), first indent) (62) or the date from which a reference period may begin (cf. Article 3(2), second indent, and Article 4(2), second indent). (63)

81 It appears from the order for reference that, according to the national measures transposing the Directive as interpreted by the Italian courts, the date of the declaration of insolvency is regarded as the date of the onset of the employer's insolvency and also the starting-point for calculating the guarantee to be accorded within the meaning of the first indent of Article 4(2) of the Directive.

82 The parties in the main proceedings claim in their observations that, in taking that view, the Italian legislature was in breach of Articles 2, 3 and 4 of the Directive, under which the actual date on which payments ceased, which is much earlier than the date of the judicial declaration of insolvency or even the start of the judicial proceedings leading to that declaration, must be regarded as the date of the onset of the employer's insolvency. They add that this decision on the part of the Italian legislature, combined with notable delays in the course of the relevant proceedings in Italy, means that through no fault of their own their claims do not fall within the reference period prescribed by Italian law.

83 The Commission endorses that view. It also points out, citing paragraph 25 of the Court's judgment in Case C-53/88 Commission v Greece, (64) that such a de facto situation necessarily predates the judicial declaration of insolvency.

84 Although it is not expressly mentioned in the questions submitted by the national court, the problem of determining the date of the onset of the employer's insolvency is directly connected with the problems raised by the national court and must be addressed before they can be answered. I therefore propose to state my position on the subject.

85 The views of the plaintiffs and the Commission cannot be accepted.

86 As the second recital to the Directive implies and as the Court had occasion to point out in its judgment of 9 November 1995 in Francovich (65) (hereinafter `Francovich II'), in adopting the Directive the Community legislature had to overcome the objective difficulties presented by the adoption of Community harmonizing provisions in general and the drawing-up of common rules on the protection of employees in the event of the insolvency of their employer, in particular. This is due partly to the diversity of the legal systems in force in the Member States and the impossibility of finding a commonly accepted concept of insolvency. These difficulties clearly prompted the Community legislature to decide for itself, in Article 2(1) of the Directive, when an employer is to be deemed to be in `a state of insolvency'. This made it impossible for the Member States and in general for those responsible for implementing the Directive to assign to the concept of insolvency, in the light of other factors, a meaning different from that laid down in that Article. (66) That phrase has, in fact, a `specific meaning' in the Directive, (67) in that Article 2(1) expressly states that that concept applies `for the purposes of this Directive'. Thus, the Directive recognizes one concept of insolvency, which is defined in Article 2(1). Consequently, `insolvency' or the `date of the onset of the insolvency' is the date from which the employer is `in a state of insolvency' within the meaning of Article 2(1).

87 That view is confirmed by the case-law. Thus, according to the abovementioned judgments in Francovich I (paragraph 14) and Francovich II (paragraph 17), in order to determine whether a person should be regarded as intended to benefit under the Directive, a national court must first verify whether the person concerned is an employed person and is not excluded from the scope of the Directive `... and then ascertain whether a state of insolvency as provided for in Article 2 of the Directive exists',

and the judgment in Francovich II adds that:

`It is clear from the terms of Article 2 that in order for an employer to be deemed to be in a state of insolvency, it is necessary, first, that the laws, regulations and administrative provisions of the Member State concerned provide for proceedings involving the employer's assets to satisfy collectively the claims of creditors; secondly, that employees' claims resulting from contracts of employment or employment relationships may be taken into consideration in such proceedings; thirdly, that a request has been made for the proceedings to be opened; and, fourthly, that the authority competent under the said national provisions has either decided to open the proceedings or established that the employer's undertaking or business has been definitively closed down and that the available assets are insufficient to warrant the opening of the proceedings' (paragraph 18).

88 It follows from Article 2(1) of the Directive, as interpreted in conjunction with the above paragraph from the judgment in Francovich II, first, that the concept of insolvency is a legal concept defined in the Directive and is not the same as a de facto situation such as the cessation of payments (68) or the employer's inability to fulfil his obligations. (69)

For the rest, de facto situations such as those I have mentioned must of necessity precede the request for the opening of proceedings to satisfy collectively the claims of creditors, which in turn is one of the conditions for the onset of the state of insolvency within the meaning of Article 2(1).

89 The opposite view is not borne out by paragraph 25 of the judgment of 8 November 1990 in Commission v Greece, cited by the Commission. (70) In response to an argument advanced by the Hellenic Republic to the effect that Article 205 of the Code of Private Maritime Law (71) affords protection equivalent to that resulting from Directive 80/987, the Court ruled in the abovementioned paragraph as follows:

`... the protection provided by Article 205 ... applies only in the event of sale by auction and therefore not, as the Directive requires, from the onset of the employer's insolvency, which may be much earlier'.

Since sale by auction, as a measure designed to satisfy collectively the claims of creditors, must occur after the cessation of payments and after the measure initiating that procedure (i.e., under Greek law, the judicial declaration of insolvency), the Commission's view is not borne out by the paragraph in question.

90 It also follows from that Article that the conditions it lays down are cumulative. The fact that a request has been made for the opening of proceedings to satisfy collectively the claims of creditors is therefore not sufficient; a decision is also required from the authority which is competent under national law to open the proceedings. So when, as in the present case, the authority which is competent under national law is the judicial authority, it cannot possibly be held that the Member State is in breach of the Directive in deciding that the `insolvency' or `state of insolvency' or `onset of the insolvency' exists from the time when the relevant judicial declaration of insolvency is issued by that authority.

91 It is true that the lapse of time between the cessation of payments or the request for the opening of proceedings and the issuing of the decision by the competent authority (for instance the judicial declaration of insolvency) is likely to mean that some employees' claims will not fall within the reference period established by the Member State, as the plaintiffs in the main proceedings contend. (72)

92 That argument is irrelevant for the purposes of the present case. Those facts would have some bearing if, within the meaning of the Directive, they had independent legal consequences and in particular if they marked the beginning or end of the reference period, but that is not the case. They mark neither the beginning (see points 88 and 90 above) nor the end because, in the case with which we are concerned (Article 4(2), first indent), the end of the reference period is a precise moment unconnected with the facts in question.

93 What the plaintiffs in the main proceedings are claiming is that during the reference period they had no employment relationship with the employer giving rise to outstanding claims covered by the guarantee. Payment of the guarantee provided under the Directive requires that there be an effective employment relationship with the employer from which outstanding claims on the part of the employees arose. However, there is not necessarily any connection between the existence or otherwise of an employment relationship and the cessation of payments or the request for a declaration of insolvency - matters that are regarded as relevant by the plaintiffs and the national court. There is, in fact, nothing in the documents in the case to show that those facts automatically indicate the termination of the employment relationship. (73) On the contrary, as the plaintiffs themselves point out in their observations, they have outstanding claims in the main proceedings which do fall within the reference period laid down under Italian law and which also extend beyond a period of three months. (74)

94 To conclude, whether or not some employees' claims fall within the reference period is a matter of chance. It is also a necessary result of choosing a particular date or period as decisive for the purpose of legal consequences. That choice is itself the result of an attempt to reconcile conflicting interests and it represents a compromise that is bound to favour some and not others.

95 It follows from the foregoing considerations that whether or not employees are aware that third parties have opened proceedings with a view to having their employer declared insolvent, whether such proceedings happen to last so long that they extend beyond the reference period, and whether or not employees bear any responsibility for the length of such proceedings, are matters of no consequence for the purposes of the present case.

Validity of Article 4(2)

96 In particular, those factors do not affect the validity of Article 4(2) of the Directive in respect of compliance with the principles of equal treatment and non-discrimination.

97 As stated in the judgment in Francovich II, in view of the difficulty of drawing up common rules on the protection of employees in the event of the insolvency of their employer (75) the Directive represents a first step towards harmonization and consequently has limited objectives. Thus, the fact that it protects only a certain class of employees (namely those whose employers are subject to proceedings to satisfy collectively the claims of creditors) and thus differentiates between employees, does not constitute a breach of the principle of equal treatment since such differentiation is justified by objective conditions. (76)

98 The same view should, I suggest, be taken in the present case. The fact that Article 4(2) of the Directive defines a reference period within which some employees' claims are likely to be included while others, for reasons beyond their control, are excluded does indeed differentiate between employees but that differentiation is justified by the requirements of gradual harmonization and, in particular, by the requirement that provision be made to enable hitherto unknown provisions to be introduced gradually into the domestic legal systems of the Member States.

Minimum guarantee within the meaning of the Directive

99 As Article 4(2) can lawfully be used to limit the guarantee provided for by the Directive, the content of that guarantee must be examined.

As the Court has held and as the Italian and United Kingdom Governments and the INPS rightly emphasize, the Directive provides a minimum protection for employees (77) in the form of a minimum guarantee that can be determined under the provisions of the Directive. (78)

100 According to the judgment in Francovich I:

`... it is possible to determine the minimum guarantee provided for by the Directive by taking the date whose choice entails the least liability for the guarantee institution. That date is that of the onset of the employer's insolvency, since the two other dates, that of the notice of dismissal issued to the employee and that on which the contract of employment or the employment relationship was discontinued, are, according to the conditions laid down in Article 3, necessarily subsequent to the onset of the insolvency and thus define a longer period in respect of which the payment of claims must be ensured' (paragraph 19).

`The possibility under Article 4(2) of limiting the guarantee does not make it impossible to determine the minimum guarantee. It follows from the wording of that Article that the Member States have the option of limiting the guarantees granted to employees to certain periods prior to the date referred to in Article 3. Those periods are fixed in relation to each of the three dates provided for in Article 3, so that it is always possible to determine to what extent the Member State could have reduced the guarantee provided for by the Directive depending on the date which it would have chosen if it had transposed the Directive' (paragraph 20).

101 However, the same judgment also stated that, even though the provisions in question of the Directive are sufficiently precise and unconditional as regards the determination of the persons entitled to the guarantee and as regards the content of that guarantee, those elements are not sufficient to enable individuals to rely on those provisions before the national courts because those provisions `do not identify the person liable to provide the guarantee, and the State cannot be considered liable on the sole ground that it has failed to take transposition measures within the prescribed period' (paragraph 26). The Court accordingly stated, in reply to the question submitted by the national court, in which it sought to determine whether a private individual is entitled to rely directly on the precise and unconditional provisions of the Directive in proceedings against the State to obtain the guarantees which the State itself must provide, that `... the provisions of Directive 80/987 which determine the rights of employees must be interpreted as meaning that the persons concerned cannot enforce those rights against the State before the national courts where no implementing measures are adopted within the prescribed period' (paragraph 27).

Content of reparation for failure to transpose the Directive

102 However, if reparation presupposes rights that can be determined on the basis of the Directive and if the rights provided for in Directive 80/987 can be determined on the basis of the provisions of that directive but individuals cannot rely on them before the national courts, on what criteria are those courts to determine what compensation is payable? The question arises in view of the fact that - in the same case - the Court, having repeated that `the result required by that directive entails the grant to employees of a right to a guarantee of payment of their unpaid wage claims' and that `the content of that right can be identified on the basis of the provisions of the directive' (paragraph 44), went on to say

`Consequently, the national court must, in accordance with the national rules on liability, uphold the right of employees to obtain reparation of loss and damage caused to them as a result of failure to transpose the directive' (paragraph 45).

103 Advocate General Mischo, in point 80 of his Opinion in Francovich I, argued in this connection that in the case of directives such as Directive 80/987, whose provisions are not directly applicable, `... in an action for damages the national court has a margin of discretion which it does not have where the directive has direct effect. Once it is clear that the plaintiff is a member of the class of persons whose interests the directive is intended to protect, the national court may assess damages "ex aequo et bono", while at the same time relying as closely as possible on the provisions of the directive. It will consider the options provided for in Article 3 and the possibilities of derogation listed in Article 4, and will seek on that basis to arrive at an amount of compensation which it considers fair.'

104 I take essentially the same view, albeit with the following observation. I consider that the national court has a margin of discretion but that margin is not unlimited. The Directive sets a minimum level (79) which is binding both on the State, which may not disregard it even if the directive was transposed within the prescribed period, and on the national courts. That minimum can only represent a minimum right for employees, which the reparation must guarantee. Were it to be admitted that the reparation could be less than that minimum, the State would profit from its failure to implement the Directive and would be encouraged to repeat the omission - which would be unacceptable. Moreover, the reparation would ultimately become purely symbolic if it did not guarantee that minimum. The reparation must therefore guarantee at least the minimum.

105 That minimum level is laid down in Article 4(2). In that provision, the Community legislature established the minimum level of the guarantee to be provided by the Member States in relation to the date they choose as the start of the reference period. However, unlike Article 3(2), Article 4(2) does not provide for one minimum guarantee to be set (i.e. a guarantee that will necessarily entail a lower liability than any other) but offers three possible minimum guarantees. (80)

106 Those three guarantees are equivalent, in that all three are allowed by the Directive. Moreover, in so far as they are based on different methods of calculation, they are not comparable for the purpose of determining which of them is the lowest. Consequently, the national court, bearing in mind the lowest guarantee resulting from each of the three cases, must award ex aequo et bono the compensation that is appropriate in each case in accordance with the national rules on liability. Clearly, of course, if, in similar cases, the national law imposes a higher level of reparation (if, for example, where there are a number of options it requires the choice of the one that is most favourable to the employee), the compensation will be calculated on that basis. (81)

107 However, the task of the national court is facilitated when, as in the present case, the national legislature has stated with retroactive effect which method it wishes to adopt for calculating the guarantee on the basis of the combined provisions of the two Articles mentioned above. (82) In that case, as I have already explained, (83) the guarantee already expressly laid down (and the compensation calculated on the basis of that guarantee) must not be lower (84) than the guarantee (and the associated compensation) that would result from the choice of the corresponding option under the terms of the Directive alone.

108 It follows from the foregoing considerations that the national legislature must in principle be held to comply with the Directive, irrespective of which of the three options listed in Article 4(2) it chooses to adopt for the purpose of determining the guarantee when implementing the Directive. Inasmuch as the provisions of that Article can be taken into account in determining the reparation for failure to transpose the Directive within the prescribed period, there is generally speaking nothing to prevent the national legislature from giving retroactive effect to the guarantee already expressly laid down on the basis of the above provision and deciding that that guarantee is to serve as the basis for calculating the compensation payable for the period marked by the failure to transpose the Directive within the prescribed time-limit. (85)

Article 4(3) of the Directive

109 While Article 4(2) can in principle be given retroactive effect, the same is not true of Article 4(3), which contains no specific element that could, by itself, justify placing a limit on employees' rights. Moreover, the exercise of the option to set a ceiling on the guarantee, within the meaning of that provision, presupposes that the Member State has already exercised the option provided in Article 4(2). Article 4(3) does not therefore furnish any support for placing a retroactive limit on the guarantee payable or, further, for limiting any compensation that may be determined on the basis of the provisions of the Directive. (86)

V - Conclusion

In the light of the foregoing I propose that the reply to the questions referred to the Court should be as follows:

(1) Where a Member State, in adopting measures to implement Directive 80/987 after the expiry of the period prescribed in Article 11, determines the reparation payable for the period during which the Directive was not transposed into national law, such reparation must not be lower than the reparation that may be determined on the basis of the provisions of the Directive alone.

(2) Where a Member State, in belatedly adopting measures to implement the Directive, exercises the option provided under Article 4(2) of the Directive to determine the guarantee payable to employees, that provision must be interpreted as meaning that there is nothing to prevent the Member State from deciding that the guarantee thus determined is to serve as the basis for calculating the reparation due for the period during which the Directive was not transposed, on condition that that guarantee complies with the provisions of the Directive, subject to the answer given in the preceding paragraph. The exercise of the above option by the Member State does not depend on the conduct, culpable or otherwise, of the employees.

(3) Examination of Article 4(2) of the Directive, as interpreted above, has revealed no factor of such a kind as to affect its validity in the light of the principle of equal treatment.

(4) Article 4(3) of the Directive must be interpreted as meaning that it offers no basis for setting a ceiling on the reparation determined, in the belatedly adopted measures transposing the Directive, as being payable for the period during which the Directive was not transposed.

(1) - OJ 1980 L 283, p. 23.

(2) - Joined Cases C-6/90 and C-9/90 Francovich and Others v Italian Republic [1991] ECR I-5357.

(3) - Case 22/87 Commission v Italy [1989] ECR 143.

(4) - See footnote 2 above.

(5) - GURI No 36, 13 February 1992.

(6) - It appears from the order for reference and the observations of the parties in the main proceedings that under Italian law the date which marks the beginning of the period of 12 months, i.e. the date `of the onset of the employer's insolvency' in the terms of the Directive, corresponds, according to the case-law of the Italian courts to the date on which the judicial declaration of insolvency is issued.

(7) - According to Judgment No 285/1993 of the Italian Constitutional Court, mentioned in the order for reference and cited in the observations of the parties in the main proceedings, the INPS manages the Guarantee Fund referred to above and any actions for compensation under Article 2(7) of Decreto Legislativo No 80/1992 must accordingly be brought against the INPS.

(8) - As is well known, the loss and damage in that case was loss and damage suffered by employees as a result of the Italian Republic's failure to adopt measures to implement the Directive at issue.

(9) - See Case C-297/94 Bruyère and Others v Belgian State [1996] ECR I-1551, paragraph 19.

(10) - See, in particular, Case C-415/93 Union Royale Belge des Sociétés de Football Association and Others v Bosman and Others [1995] ECR I-4921, paragraph 59, Case C-125/94 Aprile v Amministrazione delle Finanze dello Stato [1995] ECR I-2919, paragraphs 16 and 17, and Joined Cases C-297/88 and C-197/89 Dzodzi v Belgian State [1990] ECR I-3763, paragraph 35.

(11) - See Bosman (cited in the preceding footnote).

(12) - See Case C-364/92 SAT Fluggesellschaft v Eurocontrol [1994] ECR I-43, paragraphs 11 and 14.

(13) - See Case C-177/94 Perfili [1996] ECR I-161, paragraph 9, and Case C-338/91 Steenhorst-Neerings v Bestuur van de Bedrijfsvereniging voor Detailhandel, Ambachten en Huisvrouwen [1993] ECR I-5475, paragraph 25.

(14) - See Case 111/75 Mazzalai v Ferrovia del Renon [1976] ECR 657, paragraph 7.

(15) - See Joined Cases C-46/93 and C-48/93 Brasserie du Pêcheur and Factortame [1996] ECR I-1029, paragraph 33, Joined Cases C-143/88 and C-92/89 Zuckerfabrik Süderdithermarschen and Zuckerfabrik Soest [1991] ECR I-415, paragraph 26, Case 61/79 Amministrazione delle Finanze dello Stato v Denkavit Italiana [1980] ECR 1205, paragraph 18, and Case 48/71 Commission v Italy [1972] ECR 527.

(16) - As is known, the subjects of the Community legal system comprise not only the Member States but also individuals, on whom rights are conferred by virtue of obligations which the Treaty imposes in a clearly defined manner upon the Member States (see, in particular, Francovich I (cited in footnote 2), paragraph 31, and Case 28/67 Molkerei-Zentrale Westfalen v Hauptzollamt Paderborn [1968] ECR 143, point 1A).

(17) - Case 70/72 Commission v Germany [1973] ECR 813, paragraph 13, (my emphasis).

(18) - Francovich I (cited in footnote 2), paragraph 36. See also Case 6/60 Humblet v Belgian State [1960] ECR 559, concerning the similar rule contained in Article 86 of the ECSC Treaty.

(19) - See Brasserie du Pêcheur (cited in footnote 15), paragraph 27.

(20) - Case 8/81 Becker v Finanzamt Münster-Innenstadt [1982] ECR 53.

(21) - Case 286/85 McDermott and Cotter v Minister for Social Welfare and Attorney-General [1987] ECR 1453, paragraph 12. See also Case 71/85 Netherlands v Federatie Nederlandse Vakbeweging [1986] ECR 3855, paragraph 14, and Case 8/81 Becker (cited above), paragraphs 22-24.

(22) - See Francovich I (cited in footnote 2), paragraphs 31-36, Brasserie du Pêcheur (cited in footnote 15), paragraphs 31-36, Case C-392/93 The Queen v H.M. Treasury, ex parte British Telecommunications [1996] ECR I-1631, paragraph 38, Case C-5/94 The Queen v MAFF, ex parte Hedley Lomas [1996] ECR I-2553, paragraph 24, Joined Cases C-178/94, C-179/94, C-188/94, C-189/94 and C-190/94 Dillenkofer and Others v Federal Republic of Germany [1996] ECR I-4845, paragraph 20, and Joined Cases C-283/94, C-291/94 and C-292/94 Denkavit Internationaal and Others v Bundesamt für Finanzen [1996] ECR I-5063, paragraph 47.

(23) - See Francovich I (cited in footnote 2), paragraph 38, Brasserie du Pêcheur (cited in footnote 15), paragraph 38, Hedley Lomas (loc. cit.), paragraph 24, and Dillenkofer (loc. cit.), paragraph 20.

(24) - See Dillenkofer (cited above), paragraph 24.

(25) - Brasserie du Pêcheur (cited above in footnote 15), paragraph 43 et seq.

(26) - In the sense that the State has manifestly and gravely disregarded the limits on the exercise of its powers. See judgments (cited above) in Brasserie du Pêcheur, paragraphs 45 and 55, British Telecommunications, paragraph 42, and Dillenkofer, paragraph 25.

(27) - See judgments (cited above) in Brasserie du Pêcheur, paragraphs 50 and 51, British Telecommunications, paragraphs 39 and 40, Hedley Lomas, paragraphs 25 and 26, Dillenkofer, paragraph 21, and Denkavit, paragraph 48.

(28) - See judgments (cited above) in Francovich I, paragraphs 39 and 40, and Dillenkofer, paragraph 22, and Case C-91/92 Faccini Dori v Recreb [1994] ECR I-3325, paragraph 27, and C-192/94 El Corte Inglés v Blázquez Rivero [1996] ECR I-1281, paragraph 22.

(29) - Brasserie du Pêcheur (cited above), paragraph 66.

(30) - Brasserie du Pêcheur (cited above), paragraph 67. See also the judgments (cited above) in Francovich I, paragraphs 41 and 42, and Faccini Dori, paragraph 29.

(31) - See in particular the judgments (cited above) in Brasserie du Pêcheur, paragraph 67, and Francovich I, paragraph 43.

(32) - It should be noted that the Court has consistently held that the right to rely on the provisions of the Treaty that are directly applicable `is only a minimum guarantee and is not sufficient in itself to ensure the full and complete implementation of the Treaty' (see, in this connection, Case C-120/88 Commission v Italy [1991] ECR I-621, paragraph 10).

(33) - See, in this connection, point 77 of the Opinion of Advocate General Léger in Case C-5/94 Hedley Lomas (cited in footnote 22).

(34) - See point 38 above.

(35) - See point 40 above.

(36) - Council Directive 79/7/EEC of 19 December 1978 on the progressive implementation of the principle of equal treatment for men and women in matters of social security (OJ 1979 L 6, p. 24).

(37) - Relating in particular to transitional provisions which discriminated against women.

(38) - Case 80/87 Dik and Others v College van Burgemeester en Wethouders Arnhem and Winterswijk [1988] ECR 1601. See also Case C-208/90 Emmott v Minister for Social Welfare and the Attorney General [1991] ECR I-4269, paragraph 4 in conjunction with paragraph 24.

(39) - This second point was made again in Case C-377/89 Cotter and McDermott v Minister for Social Welfare and Attorney General [1991] ECR I-1155, paragraph 25, and Case C-343/92 De Weerd, née Roks, and Others v Bestuur van de Bedrijfsvereniging voor de Gezondheid, Geestelijke en Maatschappelijke Belangen and Others (Roks) [1994] ECR I-571, paragraph 20.

(40) - This is even more clear from the judgment in Roks (cited in the preceding footnote), paragraphs 18, 20 and 25.

(41) - See point 57 above.

(42) - See footnote 39.

(43) - See Dik (cited in footnote 38), paragraph 8, and Roks (cited in footnote 39), paragraph 18.

(44) - See Cotter and McDermott and Roks (cited in footnote 39), paragraph 18 of the judgments.

(45) - As, in the cases under consideration, the provisions of Directive 80/987 (see Francovich I (cited above), paragraph 26).

(46) - See point 46 et seq. above.

(47) - See Case C-271/91 Marshall v Southampton and South West Hampshire Area Health Authority [1993] ECR I-4367, paragraphs 31 and 32, and Brasserie du Pêcheur (cited above), paragraph 82.

(48) - See Francovich I (cited above), paragraph 17, and point 51 above.

(49) - See Marshall (cited in note 47), paragraphs 31 and 32.

(50) - See Brasserie du Pêcheur (cited above), paragraph 87.

(51) - Such as the exemplary damages available under English law (see Brasserie du Pêcheur (cited above) paragraph 89).

(52) - See Dillenkofer (cited above), paragraph 48, and Case C-59/89 Commission v Germany [1991] ECR I-2607, paragraph 24.

(53) - Case C-208/90 Emmott [1991] ECR I-4269, paragraphs 19, 21 and 22. See also the judgments in Steenhorst-Neerings (cited in footnote 13), paragraph 19, and Case C-410/92 Johnson v Chief Adjudication Officer [1994] ECR I-5483, paragraph 25.

(54) - See Francovich I (cited in footnote 2), paragraph 39, and Faccini Dori (cited in footnote 28), paragraph 27.

(55) - See point 49 above.

(56) - See point 65 above. In cases where the Directive sets a lower limit, the conditions logically coincide because it is a condition for the validity of the provision itself that it must not, in any event, be below the minimum limit prescribed.

(57) - See point 63 above.

(58) - See point 16 et seq. above.

(59) - The relevant provisions are given in full under points 5 to 10 above.

(60) - Case C-53/88 Commission v Greece [1990] ECR I-3917, paragraph 2.

(61) - That is to say when measures to implement the Directive have been adopted within the prescribed period.

(62) - Article 3(2), first indent, also sets a reference period, which has a beginning but no definite end. The reference period mentioned in Article 4(2), first indent, on the contrary, has the same starting point but may be limited to a maximum of 6 months.

(63) - In these cases, the date of the onset of the employer's insolvency marks the end of the reference period.

(64) - See footnote 60 above.

(65) - Case C-479/93 Francovich v Italian Republic [1995] ECR I-3843, paragraphs 25-27.

(66) - See also Article 2(2) of the Directive, which contains a list of the terms that can lawfully be given a specific definition by the Member States.

(67) - See Francovich II (cited in footnote 65), paragraph 19.

(68) - It should be noted that, instead of the phrase `état d'insolvabilité' (state of insolvency), the phrase `état de cessation des paiements' (literally, `state of cessation of payments', but rendered in the English version as `insolvent') appears as a rule in the French version of the proposal for a Directive submitted by the Commission to the Council on 13 April 1978 (OJ 1978 C 135, p. 2). The fact that the latter phrase was abandoned in the final text of the Directive supports the view taken in this Opinion. See also point 15 of my Opinion in Francovich II.

(69) - Such situations may, moreover, vary considerably depending on the case and the Member State concerned with the result that it becomes impossible to ensure the general and uniform application of Community law - the very situation that the Community legislature sought to avoid. Also, leaving aside cases of simulated bankruptcy, a `de facto situation' is not the same as a definite date, which can be taken as a starting point for determining the rights of employees, and such a situation is consequently a source of legal uncertainty. It is for the competent authority to decide, in accordance with Article 2(1) of the Directive, whether the conditions provided under national law for opening proceedings to satisfy collectively the claims of creditors (for example, cessation of payments, etc.) have been met.

(70) - See footnote 60 above. The judgment was delivered in a case brought by the Commission against the Hellenic Republic for failure to adopt measures to implement Directive 80/987/EEC within the prescribed period.

(71) - That Article gives seamen's claims second priority after, in particular, judicial costs and the Treasury's claims in the event of sale of the vessel by auction (see paragraph 24 of the judgment).

(72) - See point 82 above.

(73) - Only if that were so would there be any point in determining whether or not the facts fell within the reference period.

(74) - See point 20 above. It should be noted that in the similar case of Palmisani (see point 69 above) the plaintiff was employed by the employer up to the date on which the employer was declared insolvent.

(75) - See point 86 above.

(76) - See paragraphs 22-24 of the judgment.

(77) - See Case 22/87 Commission v Italy (cited in point 12 above), paragraph 23.

(78) - See Francovich I (cited above), paragraph 19.

(79) - With regard to the method of calculating the guarantee.

(80) - This is because, in Article 3(2), the guarantee depends on a variable, namely the date that marks the beginning of the reference period. A shorter reference period implies fewer claims from employees and consequently a lighter burden for the guarantee institution. So, as the shortest reference period is the period starting from the date of the onset of the employer's insolvency, the guarantee based on that date must necessarily be the lowest. Under Article 4(2), on the other hand, the guarantee resulting from each of the three methods of calculation depends on three variables which do not have constant values in every case (namely the date on which the reference period begins, the length of the reference period and the length of the employment relationship in respect of which there are outstanding claims). Consequently, on the conditions laid down in Article 4(2), it is by no means certain that choosing the date of the onset of the employer's insolvency to mark the beginning of the reference period (the first option) will mean that the guarantee institution has to pay less than it would have to if it exercised the third option, for example. In fact, in the first case, the reference period is shorter (six months) but the guarantee payable is greater (guarantee for three months). In the third case, the reference period is longer (18 months) but the guarantee less (guarantee for eight weeks, i.e. two months).

(81) - See point 51 and footnote 29 above.

(82) - See in this connection point 81 of the Opinion of Advocate General Mischo, cited under point 103 above.

(83) - See points 73 and 74 above.

(84) - And, logically is not lower. See footnote 56 above.

(85) - Unless - I must again emphasize - the national rules on compensation provide for more generous compensation in similar cases (see point 106 above). If the national law provides for compensation calculated on a higher basis (of capital), then the transposition measures giving retroactive effect to the Directive may in principle comply with the letter of the Directive's provisions but they will conflict with the principles of Community law which require the most favourable national rules on liability to be applied. In that case, in so far as they reduce compensation already guaranteed under Community law, they will be contrary to that law and will have to be set aside in favour of the only `valid reference system' in the circumstances, namely the national rules on non-contractual State liability.

(86) - See Marshall (cited in footnote 14), paragraph 30.