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Protection of employees in the event of the insolvency of their employer

The Directive sets out to guarantee payment of employees’ remuneration if their employer is in a state of insolvency. It requires Member States of the European Union (EU) to establish guarantee institutions and lays down procedures which apply when cross-border employers become insolvent.

ACT

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 (Text with EEA relevance).

SUMMARY

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.

Member States of the European Union (EU) may, by way of exception, exclude claims by certain categories of employee if other forms of guarantee offer them equivalent protection. Member States may exclude domestic servants employed by a natural person and share-fishermen from the protection afforded by the Directive.

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

Member States shall 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 shall be calculated on the basis of:

  • a minimum reference period of six months, giving rise to the payment of claims for at least three months;
  • a reference period of at least eighteen 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 shall contribute to the financing of these institutions, unless it is fully covered by the public authorities.

Social security

Member States 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 two Member States, the authority responsible for meeting claims shall be the one in the country where the employee habitually worked.

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

REFERENCES

ActEntry into forceDeadline for transposition in the Member StatesOfficial Journal

Directive 2008/94/EC

17.11.2008

17.11.2008

OJ L 283 of 28.10.2008

RELATED ACTS

Report from the Commission to the European Parliament and the Council of 28 February 2011 on the implementation and application of certain provisions of Directive 2008/94/EC on the protection of employees in the event of the insolvency of their employer [COM(2011) 84 final – Not published in the Official Journal].
The safety net for employees introduced by Directive 2008/94/EC has proved its efficacy and usefulness. Some 3.4 million workers benefited from the intervention of the guarantee institutions during the period from 2008 to 2011, particularly in view of the global economic crisis.

Last updated: 06.05.2011
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