Select Committee on European Scrutiny Eighth Report


COM(00) 832

Draft Directive amending Council Directive 80/987/EEC 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.

Legal base: Article 137(2) EC; co-decision; qualified majority voting
Document originated: 15 January 2001
Forwarded to the Council: 17 January 2001
Deposited in Parliament: 6 February 2001
Department: Trade and Industry
Basis of consideration: EM of 3 March 2001
Previous Committee Report: None
To be discussed in Council: No date set
Committee's assessment: Politically important
Committee's decision: Not cleared; further information requested


  10.1  The original Insolvency Protection Directive, which was adopted in 1980, was a partial harmonisation measure under which each Member State was required to set up a "guarantee institution" to meet certain debts (pay arrears, for example) owed to former employees of insolvent employers. As the UK had already had such provisions in place for some years, no substantive amendment was considered necessary in order to implement the Directive.

  10.2  The provisions in question are now contained in the Employment Rights Act 1996 and the Pensions Scheme Act 1993. Under these provisions the Redundancy Payments Service (RPS) makes insolvency payments from the National Insurance Fund , on the Secretary of State's behalf, to qualifying former employees. The RPS then becomes a creditor in the insolvency proceedings in the former employees' stead. The amounts payable from the National Insurance Fund are subject to statutory upper limits. Any debts to former employees that cannot be met under the statutory provisions remain for consideration in the insolvency proceedings.

The document

  10.3  The draft Directive is intended to amend the original Insolvency Protection Directive. In its explanatory memorandum, the Commission states its view that the basic structure of the measure should be retained. However, as a result of new conditions in the job market and restructuring within companies, the Directive needs to be brought up to date on specific points.

    There are three main areas where revision is proposed:


    —  scope and definitions. The Commission considers that the range of insolvency proceedings should be broadened, as should the categories of employee covered by the measure.

    —  limiting liability of Member States' guarantee institutions. Member States can currently choose between three options for specifying and limiting the period of pay arrears in respect of which their national guarantee institutions are liable. Under the option on which the UK relies, the length of the period is eight weeks. Under the other two options, on which most other Member States rely, it is three months. The Commission's proposal is that the three options would be replaced by a single requirement for a minimum three-month period.

    —  transnational situation. The current Directive contains no guidance on how its provisions should be interpreted in cases with a transnational dimension - where, that is, the employees work in one Member State but their employer is established and made insolvent in a different one. In recent years there have been a number of ECJ judgments in cases of this kind, but these have left the legal position somewhat confused and uncertain. The Commission's proposal aims to clarify the matter by introducing new provisions which will identify, in respect of a number of different situations, the guarantee institution responsible for meeting outstanding pay claims.

The Government's view

  10.4  In his Explanatory Memorandum, the Minister for Competitiveness at the Department of Trade and Industry (Mr Alan Johnson) comments as follows on the draft Directive:

    "This is a very new proposal and the Government is still examining its provisions to determine what its precise impact would be. If adopted in its present form, this draft Directive would require some amendment of the insolvency payments provisions of the Employment Rights Act 1996; the three main areas would be as follows:

    Types of insolvency proceedings covered

    "Our initial view, subject to further consideration, is that this would have little or no impact in the UK context.

    Limiting Liability of Member States' guarantee institutions

    "If adopted, this would entail some amendment of our domestic implementing provisions, resulting in some increase in public expenditure on insolvency payments from the National Insurance Fund. It is likely that the increase would be a relatively modest one. We will however be preparing a full costing. There would be no significant cost implications for business.

    Transnational situations

    "The practicability of this proposal needs to be considered. If adopted, it would be likely to lead to an increase in administrative expenditure by the RPS, although only a modest one, particularly as — at present, at least — cases with a transnational dimension are relatively uncommon."


  10.5  The Minister has made it clear that the Government is still considering its position on this new draft Directive. We will, therefore, maintain the scrutiny reserve until we hear more about the progress of negotiations and the Government's eventual view.

  10.6  We assume that the Minister's lack of comment about the proposal to broaden the categories of employee covered by the Directive means that it presents no problems for the United Kingdom. It would be helpful if he could confirm this point when he reports on progress.

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Prepared 28 March 2001