Select Committee on European Scrutiny Seventh 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
Department: Trade and Industry
Basis of consideration: SEM of 15 November 2001
Previous Committee Report: HC 28-viii (2000-01), paragraph 10 (14 March 2001)
To be discussed in Council: 3 December 2001
Committee's assessment: Politically important
Committee's decision: Cleared


16.1  This draft Directive is intended to update, rationalise and simplify the provisions of the original Insolvency Protection Directive (80/987/EEC). When the previous Committee considered the proposal (in March), it recognised that the Government was still assessing the text. It therefore left the document uncleared, and asked for a report on the progress of negotiations, and for the Government's eventual view of the proposal.

16.2  The Minister for Employment Relations and the Regions at the Department of Trade and Industry (Mr Alan Johnson) has now submitted a Supplementary Explanatory Memorandum on the document, updating us on the situation, and on the Government's views.

The Supplementary Explanatory Memorandum

16.3  The Minister tells us that the Presidency hopes to reach political agreement on the common position at the Employment and Social Policy Council on 3 December. In relation to the specific question raised by the previous Committee about the Commission's proposal to broaden the categories of employee covered by the draft Directive, he says that the Government considers that the UK's implementing legislation is already broad enough to encompass the changes.

16.4  On the Government's view, he says:

    "The Government welcomes this proposal in principle. We agree that there is a need to revise the original Directive of 1980, in view of the many changes that have occurred since its adoption.

    "The Government had concerns about certain detailed aspects of the Commission's proposal — in particular, its approach toward the treatment of transnational cases and its restriction of the options available to Member States for limiting the liability of their national guarantee institutions. However, good progress has been made in negotiations in the Council Working Group, and the Government is confident that a Common Position will be reached which it will be able fully to support."

16.5  The Minister is concerned, however, that the draft report prepared for the European Parliament's Employment and Social Affairs Committee calls for amendments which would significantly increase the minimum standards of employee protection guaranteed by the Directive. He says:

    "The main proposed amendments that cause the Government concern are:

    The removal of Member States' ability to set an upper limit on the amount of outstanding pay claims to be guaranteed. This would:

    — go well beyond the aim of providing a minimum standard of protection to safeguard the vulnerable;

    — benefit higher paid workers, potentially at the expense of lower paid ones (e.g. because it could force Member States to guarantee a shorter period of outstanding pay claims than they might otherwise choose to do);

    — encourage abuse by unscrupulous employers who might put their businesses into a state of insolvency simply to offload debts onto the state; and

    — place an unacceptable burden on public expenditure by Member States' guarantee institutions.

    The extension of coverage from businesses that are formally insolvent to those that have merely ceased to trade. This would:

    — encourage solvent employers to seek to avoid their obligations toward employees;

    — make it much more difficult for Member States' guarantee institutions to recoup from the employer the amounts paid out (as they can at present by asserting their rights, by subrogation, in the insolvency proceedings); and

    — again, significantly increase public expenditure.

    The extension to six months of the minimum period of outstanding pay claims to be guaranteed. This would also significantly increase public expenditure and, in the UK's view, go well beyond the social aims of the Directive."

16.6  The Minister tells us that no case has been made for such an increase in the levels of protection and that the Government would reject any suggestion that the original Directive was inadequate in this regard.


16.7  We are disappointed not to have had a progress report before now, especially as the proposal is about to be discussed by the Council. We would also have liked as much detail about the changes to the text made in the Working Group as we have been given about the draft report prepared for the European Parliament's Employment and Social Affairs Committee, especially as it is not clear to us how this may impact on the common position.

16.8  We clear the document. However, if, a significantly different text emerges as a result of the European Parliament's amendments, we shall expect it to be deposited together with a further Explanatory Memorandum.

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Prepared 3 December 2001