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House of Lords
Session 1998-99
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Judgments

Judgments -- Mann and Others v. Secretary of State for Employment

HOUSE OF LORDS

  Lord Slynn of Hadley   Lord Jauncey of Tullichettle   Lord Hoffmann   Lord Hope of Craighead
  Lord Hobhouse of Woodborough

OPINIONS OF THE LORDS OF APPEAL FOR JUDGMENT IN THE CAUSE

MANN AND OTHERS
(APPELLANTS)

v.

SECRETARY OF STATE FOR EMPLOYMENT
(RESPONDENT)

ON 15 JULY 1999

LORD SLYNN OF HADLEY

My Lords,

    For the reasons given by my noble and learned friend Lord Hoffmann, whose speech I have had the advantage of reading in draft, I, too, would dismiss the appeal.

LORD JAUNCEY OF TULLICHETTLE

My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Hoffmann. I agree with it, and for the reasons which he has given I too would dismiss the appeal.

LORD HOFFMANN

My Lords,

    This is a claim against the Secretary of State for Employment, as statutory guarantor of the obligations of an insolvent employer, for payment of remuneration awarded to employees on account of the employer's breach of its statutory obligation to consult with their union before dismissing them as redundant. Both the liability of the Secretary of State as guarantor and the obligation of the employer to consult are contained in statutes which give effect to European Council Directives. The employees say that the Secretary of State has misconstrued his obligations under both Community and domestic law and has not paid them the full amount to which they are entitled.

    My Lords, I shall start by summarising the statutory provisions which create, first, the obligation of the employer to consult before dismissing for redundancy and, secondly, the liability of the Secretary of State as guarantor. But rather than encumber this speech with citation, I have set out the relevant provisions in an appendix to which reference may be made.

    The employer's obligation to consult before dismissal for redundancy is contained in Chapter II of Part IV of the Trade Union and Labour Relations (Consolidation) Act 1992. The Chapter has the heading "Procedure for Handling Redundancies." It gives effect in the United Kingdom to Council Directive (75/129/E.E.C.) "on the approximation of the laws of the member states relating to collective redundancies." This provides in very general terms that member states should require an employer who is contemplating collective redundancies to consult with the workers' representatives about ways and means of avoiding or reducing them and mitigating their consequences with a view to reaching an agreement: see article 2, paragraphs 1 and 2.

    The Act of 1992 gives effect to the Directive by imposing a statutory obligation to consult: section 188(1). If it is proposed to dismiss more than 100 employees, consultation must begin at least 90 days before the first dismissal takes effect: section 188(2)(a). If the employer does not comply with his obligations under section 188, the trade union may present a complaint to an industrial tribunal: section 189(1). The tribunal may make a "protective award" by which it orders the employer to pay remuneration to the employees for the "protected period:" section 189(2) and (3). The protected period begins on the date when the first dismissal takes effect or the date of the award, whichever is the earlier, and continues for whatever period the tribunal considers just and equitable, subject to a maximum of 90 days: section 189(4). If a protective award is made, each employee is entitled to remuneration at a rate calculated in accordance with the Act during the protected period: section 190(1), (2) and (5).

    As originally enacted, the Act of 1992 contained provisions in section 190(3) (which are printed in italics in the appendix to this speech) by which remuneration payable pursuant to a protective award could be set off against payments due under the contract of employment or as damages for its breach. However, in Commission of the European Communities v. United Kingdom (Case C-383/92) [1994] I.C.R. 664 the European Court of Justice decided that the set-off provisions of section 190(3) were in conflict with Directive 75/129. Paragraph 42 of the judgment said, at pp. 725-726:

      "By providing that a 'protective award' may be set off in full or in part against any amounts otherwise payable by an employer to an employee under the latter's contract of employment or in respect of breach of that contract, the United Kingdom legislation largely deprives that sanction of its practical effect and its deterrent value. Moreover, an employer will not be penalised even moderately or lightly by the sanction except and only to the extent to which the amount of the 'protective award' which he is ordered to make exceeds the sums which he is otherwise required to pay to the person concerned."

In anticipation of this decision, section 190(3) was repealed by section 34(3) of the Trade Union Reform and Employment Rights Act 1993. By virtue of article 2(1) of and Schedule 1 to the Trade Union Reform and Employment Rights Act 1993 (Commencement No. 1 and Transitional Provisions) Order 1993 (SI 1993 No. 1908 (C.34)) the repeal took effect on 30 August 1993. Schedule 9, paragraph 1(1), to the Act of 1993 gave the Secretary of State power to include in a commencement order such transitional provisions as appeared to him to be appropriate. Article 3 of the Order contained such provisions, including paragraph (12):

     "the amendments set out in section 34 (redundancy consultation procedures) of the 1993 Act shall not have effect in relation to any dismissal which takes effect within 90 days after section 34 comes into force."

    My Lords, I next summarise the statutory provisions which create the statutory liability of the Secretary of State for Employment as guarantor. They give effect to Council Directive (80/987/E.E.C.), "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." The Directive recites the need for the protection of employees in the event of the employer's insolvency, particularly in respect of unpaid claims, "while taking account of the need for balanced economic and social development in the Community." It applies to employers in a "state of insolvency" within the meaning of the Directive (paragraph 1 of article 1). Such a state is defined by reference to the making of a request to an authority for the opening of proceedings to satisfy collectively the claims of creditors out of the employer's assets. The Directive then requires member states to take measures necessary to ensure the existence of guarantees of employees' claims for pay for various periods ascertained in accordance with articles 3 and 4.

    Even before Directive 80/987, United Kingdom law had contained provisions for a state guarantee of certain liabilities of insolvent employers. This was contained in section 122 of the Employment Protection (Consolidation) Act 1978. These provisions were afterwards substantially amended to comply with the Directive and the relevant provisions appear in the appendix. For the moment, the important point to notice is that United Kingdom law employed a much wider definition of insolvency than the Directive. It used the definition in section 127 of the Act of 1978, which includes a case in which a receiver has been appointed by the holders of debentures secured by a floating charge. In such case, there is of course no request to any authority for the opening of proceedings. The appointment is made out of court under powers conferred upon the debenture holder by contract. Nor is the purpose of the appointment a collective satisfaction of the claims of creditors. It is to realise the security of the debenture holder.

    My Lords, that is enough of the statutory background to enable me to explain the principal issue in this appeal. On 13 May 1993 Swan Hunter Shipbuilding & Engineering Group Ltd. ("Swan Hunter") went into administrative receivership. The administrative receivers, acting as agents of the company, closed down the business and on 28 May 1993 dismissed 408 employees on the grounds of redundancy. They made no attempt to consult with the union. This is commonly the case when the business of a company in administrative receivership is closed down. The duty of the administrative receivers is to protect the interests of the debenture holder who appointed them. The protective award is a debt of the insolvent company. The debenture holder will have a charge that, subject to preferential claims, takes priority over the company's unsecured debts. Employees have preferential claims over property subject to a floating charge, but only in respect of remuneration accrued before the appointment of the administrative receivers: Insolvency Act 1986, Schedule 6, paragraph 9. So liability for a protective award cannot fall upon the debenture holder and there is normally no effective sanction against failure by the administrative receiver to consult.

    The union duly made a complaint to an industrial tribunal, which on 21 September 1993 made a protective award for the maximum period of 90 days beginning on 28 May 1993 and ending on 25 August 1993. Swan Hunter, being insolvent, was unable to pay any part of this award. It had actually paid the employees their wages for 28 May 1993, the day of dismissal, but that was all. The employees therefore applied to the Secretary of State as guarantor under section 122 of the Act of 1978. Directive 80/987 allows member states to decide what should be treated as "pay" for the purpose of the guarantee obligation (paragraph 2 of article 2) but the United Kingdom has elected in section 122 to include remuneration due under a protective award within the definition of "arrears of pay:" subsection (4)(d). On the other hand, subsection (3)(a) limits the guarantee of arrears of pay to eight weeks and subsection (5) limits the sum recoverable for any one week to £205. Furthermore, at the time of the dismissals, section 190(3) of the Act of 1992, which permitted a set off of remuneration due under a protective award against remuneration due under the contract or employment or damages for its breach, was still in force.

    For the purposes of illustrating the principles which the Secretary of State applied in making his calculations, I shall, like the Court of Appeal, take the case of one of the appellants, Mr. A. Craig. He had already made claims in respect of unpaid wages relating to a period of nearly four weeks before his dismissal and in respect of wages due under his contract in lieu of notice. These claims had been paid by the Secretary of State.

    The Secretary of State calculated the payment due in respect of the protective award as follows:  (a) he set off, pursuant to section 190(3), the wages which Mr. Craig had been paid by Swan Hunter for 28 May;  (b) he treated the period before dismissal for which he had paid arrears of wages as counting against the eight week maximum in accordance with section 122(3)(a);  (c) he set off, pursuant to section 190(3), the payment which he had made for wages due in lieu of notice during the period of the protective award;  (d) in general, the Secretary of State applied the £205 weekly limit pursuant to section 122(5), although, as Mr. Craig earned less than £205 a week, this did not matter to him.

    The main challenge to the Secretary of State's calculations relates to his use of the set-off under section 190(3) of the Act of 1992. This is alleged to be contrary to both domestic and Community law. As a matter of domestic law, the liability of the Secretary of State under section 122 of the Act of 1978 depends upon showing that upon the relevant date the employee was "entitled to be paid" the debt in question: subsection (1)(b). This must mean that he was entitled as against his employer. The relevant date in the present case was 21 September 1993, when the industrial tribunal made the protective award: see section 122(2)(b). So the question is whether on that date the employee was entitled to be paid both the remuneration due under the protective award and his wages or a payment in lieu of notice for the same period. To find the answer, one must go to section 190 of the Act of 1992. By virtue of the transitional provisions in article 3(12) of the commencement Order of 1993, the repeal of section 190(3), which had taken effect on 30 August 1993, before the relevant date, did not have effect in relation to any dismissal taking effect within 90 days after it came into force. A fortiori and on the basis of the general presumption against retrospectivity, it did not have effect in relation to dismissals which took place before it came into force. Therefore, as a matter of domestic law, section 190(3) meant that the employee was not entitled to be paid both wages and the protective award remuneration for the same period.

    Against this simple reasoning, the appellants put forward some very refined points of construction. First, they say that section 190(3) only confers a power of set-off upon the employer. It does not confer such a power upon the Secretary of State. But in my opinion the Secretary of State does not need a power of set-off. He is a guarantor, liable only for whatever the employee was entitled to be paid by his employer. Secondly, it was argued that, despite the presumption against retrospectivity and the express transitional provisions, the repeal of section 190(3) should be treated as having applied to the award against Swan Hunter in this case. The appellants submit that if the transitional provisions expressly prevent the repeal from applying to dismissals taking place for a period after it came into force, it should therefore apply to those which took place before it came into force. This seems to me hopeless: the legislature obviously thought it went without saying that the repeal would not apply retrospectively. Alternatively, they say that, although the repeal may not apply to the dismissals themselves, it should apply to a debt which accrued after the repeal took effect on 30 August 1993 by virtue of the protective award on 21 September 1993. But this makes no sense of the provision. The set-off provisions in section 190(3) could not have any application in relation to the dismissals as such. They could only apply to the liability arising from a protective award in consequence of the dismissals.

    The appellants invite your Lordships to adopt these extravagant meanings of the United Kingdom legislation on the ground that section 190(3) had been found to be in breach of Community law and therefore one should construe domestic law in such a way as to get rid of it as effectively and expeditiously as possible. It is of course true that domestic law should, so far as possible, be construed so as to give effect to Community rights. But the principle that Directives do not have horizontal effect between private parties is based upon the notion that ordinary citizens are entitled to rely upon clear provisions of domestic law until they have been changed in accordance with a Directive. It would subvert this principle if one were to deny citizens the protection of the presumption against retrospectivity on the ground that the change in the law was intended to give effect to a Directive which should have been implemented at an earlier date.

    In my opinion, therefore, the calculation of Swan Hunter's liability by applying the set-off under section 190(3) was entirely in accordance with United Kingdom law at the relevant date. Was it in accordance with Community law? The appellants concede that the liability of Swan Hunter was unaffected by the failure of the United Kingdom government fully to implement Directive 75/129 in accordance with the decision of the Court of Justice. The Directive does not have horizontal effect. And it seems to me that, since the liability of the Secretary of State is dependent upon there being a liability of Swan Hunter, Community law cannot create any greater liability against him.

    The appellants strongly challenge this last conclusion. They say that while Swan Hunter, as a private person, may be unaffected by the Directive, the Secretary of State is not. Why should he, as the party responsible for the failure to implement the Directive, be entitled to shelter behind the skirts of Swan Hunter? He should be treated as if the Directive had been implemented and Swan Hunter had not been entitled to any set-off.

    My Lords, I might have seen some merit in this argument if the Secretary of State had been under a duty in Community law to provide a guarantee of the debts due from Swan Hunter to the appellants in this case. It could have been said that his obligation should be construed as requiring him to guarantee whatever, as a matter of Community law, Swan Hunter should have paid the employees. On that basis it might have been argued that, even if Swan Hunter were not liable in domestic law because the Directive did not have horizontal effect, the Secretary of State should be liable as if they had been. I say nothing at all about the soundness of this argument because its fundamental premise is missing. The Secretary of State had no obligation whatever in Community law to guarantee any payments due from Swan Hunter to these employees. There was at the relevant time no state of insolvency within the meaning of Council Directive 80/987. And if the Secretary of State had no Community law obligation to pay the appellants anything, I cannot see how he could have had an obligation to pay him more than was due under domestic law.

    The point that the Directive does not apply to the appointment of administrative receivers appears, remarkably, not to have been taken in the industrial tribunal, the Employment Appeal Tribunal or the Court of Appeal. The Employment Appeal Tribunal held that the application of set-off to the claim against the Secretary of State was contrary to Community law. The Court of Appeal reversed this decision on the ground that the period for which remuneration was payable under the protective award fell outside the periods in respect of which the Directive required a guarantee. But the Secretary of State now submits that the Directive does not apply to an administrative receivership at all. As I am of opinion that he is right, I need not consider the question of which arrears of pay would have had to have been guaranteed if it did.

    The appellants argue that, having chosen to implement Council Directive 80/987 in the way in which it did, the United Kingdom cannot rely upon the fact that it could have adopted a different method in order to avoid having to implement its chosen method in accordance with Community law: Marshall v. Southampton and South West Hampshire Health Authority (Teaching) (No. 2) (Case C-271/91) [1993] I.C.R. 893. But this is not a case of a member state exercising a discretion conferred by the terms of a Directive or the general provisions of article 189(3) of the E.C. Treaty to adopt a particular form and method of implementation. The application of section 122 of the Act of 1978 to administrative receiverships is not a way of giving effect to the Directive. It lies altogether outside the scope of the Directive and is a purely domestic remedy.

    Like the Court of Appeal but for a different reason, I would therefore reject the challenge to the deductions made by the Secretary of State on the grounds of the set-off under section 190(3) of the Act of 1992. This leaves two subsidiary complaints. The first relates to the £205 a week limit which was applied to those employees earning higher wages and the second to the order in which the Secretary of State made his deductions.

    Directive 80/987 allows a member state to limit the guaranteed amount "to avoid the payment of sums going beyond the social objective of this Directive:" paragraph 3 of article 4. The appellants say that a limit of £205 a week goes far beyond the scope of this derogation from the general obligation to guarantee the employee's arrears of pay. As a derogation, it should be restrictively construed: Regeling v. Bestuur van de Bedrijfsvereniging vor de Metaalnijverheid (Case C-125/97) [1999] I.C.R. 605, 621, 617, at para. 20 of the judgment of the court and para. 53 of the opinion of Mr. Advocate General Cosmas. The Directive is not very informative about its social objectives except to say that "the need for balanced economic and social development in the Community" should be taken into account in giving effect to the primary objective to "provide for the protection of employees" and "guarantee payment of their outstanding claims." The legal basis of the Directive, as appears from the recitals, is articles 100 and 117 of the E.E.C. Treaty. Article 100 is of course concerned with differences between the laws of member states which directly affect the functioning of the common market while article 117 deals with the improving the standard of living of workers. While the main object of the guarantee is to achieve both these purposes by requiring a minimum level of guarantee protection, the purpose of paragraph 3 of article 4 is presumably to enable member states to limit the burden on the social welfare budget by confining the benefit of the guarantee to employees who would be likely to suffer hardship from the loss of the wages due to them.

    In domestic law, the limit set by section 122(5) of the Act of 1978 is subject to annual revision by the Secretary of State under section 148. In making a review, he is required to take into account the general level of earnings in Great Britain, the national economic situation and such other matters as he thinks relevant: section 148(2). When Directive 80/987 came into force, the limit was £145 a week. In 1993, at the time of the dismissals in this case, it had been increased to £205 a week (by the Employment Protection (Variation of Limits) Order 1992). The appellants say that the increases made each year had fallen behind increases in the average level of earnings in Great Britain. It was too restrictive and failed to comply with the main social objectives of the Directive. The Secretary of State denies this. He compares the £205 a week guarantee with the £44.65 a week unemployment benefit and £52.50 a week statutory sick pay which was then payable.

    I must confess that, although in a footnote to his opinion in Regeling v. Bestuur van de Bedrijfsvereniging voor de Metaalnijverheid (Case C-125/97) [1998] E.C.R. I-4493, 4508 (footnote 16 to para. 53) Mr Advocate General Cosmas said that the European Court of Justice had the right and duty, whether in proceedings by the Commission or a preliminary reference, to ascertain whether the conditions for the application of paragraph 3 of article 4 of Directive 80/987 had been satisfied, I do not find it an easily justiciable question. This is particularly the case in proceedings before a national court, which does not have information about the practices in other member states which would be available to the Commission under the notification procedure in paragraph 3 of article 4. Although the burden is upon the Secretary of State to justify the use of a derogation, the limit imposed under section 122(5) of the Act of 1978 does not seem to me unreasonably low. It may be lower than average earnings, but this is only one of the matters to which the Secretary of State must have regard under section 148(2) and I do not think that paragraph 3 of article 4 precludes his having regard to other matters as well. At any rate, the criteria in section 148(2) have been notified to the Commission and it has made no objection.

    I have taken some time to consider the question of whether the £205 limit is contrary to Council Directive 80/987 because it may have some importance in other cases to which the Directive applies. But the short answer in this appeal is the same as that which I have offered to the complaint about set-off, namely that the Directive does not apply at all. There was no state of insolvency to which the Directive applied and therefore no obligation upon the Secretary of State to pay more than domestic law required. The Court of Appeal reached the same conclusion on the ground that claim did not fall within the period for which the Directive required a guarantee.

    Finally, there is the question of the order of payments. This is a pure question of domestic law. What this comes to is that the Secretary of State, in calculating the eight weeks for which the employees were entitled to the benefit of the guarantees, started with the first week in respect of which the employee claimed that arrears of pay were due and proceeded chronologically until he got to eight. Thus an employee who claimed four weeks of pay in arrear before his dismissal and 12 weeks under a protective award from the date of dismissal was paid for the four weeks of pay and then the first four weeks of the protective award. The appellants say that this may be less advantageous to the employees than allowing them to pick their own guaranteed weeks, provided that the total does not exceed eight. For example, the deficiency in respect of some of the earlier weeks may be less than in some of the later weeks.

    Section 122(3)(a) (of the Act of 1978 (as substituted by paragraph 4 of Schedule 3 to the Employment Act 1982) says that the section applies to any arrears of pay in respect of "one or more (but not more than eight) weeks." It does not say how those weeks should be ascertained. In my view the section must be read on the basis that it was passed to implement Directive 80/987 and construed accordingly. It is true that in this case the Directive has no application, but the section must have the same meaning whether it applies to a case within the Directive or outside it. The limitation of the guarantee liability to eight weeks is therefore a derogation from the main recited objective to "guarantee [employees] payment of their outstanding claims" and must be restrictively construed. In my view, this requires that section 122 be read to confer the maximum possible protection consistently with the limitation of the guarantee to arrears of pay in respect of eight weeks. This means that the employee is entitled to choose what he regards as the eight weeks most favourable to his claim.

    This does not mean that the Secretary of State will have the administrative burden of deciding which eight weeks are most favourable to the employee. I think it can be assumed that the employee will choose the weeks most favourable to himself. Furthermore, the Secretary of State is entitled to assume, in the absence of any contrary request, that the employee is content to accept the normal chronological method which he has, it seems, adopted for many years. There is nothing in the present case to suggest that employees asked for the guarantee to apply to any particular weeks. In fact, the point was not even taken in the industrial tribunal or before the Employment Appeal Tribunal. The question therefore does not arise.

    I would therefore dismiss the appeal. Appendix

Council Directive (75/129/E.E.C.) on the approximation of the laws of the member states relating to collective redundancies.

     "Whereas it is important that greater protection should be afforded to workers in the event of collective redundancies while taking into account the need for balanced economic and social development within the Community . . ."

     "Article 2

     "1. Where an employer is contemplating collective redundancies, he shall begin consultations with the workers' representatives with a view to reaching an agreement.

     "2. These consultation shall, at least, cover ways and means of avoiding collective redundancies or reducing the number of workers affected and mitigating the consequences."

     Trade Union and Labour Relations (Consolidation) Act 1992

     "188. (1) An employer proposing to dismiss as redundant an employee of a description in respect of which an independent trade union is recognised by him shall consult representatives of the union about the dismissal in accordance with this section. (2) The consultation must begin at the earliest opportunity, and in any event--(a) where the employer is proposing to dismiss as redundant 100 or more employees at one establishment within a period of 90 days or less, at least 90 days before the first of those dismissals takes effect . . ."

      "189. (1) Where an employee has dismissed as redundant, or is proposing to dismiss as redundant, one or more employees of a description in respect of which an independent trade union is recognised by him, and has not complied with the requirements of section 188, the union may present a complaint to an industrial tribunal on that ground. (2) If the tribunal finds the complaint well-founded it shall make a declaration to that effect and may also make a protective award. (3) A protective award is an award in respect of one or more descriptions of employees--(a) who have been dismissed as redundant, or whom it is proposed to dismiss as redundant, and (b) in respect of whose dismissal or proposed dismissal the employer has failed to comply with the requirements of section 188, ordering the employer to pay remuneration for the protected period. (4) The protected period - (a) begins with the date on which the first of the dismissals to which the complaint relates takes effect, or the date of the award, whichever is the earlier, and (b) is of such length as the tribunal determines to be just and equitable in all the circumstances, having regard to the seriousness of the employer's default in complying with any requirement of section 188; but shall not exceed 90 days in a case falling within section 188(2)(a) . . ."

      "190.(1) Where an industrial tribunal has made a protective award, every employee of a description to which the award relates is entitled, subject to the following provisions and to section 191, to be paid remuneration by his employer for the protected period. (2) The rate of remuneration payable is a week's pay for each week of the period; and remuneration in respect of a period less than a week shall be calculated by reducing proportionately the amount of a week's pay. (3) Any payment made to an employee by an employer in respect of a period falling within a protected period--(a) under the employee's contract of employment, or (b) by way of damages for breach of that contract, shall go towards discharging the employer's liability to pay remuneration under the protective award in respect of the first mentioned period. Conversely, any payment of remuneration under a protective award in respect of any period shall go towards discharging any liability of the employer under, or in respect of any breach of, the contract of employment in respect of that period. . . . (5) Schedule 14 to the Employment Protection (Consolidation) Act 1978 applies with respect to the calculation of a week's pay for the purposes of this section. . . ."

Council Directive (80/987/E.E.C.) 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.

     "Having regard to the Treaty establishing the European Economic Community and in particular article 100 thereof. . . Whereas it is necessary to provide for the protection of employees in the event of the insolvency of their employer, in particular in order to guarantee payment of their outstanding claims, while taking into account the need for balanced economic and social development in the Community; whereas differences still remain between the member states as regards the extent of the protection of employees in this respect; whereas efforts would be directed towards reducing these differences, which can have a direct effect on the functioning of the common market; whereas the approximation of laws in this field should, therefore, be promoted while the improvement within the meaning of article 117 of the Treaty is maintained . . ."

     "Article 1

     "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)."

     "Article 2

     "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 makes 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 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 . . .'pay'. . . "

     "Article 3

      "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 employee'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."

     "Article 4

      "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 payments 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."

     "Employment Protection (Consolidation) Act 1978, section 122 (as amended by section 218 of the Insolvency Act 1985, paragraph 18 of Schedule 2 to the Act of 1992, paragraph 4 of Schedule 3 to the Employment Act 1982 and the Employment Protection (Variation of Limits) Order 1992)

      "(1) If on an application made to him in writing by an employee the Secretary of State is satisfied--(a) that the employer of that employee has become insolvent; and (aa) that the employment of the employee has been terminated; and (b) that on the relevant date the employee was entitled to be paid the whole or part of any debt to which this section applies, the Secretary of State shall, subject to the provisions of this section, pay the employee out of the National Insurance Fund the amount to which in the opinion of the Secretary of State the employee is entitled in respect of that debt. (2) In this section 'the relevant date' - (a) in relation to arrears of pay (not being remuneration under a protective award made under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992) and to holiday pay, means the date on which the employer became insolvent; (b) in relation to such an award and to a basic award of compensation for unfair dismissal, means whichever is the latest of--(i) the date on which the employer became insolvent; (ii) the date of the termination of the employee's employment; and (iii) the date on which the award was made; (c) in relation to any other debt to which this section applies, means whatever is the later of the dates mentioned in sub-paragraphs (i) and (ii) of paragraph (b). (3) This section applies to the following debts: - (a) any arrears of pay in respect of one or more (but not more than eight) weeks; (b) any amount which the employer is liable to pay the employee for the period of notice required by section 49(1) or (2) or for any failure of the employer to give the period of notice required by section 49(1); . . . (d) any basic award of compensation for unfair dismissal (within the meaning of section 72) . . . (4) For the purposes of this section, the following amounts shall be treated as arrears of pay, namely . . . (d) remuneration under a protective award made under section 189 of the [Act of 1992]. (5) The total amount payable to an employee in respect of any debt mentioned in subsection (3), where the amount of that debt is referable to a period of time, shall not exceed £205 in respect of any one week or, in respect of a shorter period, an amount bearing the same proportion to £205 as that shorter period bears to a week. (6) The Secretary of State may vary the limit referred to in subsection (5) after a review under section 148, by order made in accordance with that section."

LORD HOPE OF CRAIGHEAD

My Lords,

    I have had the advantage of reading in draft the speech which has been prepared by my noble and learned friend Lord Hoffmann. I agree with it, and for the reasons which he has given I too would dismiss the appeal.

LORD HOBHOUSE OF WOODBOROUGH

My Lords,

    I agree that this appeal should be dismissed for the reasons given by my noble and learned friend Lord Hoffmann.

 
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