Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 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

(presented by the Commission)

EXPLANATORY MEMORANDUM

1. INTRODUCTION

In its medium-term social action programme (1995-1997), the Commission announced that it was to submit a report on the transposition of Directive 80/987/EEC in the 15 Member States, and that it intended to decide on the basis of these reports [1] and subsequent studies whether - and to what extent - the Directive should be revised.

[1] COM(95) 164 final and COM(96) 696 final.

The question of re-examining the Directive was raised and discussed in particular by the Directors-General for industrial relations in 1997, following which an ad hoc group of government experts from the 15 Member States was set up to consider, in collaboration with the Commission, the main difficulties encountered in enforcing Directive 80/987/EEC [2].

[2] Council Directive 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, OJ L 283, 28.10.1980, p. 23.

This group of experts met between July 1997 and April 1999. In the course of their work, the need to revise the Directive gradually became apparent.

The Commission confirmed its commitment to this in its communication of 24 November 1999 on the strategy for Europe's Internal Market [3], in which it announced that its first targeted action for achieving operational objective 1 (Citizens 1) would be a proposal for a European Parliament and Council Directive amending Directive 80/987/EEC.

[3] COM(1999) 624 final.

More recently, in its communication of 28 June 2000 on the social policy agenda [4], the Commission reaffirmed its intention to revise the Directive in order to adapt and improve it in line with Community case law and the changing world of work.

[4] COM(2000) 379 final.

The Commission's approach to and outline for this proposal on changes to the 1980 Directive were largely guided by the results of the work done by the group of government experts.

2. WHY AMEND THE DIRECTIVE-

Twenty years have elapsed since Directive 80/987/EEC was adopted by the Council, and the Commission believes that the time has come to take stock of the discussions and deliberations on the problems in enforcing some of the its provisions, and to present the Council with a proposal for amendments to the Directive.

The Commission takes the view that the basic structure of the Directive should be retained: its aim of offering protection, the mechanism introduced and the results achieved are beyond dispute. It appears, however, that over the years new conditions on the job market as well as restructuring and reorganisation within firms mean that the Directive should be revised in relation to specific points on which it has got out of step.

The main developments which have shown up gaps or shortcomings concern changes to insolvency law in the Member States, the dynamism of the internal market, the need for consistency with other Community directives on labour law adopted in the meantime, and the recent case law of the Court of Justice.

The following amendments are proposed:

* precise indication of the scope in Articles 1 and 2, with the current Annex being removed;

* new concept of insolvency in Article 2: definition based on that used in the Council Regulation on insolvency procedures;

* simplification of Articles 3 and 4;

* new Article 8a specifying the competent guarantee institution in cases with a cross-border dimension;

* new Article 8b providing for administrative collaboration between the Member States with a view to facilitating the implementation of Article 8a.

3. SUBSTANCE OF DIRECTIVE 80/987/EEC

Directive 80/987/EEC seeks to provide employees with a minimum degree of protection under Community law in the event of their employer becoming insolvent. To this end, it requires Member States to put in place an institution guaranteeing to employees whose employer has become insolvent the payment of their outstanding claims to remuneration for a specific period. The Directive allows the Member States to limit the liability of guarantee institutions, in which connection it provides in Articles 3 and 4 for options relating to dates and reference periods in order to restrict the duration of a guarantee. The Member States must, however, adhere to the minimum duration laid down in Article 4.

The state of insolvency of an employer is defined in Article 2 of the Directive by reference to procedures in place in the Member States involving the employer's assets and aiming to satisfy collectively the claims of creditors.

The rules for the organisation, financing and operation of the guarantee institutions are laid down by the Member States, which must, however, comply with three principles:

* the assets of the institutions shall be independent of the employers' operating capital;

* the employers must contribute to financing, unless it is fully covered by the public authorities;

* the institutions' liabilities must not depend on whether or not obligations to contribute to financing have been fulfilled.

The Directive also contains provisions allowing the Member States to take the measures necessary to avoid abuses, and to refuse or reduce the liability referred to if it appears that fulfilment of the obligation is unjustifiable.

Directive 80/987/EEC has been amended twice; on the first occasion, its Annex was amended to take account of the accession of Spain and Portugal [5], and on the second occasion in response to the accession of Austria, Finland and Sweden. [6]

[5] Council Directive 87/164/EEC of 2 March 1987, OJ L 66, 11.3.1987, p. 11.

[6] Act concerning the conditions of accession, Annex I - List referred to in Article 29 of the Act of Accession - IV. Social policy - D. Labour law, OJ C 241, 29.8.1994, p. 115.

4. PROBLEMS AND PROPOSED SOLUTIONS

4.1. Scope and definitions: the need to bring them into line with developments.

4.1.1. The concept of insolvency: this should be broadened while ensuring greater consistency with other Community directives.

Broadening of the concept

Directive 80/987/EEC applies to employees' claims against employers who are in a state of insolvency as defined therein.

Article 2 of the currently applicable Directive defines the state of insolvency by reference to 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.

In its judgment of 9 November 1995 in Case C-479/93 [7], the Court of Justice gave a literal interpretation to this concept and ruled that it applied to all employees whose employers may, under the applicable national law, be made subject to proceedings involving the liquidation of their assets.

[7] Judgment in Case C-479/93, [1995] ECR I-3843.

The Commission believes that this strict interpretation means that the concept of insolvency under Community law must be redefined to take account of the social aim of the Directive and of recent developments in insolvency law in the Member States, while at the same time ensuring greater consistency with other Community directives.

The Directive's main social aim is to safeguard employees' outstanding pay claims in the event of the employer becoming insolvent - an aim which could be jeopardised if it were permissible to remove from the scope of that protection the outstanding claims of employees whose insolvent employers are not subject to collective proceedings (liquidation proceedings) or are subject to other, increasingly diverse and varied insolvency proceedings (composition, judicial settlement, suspension of payments or similar proceedings aimed at ensuring the continued existence of the enterprise concerned).

Even though the Member States, in their transposition legislation, use a wider definition of "insolvency" than that in Directive 80/987/EEC for determining when the guarantor should be called upon, Community law should also bring its definition more into line with the social aim of the Directive and changes in insolvency law.

Conformity with other directives

The developments in insolvency law and their impact on labour law were already discussed in connection with the revision of Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of businesses [8] (the "transfers Directive").

[8] OJ L 61, 5.3.1977, p. 26.

In Directive 98/50/EC [9], the Community introduced a number of more flexible provisions into the transfers Directive for the benefit of firms encountering economic difficulties. The amended version of the Directive specifically upholds the right of the Member States not to apply Articles 3 and 4 of the Directive (safeguarding of employees' rights) to transfers of undertakings in connection with liquidation proceedings. At the same time, it provides for a new and more flexible arrangement benefiting firms undergoing insolvency proceedings of any kind (which may or may not be liquidation proceedings); the Member States may in particular stipulate that the debts of the transferor arising from a contract of employment and payable before the transfer shall not be transferred to the transferee if the insolvency proceedings give rise, under the law of the Member State concerned, to protection at least equivalent to that provided for in Directive 80/987/EEC. For the sake of consistency, it would make sense to bring the Community definition of insolvency into line with this new state of affairs. It should be ensured that the flexibility introduced for the benefit of firms being transferred is backed up by a minimum degree of protection for employees which is guaranteed by means of Directive 80/987/EEC.

[9] Council Directive of 29 June 1998 amending Directive 77/187/EEC, OJ L 201, 17.7.1998, p. 88.

As regards the new concept of insolvency, the Commission proposes that the definition in Article 1(1) of Regulation (EC) No 1346/2000 of 29 May 2000 on insolvency proceedings [10] be used. This definition covers bankruptcy (liquidation) proceedings as well as other collective insolvency proceedings.

[10] OJ L 160, 30.6.2000, p. 1.

In order to ensure greater transparency and legal certainty, the Member States will be required to notify the Commission about all insolvency proceedings - and any amendments relating to them - falling within the scope of the Directive and giving rise to intervention by the guarantee institution. The Commission will publish these communications in the Official Journal.

4.1.2. The employees covered: a concept which must evolve further

Need for conformity with other directives

With regard to the definition of "employee", Article 2 of Directive 80/987/EEC invokes the national laws of the Member States. This reference to national rather than Community law could limit the scope of the protection provided by the Directive. This would be unsatisfactory and, in the case of some groups of employees, difficult to reconcile with the Community's social-policy aims of striking a balance between a flexible labour market and security for employees.

The Commission therefore proposes to take the approach already adopted in Directive 98/50/EC mentioned above and insert into Article 2 (Scope) of the Directive a provision stating that the Member States may not exclude from its scope part-time workers within the meaning of Directive 97/81/EC [11], workers with fixed-term contracts within the meaning of Directive 99/70/EC [12], or workers with a temporary employment relationship within the meaning of Directive 91/383/EEC [13].

[11] Council Directive of 15 December 1997 concerning the Framework Agreement on part-time work concluded by UNICE, CEEP and the ETUC, OJ L 14, 20.1.1998, p. 9.

[12] Council Directive of 28 June 1999 concerning the framework agreement on fixed-term work concluded by ETUC, UNICE and CEEP, OJ L 175, 10.7.1999 p. 43.

[13] Council Directive of 25 June 1991 supplementing the measures to encourage improvements in the safety and health at work of workers, OJ L 206, 29.7.1991, p. 19.

This stricter delineation of the Directive's scope is necessary in order to achieve greater consistency between the insolvency Directive and the other directives referred to above.

Need for a complete re-examination of the Annex

This concern for greater consistency also involves a re-examination of the Annex to Directive 80/987/EEC, which offers the Member States the possibility of excluding certain categories of worker from its scope.

According to Article 1(2) of Directive 80/987/EEC, the Member States may, by way of exception, exclude from its scope claims by certain categories of employee:

- by virtue of the special nature of the employee's contract of employment or employment relationship; or

- by virtue of the existence of other forms of guarantee offering the employee protection equivalent to that resulting from the Directive.

The categories of employee concerned are listed in the Annex to the Directive.

The first part of the Annex sets out categories of employee who may be excluded from the scope of the Directive, some of whom do not even enjoy guarantees affording protection equivalent to that provided under the Directive; for example, domestic servants and part-time workers are excluded in certain Member States. For the reasons mentioned above, the Commission believes that these exclusions are incompatible with the aims of Community social policy, and that domestic servants and part-time workers in particular should not be excluded from the protection afforded by the future Directive.

As regards the possible exclusion of close relatives/spouses of employers or of owners of an essential part of the business concerned, the Commission considers that this should not be on the basis of an Annex and should instead derive directly from Article 10 of the Directive. If this exclusion was intended to prevent fraud or fictitious employment contracts, Article 10(b) of the current Directive states that the Member States may refuse or reduce liability to pay 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.

In the second part of the Annex, the possible exclusions are linked to other, equivalent forms of guarantee. Since these exclusions relate back to the criteria in Article 1(2) (other forms of guarantee offering equivalent protection), it does not appear essential to list them in the Annex given that their justification arises from Article 1(2) in any case.

The Commission therefore proposes to dispense with the Annex to Directive 80/987/EEC and to set out the scope of the future insolvency Directive by wording Article 1 more precisely.

4.2. Time-limit on the guarantee: the need for simplification

The Member States' ability to impose a time-limit on the guaranteed pay claim should be retained. However, the arrangement whereby the Member States are given a choice of three alternative dates marking the beginning of the reference period within which the minimum period of guaranteed remuneration must fall is an unnecessarily complicated approach. Given that the idea is to enable the guarantee institution's liability to meet claims to be limited to a specific minimum period, a simpler wording could give employees the same degree of protection. A significant improvement would be to lay down a minimum period under Community law and to leave it to the Member States to fix a date and a reference period.

A simplification of this kind would not only be more in keeping with the principle of subsidiarity, but would at the same time also deal with a problem which is not currently provided for in the Directive. In its current form, the Directive refers only to pay due before a reference date. However, practice in the Member States has shown that, in some situations, the guarantee should also be able to cover claims arising after that date. For example, once it has been initiated, the insolvency procedure itself consists of various phases; the business operation of a firm may be continued for a time, and wages are still payable for the period concerned.

4.3. Cases with a cross-border dimension: the need for greater employee protection

The creation of the internal market led to a tendency among firms to reorganise themselves in order to take full advantage of the benefits and opportunities offered by this market integration. These reorganisation measures, and thus also the business activities of firms, are acquiring an increasingly transnational dimension.

Integration between markets makes it essential to adapt existing rules in line with changes - or in order to make up for shortcomings in the way they work. In its communication on the strategy for Europe's internal market, the Commission particularly stressed the need to make Europe's economy more competitive and to improve the quality of life of the citizens of Europe. According to this strategy, the ongoing development of the internal market should be at the forefront of efforts to bring the European Union closer to its citizens, given its impact on their daily lives as employees, employers, consumers, pensioners, students, borrowers, savers, investors and tax-payers. As employees, people must have confidence that greater competition will be accompanied by adequate social protection.

The position of firms with establishments or a business presence in a number of Member States - an increasingly frequent scenario arising from the development of the internal market - also has implications for the employees even if they do not move to another Member State to work. The consequences may be especially serious if their employer is in a state of insolvency within the meaning of Directive 80/987/EEC as a result of insolvency proceedings instituted in another Member State (in which the firm's registered office is located, for example) and the guarantee institution in the country in which an employee normally works refuses to meet pay claims even though it received the corresponding contributions.

The lack of a provision in Directive 80/987/EEC which specifically designates the guarantee institution responsible for meeting pay claims in the event of firms with establishments in various Member States becoming insolvent is a source of legal uncertainty and has led to litigation in national courts. The continuing development of the internal market and the increasing internationalisation of business mean that the number of legal actions with a Community dimension will go on increasing.

The Court of Justice has already considered cases of insolvency involving foreign elements and has developed useful criteria for solving the problems referred to; recently, it finally issued a ruling on which guarantee institution should meet pay claims in the scenarios described above.

First of all, in its judgment in Case C-117/96 Mosbaek [14], the Court set out two useful criteria regarding the competent institutions within the meaning of Directive 80/987/EEC, the first being the criterion relating to the funding of the guarantee scheme by employers, and the second concerning the opening of insolvency proceedings. The Court considered that, in practice, such proceedings are most often requested in the country in which the employer is based, which is generally also the country in which the employer contributes to the financing of the guarantee institution as provided for in the Directive. In Mosbaek, a single Member State met both these criteria, which meant that there was no clarification as to which guarantee institution is responsible for meeting pay claims in the case of an insolvent firm with establishments or a business presence in a number of Member States.

[14] Judgment of 17 September [1997] ECR I-5017.

In its judgment of 16 December 1999 in Case C-198/98 [15], the Court was asked for the first time to rule on a case with a cross-border dimension, namely on the position of an insolvent firm with establishments in various Member States.

[15] Judgment in G.Everson, T.J. Barras/Bell Lines Ltd.; not yet published.

The Court stated that in instances where the employer is established in a single Member State, the Directive stipulates that the guarantee institution responsible for meeting employees' pay claims is that of the Member State in which the firm is located. If, as in Case C-198/98, the employer has a number of establishments in various Member States, the additional criterion of the employees' place of work should, while bearing in mind the social aim of the Directive, be used to determine the competent guarantee institution. The Court also stated that this most often corresponds to the social and linguistic environment with which the employees are familiar.

The contributions for financing the pay guarantee scheme are normally paid, or should be paid, to the guarantee institution in the country in which the employee habitually works. As the Court also stressed, it is also the institution located nearest to the employees, who can then assert their claims in the country where they normally work without having to face problems of language or distance. Employees will not be obliged to deal with a body in another Member State with which they have no ties and whose procedures are unfamiliar to them. This solution will also enable the principle of equal treatment to be upheld in that all employees in a particular country enjoy the same protection.

In order to ensure the necessary legal certainty and to strengthen employees' rights in the manner referred to by the Court in its judgment of 16 December 1999, the Commission proposes that a new provision be inserted into the future Directive which expressly states which guarantee institution is responsible for meeting outstanding pay claims in cases of insolvency with a cross-border dimension in which the following conditions are met:

* the firm/employer conducts business within the territories of a number of Member States;

* the institution of insolvency proceedings has been requested in a Member State;

* a direct result of the firm's insolvency is that the employees normally working in the territory of another Member State in which their employer has a sufficiently permanent business presence (remuneration of employees in the latter country, dealings with the administrative authorities in that State, social security contributions) have outstanding pay claims within the meaning of the Directive.

Compliance with this new provision with its automatic recognition of insolvency proceedings initiated in another Member State will be made even easier by the entry into force of Regulation (EC) No 1346/2000 on insolvency proceedings. Even though the Court's judgment in Case C-198/98 lays down the principle of recognising the validity of decisions taken in insolvency proceedings in another Member State, this Regulation will still clarify a number of points.

The Regulation, which aims to improve and speed up insolvency proceedings with cross-border effects, lays down provisions on international jurisdiction (Article 3), the applicable law governing the proceedings, their conduct and their substantive legal effects (Article 4), and establishes the principle of immediate recognition of any judgment opening insolvency proceedings (Article 16). This latter principle means that, without any further formalities, such a judgment has the same validity in law in all other Member States as it enjoys in the country in which the proceedings are opened.

5. JUSTIFICATION FOR THE PROPOSAL

5.1. Subsidiarity principle

Amendment of Directive 80/987/EEC is the only way of introducing a new Community-wide concept of insolvency, which is necessary in order to create a better balance between insolvency law and labour law, and to ensure consistency with Council Directive 98/50/EC.

The adoption of a specific provision to determine the institution responsible for meeting pay claims in cases of insolvency with a cross-border dimension is needed for the purpose of clarity and legal certainty, and may in the future avoid situations likely to lead to conflicting disclaimers of jurisdiction. This provision must be laid down at Community level and belongs in a future directive on the protection of employees in the event of the insolvency of their employer. It should be introduced by means of a Council directive amending Directive 80/987/EEC.

The other clarifications and simplifications in the wording have been proposed by the Commission in the interests of transparency and consistency with other Community instruments.

All these adjustments should be introduced in a Council Directive amending Directive 80/987/EEC.

5.2. Proportionality principle

The content of the proposed legal instrument is also in keeping with the principle of proportionality in that it provides for a minimum degree of protection at Community level while leaving it to the Member States to lay down detailed rules and stipulate the dates and periods to be taken into consideration.

The proposed directive does not impose any administrative, financial or legal constraints likely to hold back the establishment or development of small and medium-sized enterprises.

6. LEGAL BASIS

When Directive 80/987/EEC was adopted, the Community legislator took as its basis ex Article 100 of the Treaty because of the link established by ex Article 117 of the Treaty between the commitment of the Member States to bring about "improved working conditions and an improved standard of living", and the approximation of laws, regulations and administrative provisions in order to achieve this. In the absence of a specific legal basis for measures to improve working conditions, it was necessary to refer to the general legal basis for the approximation of legislation.

Now that the EC treaty as amended by the Treaty of Amsterdam has entered into effect, Title XI (Social policy, education, vocational training and youth) contains a new Chapter entitled "Social provisions", which introduces new, specific legal bases for measures in the social field.

The new Article 136 of the Treaty upholds the Member States' commitment to promote improved living and working conditions, while Article 137 states that, with a view to achieving the objectives of Article 136, the Community shall support and complement the activities of the Member States in the fields referred to in the first paragraph, including working conditions. Paragraph 2 then states that the Council may adopt, by means of directives, minimum requirements and that it shall act in accordance with the procedure referred to in Article 251.

The Commission therefore considers that Article 137(2) of the Treaty now constitutes the specific and appropriate basis for legal instruments aimed at improving working conditions, and that the Directive amending Directive 80/987/EEC should therefore take this Article as its basis.

7. CONSULTATION WITH THE SOCIAL PARTNERS AT COMMUNITY LEVEL

Article 138(2) of the EC Treaty states that, before submitting proposals in the social policy field, the Commission shall consult the social partners on the possible direction of Community action. On 10 February 2000, the Commission therefore decided to initiate the first phase of consultation with the social partners and ask for their opinion on the need to amend Directive 80/987/EEC and on the approach to be adopted.

Most of the social partners who responded to this initial consultation felt that a Community initiative to revise Council Directive 80/987/EEC in order to bring it more into line with the current situation might prove useful.

After having considered the social partners' responses, the Commission undertook further internal deliberations and on 7 June 2000 started the second phase of consultations with the social partners on the contents of a proposal to amend the Directive in question. The social partners' views are summarised in the Annex (Point 6).

8. EXPLANATION OF THE PROPOSED AMENDMENTS TO INDIVIDUAL ARTICLES

Article

Article 1 contains all the proposals for amendments to Directive 80/987/EEC.

1. Title: the new title is proposed in order to take account of the new legal basis.

2. Articles 1-4: Scope and definitions

At the end of Article 1(2), it is stated that Member States wishing to exclude certain categories of employee because of the existence of other forms of guarantee must prove that the latter offer those employees protection equivalent to that resulting from the Directive.

The second sentence of the old paragraph 2, which refers to a list in the Annex, has been deleted and the Annex to Directive 80/987/EEC has thus been dispensed with.

Article 1(3) concerning Greenland has been deleted.

A new paragraph, 3, provides for possible exclusions previously set out in part I of the Annex (employees having a contract of employment, or an employment relationship, of a special nature).

The scope of the Directive will thus be set out in the main body of the text, so the Annex can be dispensed with. This layout is proposed in the interests of transparency and simplification.

In Article 2, it is proposed that the definition contained in the 1980 Directive, which is restricted to liquidation proceedings (collective settlement of creditors' claims and taking into consideration the claims referred to), be replaced by a new definition taken from Article 1 of the Directive on insolvency proceedings.

In paragraph 2, the references to definitions under national law will be retained. It is proposed, however, that the term "employee" be clarified in relation to part-time employees, employees having a fixed-term contract of employment and temporary employees who may not be excluded from the scope of the Directive.

A new paragraph 3 has been added which defines the term "establishment" as referred to in Article 8a. This definition is based on that used in Article 2(h) of Regulation (EC) No 1346/2000 on insolvency proceedings..

In Article 3, the first paragraph lays down the general obligation to pay employees' outstanding claims relating to remuneration for a given period.

In the second paragraph, rather than providing for three alternative dates, it is proposed that it be left to the Member States to determine the key date for the calculation of the period of remuneration for which the guarantee institutions will meet claims.

Article 4 retains the Member States' option to impose a time-limit on pay claims to be met by the guarantee institutions. However, it is proposed that the time-limits comprising alternative dates and periods be simplified by laying down a single minimum remuneration period under Community law of three months.

If the Member States stipulate that these three months must lie within a specific reference period, it is proposed that the latter period be of at least six months.

3. Addition of a new Section IIIa:

The new Article 8a specifies which guarantee institution is responsible for settling employees' claims.

As cases with a cross-border dimension are involved, the new Article 8b provides for collaboration between administrative authorities in the Member States in order to enable payment procedures to run more smoothly.

4. Addition of a new Article 10a:

The new Article 10a stipulates that the Member States shall lay down the insolvency proceedings falling within the scope of the Directive, and shall notify these - and any amendments pertaining to them - to the Commission and the other Member States.

Articles 2, 3 and 4 contain the usual provisions indicating the parties to which the Directive is addressed, and provisions on its implementation and entry into force.

2001/0008 (COD)

Proposal for a DIRECTIVE OF THE EUROPEAN PARLIAMENT AND OF THE COUNCIL 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

(Text with EEA relevance)

THE EUROPEAN PARLIAMENT AND THE COUNCIL OF THE EUROPEAN UNION,

Having regard to the Treaty establishing the European Community, and in particular Article 137(2) thereof,

Having regard to the proposal from the Commission [16],

[16] OJ C

Having regard to the opinion of the Economic and Social Committee [17],

[17] OJ C

Having regard to the opinion of the Committee of the Regions [18],

[18] OJ C

Acting in accordance with the procedure laid down in Article 251 of the Treaty [19],

[19] OJ C

Whereas:

(1) The Community Charter of Fundamental Social Rights for Workers adopted on 9 December 1989 states, in point 7, that "the completion of the internal market must lead to an improvement in the living and working conditions of workers in the European Community. ... The improvement must cover, where necessary, the development of certain aspects of employment regulations such as procedures for collective redundancies and those regarding bankruptcies".

(2) Directive 80/987/EEC [20] aims to provide a minimum degree of protection for employees in the event of the insolvency of their employer. To this end, it obliges the Member States to establish a body which guarantees payment of the outstanding pay claims of the employees concerned.

[20] OJ L 283, 28.10.1980, p. 23. Directive as last amended by the Act of Accession of Austria, Finland and Sweden.

(3) Changes in insolvency law in the Member States and the development of the internal market mean that certain provisions of that Directive must be adapted.

(4) Legal certainty and transparency also require clarification with regard to the scope and certain definitions of Directive 80/987/EEC. In particular the possible exclusions granted by way of exception to the Member States should be indicated in the scope of Directive 80/987/EEC and the Annex thereto should be deleted.

(5) In order to ensure equitable protection for the employees concerned, the definition of the state of insolvency should be adapted to new legislative trends in the Member States and should also include within this concept insolvency proceedings other than liquidation. This amendment is also necessary to ensure consistency with Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees' rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses [21].

[21] OJ L 61, 5.3.1977, p. 26; Directive as last amended by Directive 98/50/EC (OJ L 201, 17.7.1998, p. 88).

(6) It should be ensured that the employees referred to in Directive 97/81/EC of 15 December 1997 concerning the Framework Agreement on part-time work concluded by UNICE, CEEP and the ETUC [22], Directive 1999/70/EC of 28 June 1999 concerning the framework agreement on fixed-term work concluded by ETUC, UNICE and CEEP [23] and Directive 91/383/EEC of 25 June 1991 supplementing the measures to encourage improvements in the safety and health at work of workers with a fixed-duration employment relationship or a temporary employment relationship [24] are not excluded from the scope of this Directive.

[22] OJ L 14, 20.1.1998, p. 9; Directive as last amended by Directive 98/23/EC (OJ L 131, 5.5.1998, p. 10).

[23] OJ L 175, 10.7.1999, p. 43.

[24] OJ L 206, 29.7.1991, p. 19.

(7) In order to ensure legal certainty for employees in the event of insolvency of undetakings pursuing their activities in a number of Member States, and to strengthen workers' rights in line with the established case law of the Court of Justice of the European Communities, a provision should be introduced which expressly states which institution is responsible for meeting pay claims in these cases and to ensure that the relevant arrangements are properly implemented by making provision for collaboration between the competent administrative authorities in the Member States.

(8) In order to make it easier to identify insolvency proceedings in particular in situations with a cross-border dimension, provision should be made for the Member States to notify the Commission and the other Member States about insolvency proceedings giving rise to intervention by the guarantee institution.

(9) Directive 80/987/EEC should be amended accordingly.

(10) In accordance with the principles of subsidiarity and proportionality as set out in Article 5 of the Treaty, the objectives of the proposed action, namely the amendment of certain provisions of Directive 80/987/EEC to take account of changes in the labour market, cannot be sufficiently achieved by the Member States and can therefore be better achieved by the Community. This Directive confines itself to the minimum required in order to achieve those objectives and does not go beyond what is necessary for that purpose,

HAVE ADOPTED THIS DIRECTIVE:

Article 1

Directive 80/987/EEC is amended as follows:

1. The title is replaced by the following:

"Council Directive 80/987/EEC of 20 October 1980 on the protection of employees in the event of the insolvency of their employer."

2. Sections I and II are replaced by the following:

"SECTION I

Scope and definitions

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).

2. Member States may, by way of exception, exclude claims by certain categories of employee from the scope of this Directive, by virtue of the existence of other forms of guarantee if it is established that these offer the persons concerned a degree of protection equivalent to that resulting from this Directive.

3. Member States may exclude from the scope of this Directive:

(a) domestic servants employed by a natural person;

(b) share-fishermen.

Article 2

1. For the purposes of this Directive, an employer shall be deemed to be in a state of insolvency where a request has been made for the opening of collective proceedings, as provided for under the laws, regulations and administrative provisions of a Member State, based on insolvency of the employer and involving the partial or total divestment of the employer's assets and the appointment of a liquidator and the authority which is competent pursuant to the said provisions has:

(a) either decided to open the proceedings,

(b) 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".

However, the Member States may not exclude from the scope of this Directive

(a) part-time employees within the meaning of Directive 97/81/EC;

(b) workers with a fixed-term contract within the meaning of Directive 1999/70/EC;

(c) workers with a temporary employment relationship within the meaning of Article 1(2) of Directive 91/383/EEC.

3. For the purposes of this Directive, the establishment means any place of operations where the employer carries out a non-transitory economic activity with human means and goods.

SECTION II

Provisions concerning guarantee institutions

Article 3

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.

The claims taken over by the guarantee institution shall be the outstanding pay claims relating to a period prior to and/or, as applicable, after a given date determined by the Member States.

Article 4

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

2. When Member States exercise the option referred to in paragraph 1, they shall specify the length of the period for which outstanding claims are to be met by the guarantee institution. However, this may not be shorter than a period covering the last three months for which pay is still outstanding.

Member States may place this minimum three-month period within a reference period of at least six months.

3. Member States may set a ceiling on payments to be made by the guarantee institution.

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

4. The following Section IIIa is inserted:

"SECTION IIIa

Provisions concerning transnational situations

Article 8a

1. When an undertaking with establishments in the territories of at least two Member States is in a state of insolvency within the meaning of Article 2(l) and the opening of insolvency proceedings has been requested in a Member State other than that in which the worker habitually works, the competent guarantee institution shall be that in the latter Member State.

2. The extent of employees' rights shall be determined by the law governing the competent guarantee institution.

3. Member States shall take the measures necessary to ensure that, in the cases referred to in paragraph 1 of the Article, decisions taken in the context of insolvency proceedings referred to in Article 2(1), which have been requesed in another Member State, are taken into account when determining the employer's state of insolvency within the meaning of this Directive.

Article 8b

For the purposes of implementing Article 8a, Member States shall make provision for collaboration between their competent administrative authorities."

4. The following Article 10a is inserted:

"Article 10a

Member States shall notify the Commission and the other Member States of national insolvency proceedings falling within the scope of this Directive, and of any amendments relating thereto.

The Commission shall publish these communications in the Official Journal."

5. The Annex is deleted.

Article 2

1. Member States shall bring into force the laws, regulations and administrative provisions necessary to comply with this Directive by 31 December 2003 at the latest. They shall forthwith inform the Commission thereof.

They shall apply the provisions referred to in the first to any subparagraph any state of insolvency of an employer occurring after the datee of entry into force of those provisions.

When Member States adopt these provisions, they shall contain a reference to this Directive or be accompanied by such reference on the occasion of their official publication. Member States shall determine how such reference is to be made..

2. Member States shall communicate to the Commission the text of the provisions of national law which they adopt in the field covered by this Directive.

Article 3

This Directive shall enter into force on the 20th day following that of its publication in the Official Journal of the European Communities.

Article 4

This Directive is addressed to the Member States.

Done at Brussels,

For the European Parliament For the Council

The President The President

IMPACT ASSESSMENT FORM

THE IMPACT OF THE PROPOSAL ON ENTERPRISES, WITH SPECIAL REFERENCE TO SMALL AND MEDIUM-SIZED ENTERPRISES (SMEs)

Title of proposal:

Proposal for a Council Directive of the European Parliament and of the Council amending 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

Reference:

The proposal

1. Taking into account the principle of subsidiarity, why is Community legislation necessary in this area and what are its main aims-

The adaptation of Directive 80/987/EEC to changes in legislation and the realities of the internal market must be ensured by means of a legislative instrument. This instrument at the same time aims to provide greater legal certainty for employees by codifying the case law of the Court of Justice. Amending Directive 80/987/EEC is also the only way of ensuring that its provisions are properly implemented in cases of insolvency with a cross-border dimension.

The content of the proposed legal instrument is also in keeping with the principle of proportionality in that it provides for minimum degree of protection at Community level while leaving it to the Member States to lay down detailed procedures and stipulate the dates and periods to be taken into consideration.

Community law does not impose any administrative, financial or legal constraints likely to hold up the establishment or development of small and medium-sized enterprises.

The impact on business

2. Who will be affected by the proposal-

Employees with outstanding pay claims against their employers who are in a state of insolvency as defined by the Directive.

This amendment of the Directive aims to strengthen these employees' rights in line with the judgments of the Court in cases of insolvency with a cross-border dimension.

3. What will business have to do to comply with the proposal-

Nothing.

4. What economic effects is the proposal likely to have-

This proposal aims to strengthen employees' confidence and belief that adequate provision is being made for their protection as the internal market develops and competition between businesses becomes more intense. It is therefore likely to have beneficial effects on internal-market policy as well as on economic and social cohesion.

(a) What will be the impact:

- on employment-

The proposal will make for better quality and increased stability in employment by ensuring a minimum level of protection for employees whose employer becomes insolvent, particularly in cases where the business concerned has establishments in at least two Member States.

- on investment and the creation of new businesses-

This proposal is part of series of legislative measures designed to ensure that the internal market makes a contribution to sustainable and balanced development which takes account both of competitiveness and of employment concerns. It will thus encourage investment and the creation of new jobs in the internal market.

- on the competitiveness of businesses-

As the proposal concerns follow-up measures and actions associated with a dynamic internal market, the effects on the competitiveness of businesses operating in at least two Member States will be beneficial.

(b) Do any new administrative procedures have to be put in place-

No - all arrangements and procedures have already been put in place as a result of the transposition of Directive 80/987/EEC.

(c) Costs and benefits in quantitative terms-

Article 5 of Directive 80/987/EEC states that the rules for the financing of the guarantee institution will be laid down by the Member States, which must, however, comply with three principles, one of which (point b) is that "employers shall contribute to financing, unless it is fully covered by the public authorities".

This principle has not been altered in the proposal.

A public guarantee institution offers significant benefits for businesses in economic difficulty.

(d) What costs will result from the Directive-

The proposed amendment should not affect the Member States' existing rules on financing or the contributions to be made by businesses. The proposal for the Directive is in keeping with the judgments of the Court.

(e) What will companies be required to do in terms of monitoring and evaluation-

The Directives does not provide for any monitoring or evaluation by businesses.

5. Does the proposal contain measures to take account of the specific situation of small and medium-sized firms (reduced or different requirements, etc.)-

The 1980 Directive makes no distinctions based on the size of businesses; it provides for intervention by a public institution in the event of a business becoming insolvent. However, the proposed amendment is particularly concerned with businesses which have establishments in at least two Member States.

6. Consultation

The Commission has consulted the social partners at Community level in accordance with Article 138(2) and (3) of the Treaty. The responses received by the Commission are summarised below.

The European Union of Crafts and Small and Medium-Sized Enterprises (UEAPME) stated once more that it was in favour of the competent guarantee institution being specified, and took the view that this institution would be in the country in which the employee habitually works and in which the employer must pay contributions.

As regards the concept of insolvency, the UEAPME considered that it would be useful to establish a general framework with a reference list setting out the existing national procedures.

As far as consistency with other directives is concerned, the UEAPME stressed in particular the specific nature of the relationship between temporary employees, the employment agency and the user undertaking. An employee could thus only benefit from the protection offered by the Directive in the event of the insolvency of the temping agency in its capacity as employer.

Finally, the UEAPME was in favour of the rules on time-limits being simplified and a minimum period being imposed under Community law provided, however, that this minimum was not increased.

The European Trade Union Confederation (ETUC) was in favour of a revision of Directive 80/987/EEC and could accept its content as set out in the consultation document.

More specifically, the ETUC supported the proposal to add a new provision to the Directive stipulating the competent guarantee institution in transnational situations.

The revision of the Directive should also look at the definition of "insolvency" even if, in certain cases of "reconstruction", there would conceivably be a risk of the mechanism provided for in the Directive being "misused". The revision should also be consistent with the "transfers" Directive and ensure that part-time employees, employees on fixed-term contracts and temporary employees are not excluded from the scope of the Directive.

The ETUC favoured the approach whereby the future Directive provides a minimum degree of protection while leaving it to the Member States to specify dates and reference periods.

As regards the Annex and the scope of the Directive, the ETUC drew attention to the increasing number of employees who are not considered to be employed by the employer and instead have a contract for the provision of services. The ETUC called for measures to ensure that these persons - who may be excluded by the Member States under the provisions of the existing Directive - are all covered by the amended Directive.

The European Management Confederation (CEC) favoured the Commission's proposal for determining the competent guarantee institution in cases with a cross-border dimension.

The proposed definition of "insolvency" seemed adequate and flexible. The list of national procedures should be flexible so as to allow any changes to national rules to be added automatically.

The CEC supported the proposed solutions aimed at ensuring greater consistency with other Community directives, and considered that the proposal should make provision for the concept of the "economically dependent worker", who may not be covered by the traditional definition of "employee".

With regard to the simplification of the rules governing time-limits, the CEC felt the Commission should make sure that the reference period used did not lead to the guaranteed minimum period being reduced.

The Union of Industrial and Employers' Confederations of Europe (UNICE) remained unconvinced of the need to amend the Directive.

As regards the cross-border aspect in particular, it considered that the issue raised by the Commission had already been dealt with in court rulings, and that it was not necessary for these to be codified. However, the UNICE took the view that if the Commission intended to propose such a revision of the Directive, it should also ensure that the guarantee institution making advance payments in connection with proceedings opened in another Member State is able to recover the sums disbursed. The question of recovery had not been adequately dealt with in the Council Regulation on insolvency proceedings.

The UNICE considered that consistency with the "transfers" Directive was ensured by the reference to Directive 80/987/EEC in Directive 98/50/EC.

With regard to the scope of the Directive, the UNICE took the view that both part-time employees and employees with fixed-term contracts were covered by Directive 80/987/EEC. Temporary employees would be covered in the event of their employer (employment agency) becoming insolvent.

The European Centre of Enterprises with Public Participation and of Enterprises of General Economic Interest (CEEP) considered that, as regards the cross-border dimension, the Directive should be brought up to date to ensure the necessary legal certainty and to strengthen the rights of workers in line with the established case law of the Court of Justice. It supported the proposal to add a new provision to the Directive which specifies the competent guarantee institution when a business with establishments in a number of Member States becomes insolvent, and when the opening of insolvency proceedings has been requested in a Member State other than that in which the employer habitually works.

The CEEP was also in favour of revising the definition of "insolvency", which it regarded as too restrictive; at the same time, this would ensure consistency with Directive 98/50/EC. The CEEP could support the idea of basing the definition on collective proceedings involving the partial or total divestment of the debtor and the appointment of a liquidator.

The European Community Shipowners' Association (ECSA) shared the views expressed by the UNICE. If the Directive were to be revised, the ECSA wanted the Annex to be retained as far as the crews of sea-going vessels were concerned.