REPORT FROM THE COMMISSION TO THE COUNCIL, THE EUROPEAN PARLIAMENT AND THE ECONOMIC AND SOCIAL COMMITTEE ON THE TRANSPOSITION OF COUNCIL DIRECTIVE 80/987/EEC 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 IN AUSTRIA, FINLAND, SWEDEN
Date: 1997-01-08
Institutions: European Commission
Subjects: approximation of laws, enlargement of the Union, financial solvency, labour law, national implementing measure

COMMISSION OF THE EUROPEAN COMMUNITIES 

Brussels, 08.01.1997 
COM(96) 696 final 

REPORT FROM THE COMMISSION 

TO THE COUNCIL. THE EUROPEAN PARLIAMENT 
AND THE ECONOMIC  AND SOCIAL COMMITTEE 

ON THE TRANSPOSITION  OF COUNCIL DIKECTJVE 
80/987/EEC 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 
IN 
AUSTRIA 
FINLAND 
SWEDEN 

GENERAL  REMARKS 

1.  On  15 June  1995, the Commission adopted a report on the transposition of Council 

Directive  80/987/EEC  of  20  October  1980 in twelve Member  States.1 
Under its medium-term social  action programme (1995  -  1997), the Commission is 
to present a new report on the application of this Directive taking into account the 
new Member States. 
The  present  report  thus  complements  the  information  given  in  the  1995  report, 
which for its part already contained a detailed  article-by-article  examination  of the 
Directive. 

2. 

The main obligation  imposed  on the Member States by the Directive is,  according 
to Article 3, to establish institutions that guarantee,  in the event of bankruptcy, the 
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. 

The Directive lays down principles for the organisation,  financing  and operation of 
such  institutions  (Article  5). 

It  contains  three  articles  (6,  7  and  8)  relating  to  social  security,  including  both 
statutory schemes and supplementary company or inter-company  schemes. It allows 
the  Member  States  to  take  steps  to  prevent  certain  abuses  or,  in  some  cases,  to 
reduce or even  refuse  payment of  outstanding  claims by the  guarantee  institutions 
(Article  10). 

3. 

The  present  report  looks  at  how  the  Directive  has  so  far  been  transposed  in  the 
three Member States concerned. It has been prepared by independent experts. Their 
contributions  have  been  submitted  to  the  competent  Ministries  of  these  Member 
States,  whose  remarks or comments have been  taken  into  account. 

The  report's  findings  are as follows: 

Austria 

Austrian legislation contains more favourable provisions than the Directive. However, the 
following  comments  are in order. 

The  category  of  higher  management  staff  with  a  decisive  influence  on  company 
management  should  not  be  excluded  from  the  scope  of  the  guarantee,  since  national 
legislation  defines  them  as employees  and they  are not  listed  as exceptions  in  section 1 
of  the  Annex  to the Directive. 

Further, the exclusion  of such  staff from the guarantee on the basis of  simply  presuming 
abuse  is  not justified  under Article  10 of  the Directive. 

COM  (95)  164  final 

2/43 

Finland 

Finnish  law  contains  more  favourable  provisions  than  the  Directive.  In  particular,  it 
provides  a broader definition  of "insolvency".  It should be  noted,  however,  that it does 
not have any  provision  conforming  to either the content or objective of  Article 8 of the 
Directive,  which  provides for private insurance schemes to meet their obligations  in the 
event  of the  insolvency  of  an undertaking. 

Sweden 

Swedish  law  contains  provisions  that  are  often  more  favourable  than  those  of  the 
Directive.  In  particular,  it  provides  a broader definition  of  insolvency.  The  outstanding 
claims  covered  by  the  guarantee  institutions  are  also  not  confined  to just  outstanding 
claims  for unpaid  earnings. 

However,  the following  observations  are in order. 

Even though Article  10 of the Directive provides for Member States to take measures to 
prevent abuses  of  the provisions  for  guaranteeing  pay,  it is  doubtful  whether  Article  9a 
of  the  Swedish  law,  which  stipulates  a waiting  period  of  two  years before  workers  can 
again benefit  from  the guarantee  if  they  have  previously  made use  of  it,  complies  with 
the  requirements  of  the  Directive.  The  same  applies  to  the  Swedish  provision  that 
categorically  excludes  from  protection  those  employers  who,  by  themselves  or  in 
conjunction  with  close  relatives,  own  at least  20% of the undertaking. 

Sweden  plans  to  repeal  Article  9a  soon,  eliminating  the  problems  it  poses  for  the 
Directive. 

Finally,  Article  8 of the Directive,  which essentially  concerns the protection  of rights to 
entitlement to old-age and survivors' benefits,  does not appear to have been implemented 
in  national  legislation. 

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TRANSPOSITION  OF THE DIRECTIVE  IN AUSTRIA 

4/43 

I. 

INTRODUCTION 

the 

1977  Austria's  Lower  House  of  Parliament  adopted 

On  2  June 
Insolvenzentgeltsicherungsgesetz (IESG, or Insolvency (Pay Guarantee) Act), Federal Law 
Gazette  1977/324, aimed at protecting employees' rights in the event of their employer's 
insolvency, thus introducing a wide-ranging and liberal measure in this field. The Act has 
been  amended  on several  occasions,  most recently  as contained  in Federal  Law Gazette 
1995/297.  In order to implement it a fund  in the form  of a legal  person,  the Insolvency 
Lost Pay Fund, was set up - with full  capacity  to be a party to legal  proceedings,  to sue 
and  be  sued  -  under  the  Federal  Minister  for  Labour  and  Social  Affairs,  its  statutory 
representative. The Fund is mainly financed by employers in the form of a surcharge paid 
along  with  their  unemployment  insurance  contributions.  There  are  no  employee 
contributions.  Other revenue comes in the form  of monies from  insolvency  proceedings 
(the rights of employees whose claims are met by the Fund are transferred ex lege to the 
Fund and can be  enforced  by  it during insolvency  proceedings). 

The Fund ensures that - upon application - private sector employees' (and their survivors') 
non-lapsed  entitlements  from  an employment  relationship  are met when  their  employer 
becomes  insolvent.  All  claims  arising  prior  to  the  commencement  of  insolvency 
proceedings  are covered,  as, in principle,  are all  further claims  spanning the  subsequent 
three  months  (apart  from  some  exceptions  to  be  dealt  with  below).  In  addition  to 
entitlement  to  arrears  of  pay,  the  guarantee  also  covers  employees'  social  insurance 
contributions.  A gross  monthly  maximum  of  OS  75  600  is  currently  guaranteed. 

Special  Federal  authorities,  the Federal  Offices  for  Social  Security  and the Disabled  (or 
Federal  Social  Security  Offices)  are  responsible  for  operating  the  scheme.  Refusal  to 
award insolvency  compensation  can be challenged  before the Labour and Social  Courts. 

This report deals  only  with  issues linked  to transposai  of the Directive. 

5/43 

n. 

SCOPE  AND  DEFINITION  (ARTICLES  1 AND  2) 

1) 

Employees 

The following  are protected  under  §  1(1) of the IESG: all  employees, former  employees 
and  their  survivors  together  with  entitled  persons'  legal  successors.  The  Act  covers 
employees  in  the  general  sense,  and  § 2  also  includes  persons  enjoying  employee-like 
status  (i.e.  treated  in  law  as  being  equivalent  to  employees)  and  out-workers  with  pay 
protection.2 Under Article 51 (3)(2) of the Work and Social  Security Act (ASGG),  persons 
enjoying  employee-like  status  are  deemed  to  be  persons  who,  while  having  no 
employment  relationship,  undertake  work  on  behalf  of  and  for  the  account  of  certain 
persons  and  are  economically  dependent.  To  determine  whether  this  applies,  all  the 
circumstances of the individual  case need to be taken into account (Report of Labour Law 
Cases  9944,  9347  and  9315). 

The  essential  criterion  is  real  economic  dependence  on  one  or  more  employers.  Such 
dependence  exists if the freedom  of the worker to decide on his or her activity  is reduced 
to a minimum  and  the result of this activity  is exploited  in the undertaking  of the  person 
ordering  the  activity.  The  work  must  therefore  be  performed  in  a  relationship  of 
subordination  for  the  profit  of  another  (Report  9315). 

What  determines  recognition  of  employee-like  status is not the  number  of  criteria  for  or 
against  but  rather  the  overall  examination  of  the  activity.  The  IESG  also  covers 
apprentices  from  their  first  year  of  apprenticeship  and  persons  in  minor  employment  as 
defined  by the General  Social  Security  Act (Article  5(2) of the ASVG).  The Act does not 
mention  people  in  an  employment  relationship  but without a valid  employment  contract. 
In  cases of that type  where the employee  is an illegally  employed  foreigner,  he is treated 
as  a  normal  employee  in  respect  of  remuneration3  and  therefore  enjoys  the IESGs  full 
protection. In other instances of invalid employment contracts the employee is in principle 
entitled  to  appropriate  remuneration.4  Such  pay  is  hence  also  deemed  to  be  protected.5 
Also  to  be  noted  is  the  case  where  the  employer  and  worker  have  not  concluded  an 
explicit  contract  of  employment  (either  orally  or  in  writing).  Here,  it  is  necessary  to 
determine  whether  a  relationship  of  dependence  exists  (through  which  the  worker  loses 
a  large part  of  his  or  her  freedom  to dispose  over  the place of work,  working  hours  and 
professional  activity,  which  are  subject  to the authority  of the employer  or to  permanent 
supervision  by  the  employer). 

In other words, it is necessary  to ascertain  whether, in accordance with  Article 863  of the 
Austrian  Civil  Code,  it  may  be  deduced  that  a  contract  of  employment  has  been  tacitly 
concluded between  the worker and the employer. If such a contract of employment exists, 
the  worker  is  covered  by  the  IESG. 

Out-workers  are  not  considered  to  be  employees  from  an  employment  contract  angle. 

Cf.  § 29  of  the  Aliens'  Employment  Act. 

Cf.,  for example, Oberster  GerichtshoJ'(OGH',  or Supreme Court) Zeitschriftfiir  Arbeitsrechtund 
(ZAS,  or  Journal  for  Labour  Law  and  Social  Security  Law),  1985, 151. 

Sozialrecht 

Cf.  Schwarz/Reissner/Holzer/Holler,  Die  Rechte  des  Arbeilnehmers  bei  Insolvenz  (= Employees'  Rights  in 
the  Event  of  Insolvency),  3rd  edition,  1993, 61. 

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Case law has made it quite clear that the term employee used in §  1 of the IESG is meant 
in  the  sense  found  in  Austrian  employment  contract  law  and  does  not  cover  the  other 
definitions  of  employee  as  found  in  law  (e.g.  in  the  Chamber  of  Labour  Act  or  the 
Labour Statutes  Act),6  i.e.  an employee  is  a person who  contractually  commits  himself 
for  a certain  period to  perform  work for  someone  else on a personally  dependent basis. 
This reference to a contract means that no type of involuntary obligation to perform work 
lends  someone  employee  status.  In  a ruling  which  the  Oberster  Gerichtshof (OGH, or 
Supreme  Court)  itself  described  as  fundamental,7  the  Court  stressed  that  personal 
dependence  was  manifested  through  the  fact  of  being  subject  to  the  employer's 
operational authority (i.e. being organisationally bound, above all, to working hours, place 
of  work  and  supervision).  The  major  point  about  an  employment  contract  was  the 
"substantial  elimination  of  the  right  of  free  determination  of  the  employee,  who  -  in 
respect of his place of work,  working hours and actions at work - is subordinated  to the 
employer's right to issue instructions or, when such actions are already predetermined in 
the employment  contract or determinable with reference to other rules, is at least subject 
to the latter's ongoing  supervision". 

The  IESG contains  several  exceptions,  however.  It  does  not  apply  to  employees  in an 
employment relationship with the Federal  authorities, a Federal  province, municipality or 
association  of  municipalities  -  §  1(6)(1).  The  reason  for  this  is  that  insolvency  poses 
practically no threat for employees working for such employers (i.e. the central  and local 
government authorities).  Although  such bodies could in law become insolvent  as a legal 
person  under  public  law  capable  of  owning  oroperty,  this  has  never  happened,  such  a 
possibility being described in the literature as mainly theoretical.8 This was most recently 
underpinned  by  the  Verfassungsgerichtshof {VJGH, or  Constitutional  Court)9  when 
examining a statutory regulation removing the Austrian Federal Railways from under the 
Federal  administration  and  turning  it  into  a  separate  legal  person.  This  Act  also 
transferred, inter aliay the railway employees' employment relationships from the Federal 
authorities to the new  legal  person.  The  VJGH held this to be impermissible  interference 
in  the  private  autonomy  (contractual  freedom)  sphere,10  since  -  in  regard  to  their  pay 
entitlements - the said employees  forfeited  "the substantive protection which  had existed 
in  the  form  of  the  possibility,  in  principle,  of  recourse  to  the  practically  unlimited 
'coverage fund' of their employer,  the Federal  authorities".  The legislator  should  at least 
have stipulated that the Federal  authorities would continue to assume liability for the said 
entitlements.  The  VjGH therefore  presumed that a risk of insolvency  existed  for the new 
independent  railway  company  but  not for  the Federal  authorities 

Where local  and regional  authorities  are concerned,  the municipality  is the body  most at 

Verwaltungsgerichtshof  (VwGH,  or Administrative  Court), principally  in ZAS  1981, 31, and many  subsequent 

rulings. 

7 

ZAS  1982,  10. 

Cf.  Petschek/Reimer/Schiemer, Das  ôsterreichische  Insohenzrecht 
(= Austrian  Insolvency  Law),  1973,  21; 
Fasching,  Konkurs,  Ausgleich  und  Zwangsvollstreckung  bei  Gemeinden  (=  Bankruptcy,  Composition  and 
Enforcement  in respect  of Municipalities),  1983; Rebhahn/Strasser,  Zwangsvollstreckung  und  Insolvcnz  bei 
Gemeinden  (=  Enforcement  and  Insolvency  in  respect  of  Municipalities),  1989. 

Ruling  of  9.3.1995,  G  28/93,  in  infos  1995,  A  67. 

9 
10  The  railway  employees  were  employed  by  the  Federal  authorities  under  private  law  contracts. 

7/43 

risk  of insolvency.  Several  provisions  exist to cover  such  an eventuality: Articles  12 and 
13 of the Financial  Organisation  Act  and  Article 20 et seq  of the Financial  Equalisation 
Act  provide  for  state subsidies to prevent the risk of  a municipality  becoming  insolvent. 
In  addition,  under  Article  119a,  paragraph  2,  of  the  Austrian  constitution, 
the 
municipalities  are  subject  to  audits  by  the  appropriate  Land  even  in  their  own  fields  of 
activity. 

Under Article  127a  §7 of the constitution,  the Lander are also entitled  to ask for  an audit 
by  the  Court  of  Accounts,  which  on  its  own  authority  audits  only  municipalities  with 
more  than  20  000  inhabitants.  In  the  unlikely  event  that  a  municipality  should  become 
insolvent,  this  would  have  no  financial  impact  on the  rights  of  municipal  employees  to 
their  pay,  since  the Lander  are  obliged  to  meet  their  claims. 

Employees  working  for  employers  who  enjoy  immunity  under  international  or  Austrian 
law  are  also  excluded  (likewise  §  1(6)(1)  IESG),  the  reason  being  -  according  to  the 
explanatory  materials relating to the Act11 - that the latter cannot be subjected  to Austrian 
insolvency  proceedings. 

Also excluded  are members of the authority  of a body  corporate which  is responsible  for 
the  statutory  representation  of  that  body.  This  applies  regardless  of  the  degree  of 
influence  such people have on company  management.  It includes, for  example,  members 
of the managing board  of a joint  stock company,  a co-operative  or an association  as well 
as the  managing  directors  of a limited  company.  According to the explanatory  materials, 
the reason  for  excluding this category  of people is that they  do not  qualify  as  employees 
under  Austrian  co-determination  law  (§  36 of the Labour  Statutes  Act).12  Also  excluded 
are  associates  entitled  to  exercise  dominant  influence  on the  association  (even  if  only  in 
a  trustee  capacity)  -  §  1 (6)(4) IESG  as  amended. 

If  such  persons  exercised  the  said  functions  as  members  of  the  authority  of  a  body 
corporate  for  only  part  of  any  period  for  which  they  press claims,  case law  assumes that 
for  the  rest  of  the  period  (when  they  did  not  exercise  such  functions)  their  rights  as 
employees  are protected.13  In one  of the latest rulings the OGH14 gave  an  even narrower 
interpretation:  if  the  managing  director  of  a  limited  company  is removed from  his  post 
or resigns  at  the  time  insolvency  occurs  but stays  on as  a  company  employee  under the 
terms  of  his  employment  contract  hitherto,  he  is  not  covered,  since  his  activity  as  a 
member  of the above-mentioned  authority of a body corporate still  "continues to have  an 
effect"  with  respect  to insolvency  protection. 

The exceptions  cited  so far  should  be  looked at from  different  angles  in  the  light  of the 
Directive.  In  accordance  with  consistent  Austrian  case  law,  members  of  the  board  of  a 
joint  stock  company  and  of  any  legal persons  which  are founded  on  the  same  structure 
(e.g.  savings  banks)  cannot  be  employees  by  virtue of  their position  as  members  of  the 

Explanatory  Notes  to  Government  Bill  f=  EB), 446  Annexes  to  the  Stenographic  Records  of  the  Lower 
House  (= Bed. NR),  15th legislative  period  (= 15. GP), 5. 

12  Thus EB 446 Be il. NR,  15. GP, 5. 
13  Cf.,  for  example,  VwGH,  Report  of Labour Court  Cases = Arb.  10.469/1984; OGH, Dos Recht der Arbeit 

(=  Labour  Law)  = ôRdA  1992, 220. 
Judgment  of 22.9.1993, 9 Ob S  16/93. 

14 

8/43 

authority  of a  body  corporate.15  This conforms to  the Directive. Likewise,  the case  law 
in this area holds that associates with a dominant influence on company management are 
not deemed  to  be company employees even if they perform work for  the company.16 

Whether managing directors  of limited companies and members of managing boards  of 
associations  and  other  legal persons  are  to  be  viewed as  employees  or  officers of the 
company  (i.e.  not  employed  under  an  employment  contract  but  on  a  personally 
independent basis) hinges on the type of contract they have. And even if in certain  cases 
they  qualify  as  employees  in employment contract  terms, they still  remain  outside the 
scope  of the IESG. 

Although  exclusion  of this set of  people from  the IESG  is in  keeping  with  the  Directive 
anyway,  since they  are  not  employees  in  employment  contract  terms,  Austria  expressly 
excluded  such  persons  from  the Directive's  scope by  including  them  in  Section  I  of  the 
Annex  to  the  Directive,  the  derogation  being  worded  as  follows: 

" 1.  Members of the authority  of a body corporate, which is responsible for the statutory 
representation  of  that  body. 

Associates  entitled  to  exercise  dominant  influence  in  the  association  even  if  this 

2. 
influence  is  based  on  a  fiduciary  disposition". 

This  legalises  the  exclusion  of  members  of  an  authority  of  a body  corporate  who  can  -
under  Austrian  law  - be  regarded  as employees  in  certain  circumstances. 

Since  1995 (§  1(6)(3) IESG as amended) all  "leitende Angestellte" (= higher  management 
staff)  entitled  continuously  to exercise decisive  influence  on  company  management  have 
been  excluded  from  the  scope  of the  Act,  although  this has not been  incorporated  in  the 
Annex  to  the  Directive.  This  new  provision  was  modelled  on  the  Manual  and  Non-
Manual  Workers  Chambers  Act  of  1992 (Chambers  of Labour  Act for  short).  §  10(1) of 
this  Act  says that  all  employees  shall  belong to the Chamber  of Labour  and  expands  the 
class of people considered  employees by including certain  other groups (e.g. the jobless). 
§  10(2)  defines  who  shall  not  belong  to  the  Chamber  of  Labour,  namely  public 
administration  employees  and,  among  others,  "leitende Angestellte  entitled  continuously 
to exercise  substantial  influence  on company  management".  This means that such  people 
are  not  considered  to  be  employees  under  this  fundamental  Austrian  act.  In  accordance 
with  §  1,  the  task  of  the  Chamber  of  Labour  is  to  represent  and  promote  the  social, 
economic, vocational  and cultural  interests of men and women employees, and it is based, 
as already mentioned, in principle on mandatory membeT  nip of all workers. Furthermore, 
it is empowered  by  law to conclude  collective agreemen  ;, although  in practice it usually 
leaves  this  to  the  trade  unions. 

The  explanatory  materials  accompanying  the  IESG17  give  examples  of  such  "leitende 
Angestellte",  namely  commercial  and  technical  directors  and  heads  of  accounting  or 
personnel departments. However, it is doubtful  whether, given his position, the accounting 

15  Cf. OGH, Arb  9371/1975,  10.406/1985. 
16  Cf.  VwGH,  ZAS  1981, 31; OGH, ecolex  1990, 305. 
17  EB, 134 BeilNR,  19. GP, 82. 

9/43 

department  head  has a decisive  influence  on  company  management.  It is therefore  to  be 
expected  that judgements  concerning  the IESG  will  not hold  such  people to be  "leitende 
Angestellte". 

The explanatoiy materials also give an indication  of the reason for  the exclusion, the aim 
being "to exclude people who occupy at least an employer-like position  in the  employer's 
company  from  the  award  of  pay  lost  through  insolvency". 

Exclusion  of  this  category  of  people  raises  questions  in  relation  to  Article  1  of  the 
Directive.  As  the  Court  of  Justice  of  the  European  Communities  ruled  in  the  Wagner-
Miret case (C-334/92),  higher  management  staff  may  not be  excluded  from  the  scope of 
insolvency  protection  when  such  people  are classified  under  national  law  as  employees 
and  they  are not  listed  in  Section  I  of  the  Annex  to  the  Directive.  Under  Austrian  law, 
the status of such  "leitende Angestellte"  is dichotomous. On the one hand, they are subject 
to  the Employees  Act,  which  regulates  the  legal  entitlements  and  obligations  stemming 
from  an employment  contract,  as well  as to Part  I of the Labour  Statutes Act as far  as the 
effects  of  collective  agreements  are  concerned.  On  the  other  hand,  they  do  not  count  as 
employees when  it  comes  to  representation  of  employee  interests  by  works  councils,  as 
regulated at length in Part II of the Labour  Statutes Act. For this reason their  employment 
relationship  is not  covered  by works  agreements.  And  quite  often  they  are also  excluded 
from  the  scope  of  collective  agreements.  Furthermore,  of  significance  from  a  national 
angle  is  the  fact  that  they  are  excluded  from  the  comprehensive  representation  of  all 
employee  interests  ensured  via  the  Chamber  of  Labour. 

Austrian labour law thus contains different  interpretations of the category  of management 
staff  to  be  excluded  from  the  scope  of  labour  law  provisions.  As  explained  above,  it 
essentially  comprises those management  staff  that  have a decisive  influence  on  company 
management.  They  are  not  entitled  to  be  members  of  the  general  body  that  represents 
Austrian  workers  on  a statutory  basis, to  which  all  manual  and  non-manual  workers  are 
obliged  to belong.  The IESG,  as noted  above, adopts  this  restrictive  definition  of  higher 
management  staff. 

Section  II of the Labour  Statutes Act  (Article 36  (2)(3))  provides  for  the exclusion  of all 
higher  management  staff  who  exercise  a  decisive  influence  on  the  management  of  an 
establishment.  In an undertaking with  more than one establishment,  the management  staff 
of  each  establishment  are  included  in  the  category  of  higher  management  staff  even  if 
they  do  not  have  any  influence  on  the  management  of  the  undertaking  as  such.  The 
reason is that they  act  on behalf  of the employer  in  negotiations with  the works councils, 
i.e.  they  have  an  employer-like  position.  However,  they  do  belong  to  the  Chamber  of 
Labour  and  enjoy  protection  under  the  IESG. 

The  Working  Time  Act  provides  for  the  exclusion  of  higher  management  staff  who  are 
personally  responsible  for  carrying  out  decisive  management  tasks  (Article  1 (2)(8)).  In 
addition  to  the  management  staff  of  undertakings  and  establishments  mentioned  above, 
this  category  also  includes  other  persons  acting  as hierarchical  superiors  but  subordinate 
to  the  management  of  an  establishment.  This  enlarged  definition  of  higher  management 
staff  has  recently  been  adopted  in  the  Labour  Inspection  Act  (Article  23  (2))  in  a  quite 
different  context:  the  designation  of  agents  charged  with  ensuring  the  protection  of 
workers  in  establishments  and  responsible  for  compliance  with  protection  measures  on 

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behalf  of  the  employer.  Such  agents  must  be  management  staff  who  are  personally 
responsible  for  carrying  out decisive  management tasks. 

It is therefore evident that the IESG does not exclude all higher management staff within 
the meaning of Austrian labour law but merely the "top tier", i.e.  only those persons that 
are (co)responsible  for  decisions  taken by the undertaking. 

To conclude, the IESG does not provide for the exclusion of all higher management staff, 
but only  those  persons presumed  to bear (co)responsibility  in the  event  of  insolvency. 
However,  it  should  be  noted  that,  under  the  judgment  of  the  Court  of  Justice  of 
16 December  1993 in Case C-334/92 (Teodoro Wagner Miret), "higher management staff 
may  not  be  excluded  from  the  scope  of  Council  Directive  80/987/EEC  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 ... where they are  classified 
under national  law as  employees  and  they are not  listed in Section I  of  the Annex  to the 
directive". 

Even  though  the  Austrian  law  tends  to  a restrictive  interpretation  of  management  staff, 
the  exclusion  in  question  does  not  appear  to  be  justified  in  the  light  of  the  above-
mentioned judgment  by the Court  of Justice. 

This category  of people will  be referred to again in Section  VI below concerning  Article 
10 of  the Directive. 

Finally,  prisoners complying with their obligation to work are also excluded - since their 
work  is not voluntary,  they  do  not  normally  count  as employees. 

2) 

Employers 

There is no precise  definition  of the term employer in Austrian  law.  An  employer is the 
contractual  partner of an employee.  Nor can there be any problems as regards temporary 
work  (temping)  contracts, because  employees  are at risk only  in the event  of  insolvency 
on  the  part of  the  entrepreneur  from  whom  they  are  entitled  to  payment,  i.e.  the  party 
with  whom  they  have their employment  contract,  i.e.  usually  the hirer-out  (lessor). 

The exclusion  of  central  and local  authorities  has already  been  mentioned. 

3) 

Insolvency 

The  Act  contains  an  exhaustive  list  of  the  instances  of  insolvency  in  which  claims  are 
justified  (§  1(1)  and  §  la IESG): 

-  opening  of  bankruptcy  proceedings; 

-  opening  of  composition  proceedings; 

- 

(temporary)  receivership  order (for  banks only); 

-  rejection  of  bankruptcy  due to  insufficient  assets; 

-  rejection  of  bankruptcy  concerning  legal  persons  already  dissolved  or  partnerships 

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whose  assets  have  already  been  distributed; 

-  discontinuation  of  preliminary  proceedings  without  opening  subsequent  bankruptcy 

proceedings; 

-  rejection  of bankruptcy  application  due to  it being  outside the  court's jurisdiction; 

-  court decision that inheritance proceedings are inapplicable  due to the property  of  the 

deceased  being  insignificant; 

-  court  reduction  of  entitlement  to  compensation  due  to  deterioration  in  employer's 

personal  economic  circumstances. 

Therefore,  the  Act  has  defined  insolvency  as broadly  as  possible,  and  has  attempted  -
through various  amendments - to cover all known types of formal  proceedings. The only 
instances not covered are informal  private arrangements and completely  atypical  cases in 
which  no  formal  insolvency  proceedings  have  been  initiated  on  account  of  procedural 
errors.18 

4)  Claims  arising  from  contracts  of  employment  and  employment  relationships 

As already noted,  entitlement to pay derived from  invalid employment contracts is treated 
the same as entitlement from  valid employment contracts, and consequently  we need deal 
only  with  the  latter. 

IESG  protection  extends  far  beyond  entitlement  to  pay.  Protection  is  afforded  for  the 
following  on-going,  non-lapsed  entitlements  -  not  excluded  on  any  other  grounds  -
deriving  from  an  on-going  or  already  ended  employment  contract  (§  1(2)  IESG): 

-  entitlements  to  pay  (current  and  deriving  from  termination  of  the  employment 

relationship)  plus  employees'  social  security  contributions; 

-  entitlement  to  payment  of  damages; 

-  other  claims  against  the  employer; 

-  necessary  costs  involved  in  taking  court  action. 

Given  such  comprehensive  coverage  there  is  no  need  to  examine  whether,  upon 
termination  of the employment  relationship,  a claim  stems from  the contract  or from  the 
right  to  damages.  Protection  of  pension  rights  will  be  dealt  with  later. 

Protection  is  still  in  force  when  the  entitlements  have  been  attached,  pledged  or 
transferred  to  other  persons. 

Claims  "excluded  on  other  grounds"  will  be  dealt  with  when  discussing  Article  10. 

18 

For examples see Schwarz/Reissner/Holzer/Holler, Die Rechte des Arbeitnehmers bei Insolvenz, 3rd edition 
1993, 73. 

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5)  Relevant  guarantee  dates/Article  3(2),  and  temporal  limits  on  guarantee 

payments/Article  4(2) 

As is clear from  the remarks made under Point  3 above,  the relevant  date chosen by the 
Austrian legislator was that of the opening of the insolvency  proceedings or of the other 
formal  orders  in  question  (Article  4(1),  first  indent,  of  the  Directive).  In  addition,  the 
IESG  protects not only  all claims prior to the said date but also further  claims for at least 
three months. 

As regards claims preceding the relevant  date, the only  restriction  stipulated  in the IESG 
is that they must not have lapsed  or expired.  Three years is the limitation  period for pay 
claims  and,  in  general,  for  claims  for  damages  too,  but  this  can  be  shortened  through 
individual  and  collective  agreements.  However,  such  periods  may  not  be  shortened  to 
such  an  extent  that  the  assertion  of  claims  is  overly  impeded  for  no  objective  reason.19 
The relevant laws governing collective  agreements sometimes contain  a provision  stating 
that  rights  will  expire  if  not  asserted  by  the  employee  within  a  certain  period.  These 
limitation and expiry provisions apply not only to instances of insolvency but equally well 
to  solvent  employers. 

Where the date for  the calculation  of the guarantee precedes the date on which  guarantee 
payments  are recovered  from  the employer's  assets, Austrian  law conforms  to the above-
mentioned  Articles  of  the  Directive. 
There  is  a  special  provision  in  the  IESG  which  retrospectively  guarantees  employees' 
social  insurance  contributions  for  a  maximum  of  two years  (§  13 bis). 

6) 

Ceilings  for  guarantee  payments  (Article  4(3)) 

The  ceiling  laid  down  in  the  IESG  is twice  the  current  monthly  maximum  contributory 
basis  stipulated  in  pension  insurance,  which  now  stands  at  OS  37  800  -  §  1(4).  This 
means  that  the  ceiling  is  currently  OS  75  600.  It  is  adjusted  each  year.  This  amount  is 
far higher than average employee income and also covers top salaries. Allowance also has 
to  be  made  for  payments  from  the  employer  or  the  bankrupt's  assets  in  respect  of  each 
individual  claim. 

m.  GUARANTEE  INSTITUTIONS  (ARTICLE  5) 

As stated  in the introduction,  payment  comes from  the Insolvency  Lost  Pay  Fund  which 
is an independent legal  person under public law. The Fund's resources are  ringed-fenced  -
§  12(5) - and  it is not  affected  by  employer  insolvency.  The monies  are paid  out  by  the 
Federal  Social  Security  Offices,  which  are  specialised  administrative  bodies  under  the 
Federal  authorities. 

Most  of  the money  in  the Fund  comes  from  employer  contributions  paid  as a  surcharge 
on  top  of  unemployment  insurance  contributions  and  levied  in  accordance  with  an 
ordinance  from  the  Federal  Minister  for  Labour  and  Social  Affairs.  No  employee 
contributions  are  levied.  Employees'  secured  rights  are  transferred  ex  lege  to  the  Fund 

19  Cf.  OGH, ZAS 1983, 177. 

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(§  11 IESG). The Fund is then able to assert them via the insolvency  proceedings. This 
generates further  income. 

The IESG  contains  no provisions  under  which  failure  to  pay  the mandatory  employer 
contributions can limit employee benefits. 

IV.  INSOLVENCY PROTECTION AS PART OF SOCIAL SECURITY 

(ARTICLES  6-8) 

1)  Limitation  of insolvency  protection (Article 6) 

As already indicated, Austria has not made use of Article 6. The employee contributions 
to social insurance are protected and are paid to the social insurance bodies by the Fund. 
It is only  employer contributions which  are not protected. 

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2)  Guarantee  covering  outstanding  employee  contributions  to  statutory  social 

security  schemes  deducted  by  the  employer  (Article  7) 

Employee contributions are levied  for health, pension  and unemployment  insurance only. 
All these three insurance branches are governed  by the principle ofipso jure  insurance,20 
i.e.  insurance  cover  exists  independently  of  whether  contributions  are  paid.  The  only 
critical  factor  is  that  the  person  involved  has  an  employment  relationship  involving 
remuneration.  Special  rules exist only for  statutory  pension  insurance  in instances  where 
an  employee  is  not,  or  belatedly,  registered;  in  this  instance,  pension  insurance  periods 
are  acquired  only  if  the  contributions  are  subsequently  paid  in  retroactively  within  a 
certain  period  -  § 225(1 )(b)  of  the  Allgemeines  Sozialversicherungsgesetz  {ASVG,  or 
General  Social Insurance Act). This is quite separate, however, from  a situation in which 
contributions  are  in  arrears  due to  employer  insolvency,  since employees  continue to  be 
registered.  Therefore,  employees  do not  suffer  any  direct  social  insurance  disadvantages 
due  to their  employer's  insolvency. 

In  the  worst  scenario,  indirect  disadvantages  can  arise  in  the  voluntary  social  insurance 
scheme. This affects  employees only if they receive a low income from  their  employment 
relationship  (currently  a maximum  of OS 3 452 per month) because in this event they  are 
excluded  from  compulsory  health  and  pension  insurance.  Such  employees  can  take  out 
voluntary  insurance  to  cover  themselves.  Under  the  health  insurance  scheme  such  self-
insurance  ends  when  no  contributions  have  been  paid  for  a  period  of  two  months  -
§  16(6) ASVG  - whereas under the voluntary pension insurance scheme the only thing that 
happens is that  they  fail  to acquire  further  contribution  periods if  they  stop  contributing. 
This  means  that  they  will  only  be  affected  by  their  employer's  insolvency  if  they 
themselves  make  no  voluntary  insurance  contributions  in  respect  thereof. 

3)  Guarantee  concerning  immediate  or  prospective  entitlement  to  benefits  under 
private  supplementary  old-age  insurance  schemes  (Article  8) 

Before  entering  into  greater  detail,  it  should  be  noted  that  occupational  (company) 
pensions  do  not  play  such  an  important  role  in  Austria  due to  the  high  level  of  benefits 
provided  under  statutory  pension  insurance  schemes  (after  completion  of  40  insurance 
years,  pensions  amount  to  80%  of  the  insured  average  earnings  over  the  best  180 
insurance  months). 

Since  1990  two  acts  have  been  in  force  in  Austria  having  a bearing  on  this  matter:  the 
Betriebspensionsgesetz  {BPG,  or  Occupational  Pensions  Act),  "I  ederal  Law  Gazette 
282/1990,  and  the  Pensionskassengeselz  (PKG,  or  Pension  Funds  Act),  Federal  Law 
Gazette  281/1990.  The  BPG,  which  is  the  more  important  of  the  two,  distinguishes 
between  four  different 
types  of  occupational  pension  arrangements:  provident  (or 
benevolent) funds,  pension  funds,  life  insurance for the employee  and  direct  pensions; all 
four  are  commented  on  below. 

It  is generally  agreed  that  there is  no legal  entitlement  to benefits  from  provident  funds; 
even the BPG  only  lays down equal treatment obligations (§  15). The provident funds  can 
therefore  terminate  their benefits  at any  time in the absence of prospective  or  immediate 

20 

Cf.  §  10  of  General  Social  Insurance  Act,  §  1 of  Unemployed  Persons  Insurance  Act. 

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entitlements to such benefits.  Consequently,  insolvency  protection  does  not feature  here. 

Company  and  inter-company  pension  funds  must  be  set  up  as joint  stock  companies  in 
accordance with the PKG.  This means that their assets are completely  separate from  those 
of  the  employer.  They  are therefore  not  affected  by  employer  insolvency.  Furthermore, 
they are subject to wide-ranging supervision by the Federal Finance Minister (§33  PKG). 
They  require a  concession  and  the Federal  Finance Minister's  approval  of their  business 
plans.  What  is  more,  they  are  subject  to  strict  assessment  rules.  For  this  reason  the 
insolvency  risk  is  very  low,  although  the  Act  deems  pension  fund  bankruptcy  to  be 
feasible  (§  37  PKG). 
In  this  case,  an  order  placing  a  pension  fund  in  liquidation  may  be  made  only  by  the 
Finance  Minister  and  the  assets  of  the  risk  bearers  are  considered  to be  separate. 

The  same  situation  obtains  where  an  employer  takes  out  a life  insurance  policy  for  the 
employee.  In  keeping  with  the  Insurance  Supervision  Act,  the  insurance  companies  are 
subject  to  strict  supervision  by  the Federal  Finance Minister  and  must abide by  rigorous 
assessment  rules.  They  are  not  affected  by  the  insolvency  of  an  employer  who  has 
concluded  life  insurance  contracts  with  them. 

However,  pensions  paid  directly  by  the  employer  require  particular  attention.  Under  a 
direct promise made voluntarily by the employer, the employee initially  acquires only the 
prospect  of a future  occupational  pension,  since the law provides for  a qualifying  period 
of  up  to  10 years  (five  years  for  pensions  after  occupational  accidents  and  diseases).  If 
the  employment  contract  ends  before  the  qualifying  period,  the  employee  has  no 
entitlement  to  occupational  pension  benefits.  By  contrast,  however,  if  the  qualifying 
period  is over,  the  prospective  entitlement  cannot  lapse,  i.e. the employee  is vested  with 
a  legal  entitlement  either  to  the  occupational  pension,  or,  if  he  leaves  the  company 
prematurely, to what is known as the vested amount. Under Article 7 (3)(1), last sentence, 
of the BPG,  the  reserve  provision  for  the invalidity  risk  is  not to be taken  into  account. 
In  addition,  the  reserve  provision  for  vested  prospective  entitlements  corresponds to  the 
vested amount only if it is calculated  in accordance with the Teilwertverfahren (part-value 
procedure),  applying  the  current  principles  as  set  out  in  Article  14 (7)(1)  to  (4)  of  the 
1988  Income  Tax  Act  (EStG).  The  Gegenwartswertverfahren (current  value  procedure), 
which,  under  fiscal  law,  can  also be  used  to  calculate  reserve  provision,  yields  different 
reserve  amounts.  In  certain  instances,  all  the  acquired  prospective  entitlements  are  lost, 
namely  when the employee himself  gives notice, is instantly  dismissed  due to some  fault 
of his own  or leaves for  no valid  reason  without  observing  the notice  period  (§  7  BPG). 

A  certain  amount  of  protection  for  direct  pensions  is  provided  under  income  tax  law. 
§  14(7)  of  the  Einkommensteuergesetz 1988  (EStG  1988,  or  Income  Tax  Act  1988) 
permits  an  employer  to  build  up  tax-deductible  book  reserves  founded  on  actuarial 
principles to cover vested  direct pension  promises. However, the pension  reserve must be 
covered by securities in the following  manner: at the end of each financial  year  company 
assets  must  include  domestic  bonds  in  bearer  form,  with  a  face  value  of  50%  of  the 
reserve  amount  recorded  in  the balance  sheet  at the  end  of  the  previous  financial  year  -
§  14(5)  EStG  1988.  Full  coverage  by  securities  must  be  achieved  within  20  years 
(§  116(4) EStG  1988).  In  the  event  of  insolvency,  §  11 of  the BPG  stipulates  only  that 
a  separate  estate  must  be  formed  for  the  securities  covering  reserves  for  occupational 
pensions; in the legal  settlement, the claims of people entitled  to benefit  and of those with 

16/43 

prospective  entitiement  have  priority  (provided  the  coverage  of  pension  reserves  by 
securities  is  obligatory).  People  with  prospective  entitlements  are  employees  who  have 
already  acquired  a  vested  prospective  entitlement  to  an  occupational  pension.  What  is 
more,  the  securities  are  exempt  from  attachment,  except  to  satisfy  the  aforementioned 
claims. 

Since  in  practice  all  direct  pension  promises  involve  accumulation  of  reserves,  this 
provision covers practically  all direct promises made since  1  July  1990, the day on which 
the  BPG  came  into  force.  In  respect  of  benefit  promises  prior  to  that  date,  the  Act  is 
applicable  in  part  only,  since  its  provisions  cover  only  prospective  entitlements  which 
arise  as  from  that  date.  Therefore,  the  legal  position  regarding  benefit  promises  varies: 
prospective entitlements  arising prior to  1 July  1990 are governed  by  the old  legislation, 
which provides for neither vesting nor the obligation to have securities coverage, whereas 
entitlements  arising  after  1 July  1990 are governed  by  the  BPG. 

It should also be noted that under the old legislation  it was possible for a pension  promise 
to  contain  a clause permitting  revocation  on  account  of  economic  difficulties.  However, 
it  was  left  up  to  the  courts  to  decide  whether  the  grounds  for  such  revocation  were 
sufficient.21  In accordance  with  § 9 BPG,  revocation  clauses  in  old  promises retain  their 
validity.  By  contrast,  promises  from  1990  onwards  may  contain  the  provision  that  new 
prospective  entitlements  shall  not  arise  in  the  event  of  the  employer  facing  economic 
difficulties,  but  it  is  no  longer  possible  to  stipulate  the  loss  of  an  occupational  pension 
already  bestowed.  Nevertheless,  it is still  permissible to  have agreements  on  prospective 
entitlements  and  conferred  occupational  pensions which  provide  for  deferred  or  reduced 
payments. However, unreasonable and unbalanced  differences  in the treatment of persons 
with  prospective  entitlements  are  null  and  void  (§  18  BPG). 

The IESG  contains a special  kind of protection for  prospective entitlements to and  claims 
for direct pensions. Although  direct pensions are basically  covered by the IESG,  there are 
strict  limits  on  the  level  of  benefits. 

It  may  be  deduced  from  the  transitional  provisions  of  Article  V  (3)  of  the  Federal  law 
published  in  Official  Journal  No  282/1990  that  pensions  conferred  before  the  entry  into 
force  of  the  law  (1  July  1990)  are  not  covered  by  the BPG  since they  are  not  based  on 
any  prospective  entitlement  acquired  after  1 July  1990.  If  they  are  not  covered  by  the 
BPG,  Article  3 (6)  of the IESG  in the version  of  Article IV of the above-mentioned  law 
(OJ No  282/1990)  provides  for  a one-off  payment  of  12 monthly  amounts  for  this  type 
of  pension. 

For  a pension  conferred  after  1 July  1990, that  part bi.  ed on  entitlements  acquired  from 
1  July  1990  is  covered  by  the  BPG.  Under  Article  3  (5)  if  the  IESG,  the  part  of  the 
pension  covered  gives rise to a one-off  payment  of 24  monthly  amounts, while the  non-
covered  part,  based  on  prospective  entitlements  acquired  before  1 July  1990,  gives  rise 
to  a  one-off  payment  of  12  monthly  amounts,  in  accordance  with  Article  3  (6)  of  the 
IESG. 

If,  at  the  date  of  insolvency,  an  employee  has  acquired  only  prospective  entitlements 

21 

For further  details see  Schrammcl, Betriebspensionsgesetz,  1992,  122 et seq. 

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under  a  direct  pension  promise,  the  vested  amount  must,  for  prospective  entitlements 
acquired  from  1 July  1990  and  covered  by  the  BPG,  be  calculated  at  the  date  of 
termination  of  the  contract  of  employment  due to  insolvency  and  a one-off  payment  of 
24 monthly pension  amounts must be paid, in accordance with  Article  3 (5) of the  IESG. 
For prospective entidements acquired before  1 July  1990, the IESG does not provide any 
protection  in  the  event  of  insolvency. 

Entidements  to occupational  pensions assertible against a pension  fund  are not  protected 
by the IESG  - § 3(3)(6). The same is true for entitlements under life  insurances,  although 
this is not expressly  stated  in the Act.22 Since pension funds  and insurance companies are 
by  law completely  separate from  the  employer  and  his assets, this should  not  be  at  odds 
with  the  Directive. 

The BPG  and the PKG  do not cover instances in which an employer takes out, at his own 
expense,  a  voluntary  top-up  insurance  policy  for  his  employees  within  the  statutory 
pension  insurance  scheme.  However,  there  is  as little  risk  of  insolvency  in  this  instance 
as there  is with  taking  out  life  insurance. 

In  view  of  the  detailed  information  set  out  above,  Article  8 of  the  Directive  appears  to 
be  correctly  transposed  into  Austrian  legislation. 

V.  APPLICATION  AND 

INTRODUCTION  OF  MORE  FAVOURABLE 

PROVISIONS  (ARTICLE  9) 

As  already  stated,  in  Austria  protection  of  employees  against  the  impact  of  employer 
insolvency  goes far  beyond  that provided  for in the Directive. For example, all  claims  for 
the  first  three  months  following  the  initiation  of  the  insolvency  proceedings,  as  well  as 
entitlements  stemming from  termination  of the employment  contract  (such  as entitlement 
to  severance  pay  and  compensation  for  an  employer's  failure  to observe  notice  periods), 
are protected under the IESG.  Employee claims for damages arising from  the employment 
relationship  and  the  costs  incurred  in  taking  the  matter  to  court  are  also  protected. 

VI.  REFUSAL  AND  REDUCTION  OF  INSOLVENCY  PROTECTION  IN  THE 

EVENT  OF  ABUSE,  CLASHING  INTERESTS  AND  COLLUSION 
(ARTICLE  10) 

Austria  has  made  use  of  Article  10. 

§  1(3) of the IESG  contains  a number  of exclusions from  the protection  guarantee  which 
are  clearly  intended  to  prevent  abuse.  In  accordance  with  §  1(3)(1),  this  includes  all 
entitlements  obtained  through  a legal  act challengeable  under the Avoidance  Act  of  1914 
or  the  Bankruptcy  Act.  Such  avoidance  provisions  are  directed  against  manipulations 
undertaken  by  the  bankrupt  prior  to  insolvency  in  order  to  prevent  creditors  from 
attaching some of his assets. This includes, for  example, any attempt to transfer  his assets 
to  relatives by  concluding  employment  contracts  at overly  high  rates  of  remuneration  or 

22 

See Schwarz/Reissner/Holzer/Holler, Die Rechte des Arbeitnehmers  bei Insolvenz, 3rd edition  1993,  188. 

18/43 

concluding  new  employment  contracts  or  making  generous  redundancy  arrangements 
when  he knows full  well  that he is  insolvent. 

Under  §  1(3)(2),  individual  contracts  involving  overly  high  rates  of  remuneration  are 
excluded  from  protection  if  concluded  six  months  or  less  prior  to  the  institution  of 
insolvency  proceedings.  The  manifest  aim  here  is  to  avoid  employees  being  more 
favourably  treated than creditors as insolvency  appears on the horizon. 

§  1(3)(3) covers that portion of severance pay which exceeds three months' wages. Under 
Austrian  labour  law  allowance  must be  made,  in  connection  with  the  said  portion,  for 
what the employee has saved by not working or what he actually obtained or intentionally 
omitted  to obtain.  Such  amounts are not protected. 

§  l(3)(3)(a)  is aimed at avoiding double payment,  i.e.  in cases where severance pay and 
regular pay  fall  due for the  same period  of time.  This can occur, for example,  when an 
employee  leaves  the  company  early  on  account  of  bankruptcy  and  is then  immediately 
re-hired  by  the  receiver  under  a  new  employment  contract.  In  such  instances,  the 
entitlement  remains  protected  only  if  the  receiver  (employer)  is  unable  to  pay  regular 
wages; such protection  ends, however,  at the moment the employee would be entitled to 
terminate  the employment  contract  prematurely  on  account  of  his pay being  withheld. 

Finally, in accordance with §  1(3)(5), entitlements are not covered when another employer 
other than the one  hitherto is  obliged  to pay ex lege.  This  provision  is  aimed  at certain 
special  groups.  It  applies  to  construction  workers  whose  holiday  and  severance  pay  is 
payable - in accordance with the Construction Worker Holiday  and Severance Pay  Act -
not by their employer but by the legally  independent  Construction Worker Holiday  and 
Severance Pay Fund. It also applies to salaried pharmacists working in pharmacies, whose 
remuneration  is  payable  not by  their  employer  but by  the Pharmacy  Emoluments  Fund 
(in  line  with  the Emoluments  Fund Act). 

At this point, we now come back to the exclusion — mentioned  earlier under II  1) —  of 
the "leitende Angestellte" entitled to exercise decisive influence oh company management. 
The reason for this exception  is that — as in the case of the members of the authority  of 
the body  corporate  excluded  by  the  Annex  to the Directive — they  occupy  de facto  the 
position  of  an employer. 

While  the  Austrian  explanatory  materials  pertaining  to the  exclusion  of  these "leitende 
Angestellte" from the IESG did not expressly state that the intention was to prevent abuse, 
there can be no doubt that this was the case, since they justify  the said persons' exclusion 
from  protection  on  the  grounds  of  their  occupying  an,  at the  very  least,  employer-like 
position.23  Thus  the  Austrian  Constitutional  Court24  has  said  that the  relevant  reference 
in the explanatory  materials is inadequate.  It considered the exclusion  of  such  people to 
be  justified,  though,  because  every-day  life  had  shown  that  "they  usually  exercise  a 
greater and direct influence  on the economic  position  of the company  and are personally 
able to gain in good time comprehensive insight into the crucial  matters". Therefore, their 

23  Cf.  EB, 134 Be il MR, 19.  GP, 82. 
24 

Judgment of 28.2.1984, VJSlg (= Digest of Judgements and Major Rulings of the Constitutional Court) 9935. 

19/43 

position  with  regard  to  company  insolvency  differed  from  that  of  other  employees  on 
several  major counts.  In short, the Constitutional  Court took the view that the  legislator 
had quite clearly rejected the idea of granting the protection afforded by the Fund to those 
persons who,  as experience  shows,  are responsible for the onset of  insolvency. 

Furthermore,  it  should  be  recalled  that the  Supreme Court  also  had  an eye  on  possible 
abuse when  it rejected  a claim  for  insolvency  protection  founded  on  the argument that 
a member of an authority entitled to represent a company had resigned shortly before the 
company  became  insolvent  (see II  1 above). 

On this point,  it is not impossible  for the conduct of the management  staff  exercising a 
decisive influence on company management to be interpreted as abuse within the meaning 
of  Article  10  of  the  Directive.  However,  simply  presuming  abuse  on  the  part  of  this 
category  of  staff  does  not justify  their total  exclusion  from  the  scope  of  the  guarantee 
under  Article  10  of  the  Directive.  Where  this  Article  allows  derogations  from  the 
protection  of  employees'  outstanding  claims,  a  restrictive  interpretation  of  such 
derogations  is  called  for. 

20/43 

MAIN AUSTRIAN  LEGISLATION  RELATING TO 
TRANSPOSAL  OF THE DIRECTIVE 

Insolvency  (Pay  Guarantee)  Act,  Federal  Law Gazette  1977/324 

Occupational  Pensions  Act,  Federal  Law Gazette  1990/282 

Pension  Funds Act,  Federal  Law  Gazette  1990/281 

21/43 

TRANSPOSAL  OF THE DIRECTIVE  IN FINLAND 

22/43 

I. 

INTRODUCTION 

Rules  on  the  protection  of  employees  in  the  event  of  insolvency  of  the  employer  were 
introduced  in Finland  by the Pay  Guarantee  Act  649/73, in  force  from  January  1,  1974. 
The purpose  of the  Act was to protect  workers' legal  pay  claims.  The  Act was  preceded 
by a session in the Nordic Council  1971, where a recommendation to the government was 
signed,  urging  it  to  take  measures  for  the  protection  of  employees  in  the  event  of  the 
insolvency  of  their  employer.25  The  Act  has been  amended  in  1982,  1984,  1990,  1992, 
1994  and  1995.  Seamen  are  protected  by  the  Pay  Guarantee  Act  for  Seamen  927/79, 
amended  in  1982,  1990,  1992,  1994 and  1995. The  Act  is based  on  the  same  principles 
and  is  for  the  most  part  equivalent  to  Act  649/73  but  adjusted  to  the  special  conditions 
of  shipping. 

n. 

TRANSPOSITION  OF  THE  DIRECTIVE 

1) 

Scope  and  definitions  (Article  1 and  2) 

a) 

Employee 

Section  1 of the Employment  Contracts  Act (320/70)  defines  an employment  contract  as 
an agreement "in  which one of the parties, the employee,  agrees with the other party,  the 
employer,  to carry  out work under the direction  and  supervision  of the latter in return  for 
wages  or  other  remuneration".  This  definition  is  important  not  only  for  the  application 
of  the  Employment  Contracts  Act.  In  accordance  with  the  prevalent  theory  of  the  so-
called  basic  relationship  in  Finnish  labour  law,  it  also  establishes  the  definition  of  a 
comprehensive  area  of  application  for  the  whole  system  of  rules  in  labour  law. 

The  definition  of  an  employee  in  Finnish  law  is broad.  It  covers  both  blue-  and  white-
collar  workers. Even  work  performed  at home  and  work  performed  with  the  employee's 
machines  may  directly  fall  within  the  application  of the law.  Moreover,  the  requirement 
that  the work  should  be  performed  under  the  supervision  and  direction  of  the  employer 
has  been  given  a liberal  interpretation.  The  mere  right  of  the  employer  to  supervise  the 
work has been taken to suffice,  regardless of whether the employ ~~ ^  de facto  supervised. 

25 

25 
^  Government  Bill  9/1973,  p.  1. 

23/43 

b) 

Insolvency  of the employer 

b) 

aa)  Concept  of  employer 

The  concept  of an employment  relationship  in Finnish  law defines  indirectly  the concept 
of  employer.  The  employer  can  be  a  physical  as  well  as  a  legal  person.  Also  a  person 
who  is  establishing  a  joint-stock  company  might  personally  become  responsible  for 
measures taken before the company  is registered  and has acquired  legal  capacity  (Finnish 
Supreme  Court  1982  - II  - 23). 

bb) 

Insolvency 

An  employer  in  Finland  shall  according  to  Section  1(2)  of  the  Pay  Guarantee  Act 
(649/73)  be  regarded  as  insolvent, 

1. 

2. 

if he/she has  died  and his estate has been  handed  over to an  executor  and  it  can  be 
established  that  the  claimed  amount  cannot  be  paid  out  of  his  assets; 

if  his/her  activity  has  ceased  and  it  can  be  established  that  the  claimed  amount 
cannot  be  paid  out  of  his  assets, 

3 

if  he/she  is  bankrupt; 

4. 

5. 

6. 

7. 

it  is  established  that  at  distrain  he/she  lacks  undisputed  assets  to  pay  the  claimed 
amount; 

if  he/she  has  left  the  country  or  is in  hiding  and  it  is  impossible  to  find  sufficient 
assets  to  pay  the  claim; 

if  he/she  has  failed  to  deliver  prescribed  tax  withholdings  or  social  security  or 
pension  insurance  contributions  at the  appropriate  time;  or 

if  the  pay  guarantee  authority  can  establish  clearly  and  beyond  dispute  that  the 
employer  is  insolvent  for  reasons  comparable  to  those  stated  in  the  above 
subparagraphs. 

24/43 

c) 

Claims arising  from  contracts  of employment and employment  relationship 

Section  1(1) of the Pay  Guarantee  Act (649/73)  states that the payment of an  employee's 
wages  and  any  other claims  based  on  his  employment  relationship  shall,  in  the event  of 
the  employer's  bankruptcy  or  insolvency,  be  assured  by  the  State  through  the  pay 
guarantee  system,  as provided  in  the  Act. 

The  Act  is  also  applicable  in  regard  to  an  employee  domiciled  in  Finland  and  working 
abroad  for  a Finnish  employer.  Claims by  an employee sent by a foreign  employer  from 
abroad  for  temporary  work  in  Finland  are  not  assured  pay  guarantee. 

Based  on  an  employment  relationship,  seamen  have  the  right  to  pay  guarantee  for  pay 
claims  and  other  matured  claims  which  according  to  the  Maritime  Act  1588/92  would 
have had  a maritime lien  in vessels. (The Pay  Guarantee Act for  Seamen  927/79,  Section 
2). 

d) 

Relevant  guarantee  dates  (Article  3(2)) 

Finnish  law  is in  accordance  with  the first  alternative  provided  under  Article  3(2)  of  the 
Directive.  The  pay  guarantee  shall  according  to  Section  2(1)  of  the  Pay  Guarantee  Act 
(649/73),  cover the pay  and  other  claims  arising  out of the employment  relationship  that 
have become  payable  during  the  three  months  preceding  the filing  of  the  pay  guarantee 
application.  Finnish  law gives  a broader  meaning to the concept  of insolvency  than  does 
the Directive. The Finnish  system  also allows the pay guarantee to come into play  during 
the  employment  relationship  or  to  respond  to  pay  applications  re-presented  at  different 
dates. Any claim  for  compensation  or indemnification  or other similar claim  which  is due 
to the employee by the employer because of an unfounded  termination  of an  employment 
relationship  or  an  omission  of  an  obligation  based  on the law  or  on  a contract,  shall  be 
paid  as pay guarantee  if pay  guarantee  is applied  for  no later than  three months  after  the 
matter  has been  decided  by  a final  judgement,  or  when  the basis  for  and  the  amount  of 
such  a  claim  has  been  agreed  upon  between  the  parties  or  organisations  concerned 
according  to  established  labour  market  practice. 

For  special  reasons,  claims  based  on  work  abroad  which  have  become  due  more  than 
three  months but  not  more than  six  months before  the application  for  pay  guarantee  was 
filed,  can  be  paid  as  pay  guarantee.  (1071/90) 

An  employee  is not  entitled  to  receive claims based  on work  abroad  as pay  guarantee  as 
far  as  he  receives  pay  guarantee  or  any  comparable  benefit  on  the  basis  of  a  foreign 
legislation,  applicable  to  the  employment  relationship.  (1071/90) 

There  are  no  time  limits  within  which  the  claims  must  have  matured  in  order  to  be 
protected  in  the  Act  on  Pay  Guarantee  for  Seamen  927/79. 

25/43 

e) 

Temporal  limits  to guarantee payments  (Article 4(2)) 

As  mentioned  under  d),  the  Pay  Guarantee  Act  (649/73)  provides  for  pay  and  other 
claims  arising  out of the employment  relationship  that have become  payable  during the 
three months preceding the filing of the pay guarantee application. No threshold in regard 
to time or period of employment is stated. The determining factor in Finland is the time 
at which a claim has matured, not the time when the work was performed. Having regard 
to the  remarks under a)  and c)  above,  and insofar  as the  pay guarantee  application  can 
be effective  before  the bankruptcy  procedure  is opened,  the Finnish  Pay  Guarantee  Act 
meets the requirements  of  Articles 3  and 4  of the Directive. 

f) 

Ceilings  to guarantee  payments  (Article 4(3)) 

Section 2(5) (1071/90) of the Pay Guarantee Act (649/73) states that the maximum of pay 
guarantee  per worker shall  be specified  by decree.  This is a practical  solution  to make it 
easier  to  follow  the  ways  of  payment  on  the  labour  market  at  any  given  moment  and 
easier to change the wage guarantee.26 Decree 883/73  as amended in  1993 (1439/93)  sets 
the limit of pay guarantee per worker, based on work performed  for the  same employer, 
to FMK  75  000. 

Section  2  of the Pay  Guarantee  Act for  Seamen  927/79  does not stipulate  a ceiling  of a 
specified  amount. 

2)  Guarantee  Institutions  (Article  5) 

The  pay  guarantee  is  assured  by  the Finnish  State  and administered  by  the  Ministry  of 
Labour and the Offices  of Manpower Districts. The employees'  claims are transferred to 
the  State  on  the  day  on  which  the  Office  of  Manpower  District  decides  to  disburse the 
pay  guarantee.  The  employer  has been  obliged  to  pay  an annual  interest  of  16  per cent 
on the claim from that date. (Pay Guarantee Act (649/73), Section  5). From the beginning 
of  1996,  the  interest  has  after  an  amendment  of  the  Act  (1661/95)  been  coupled  to the 
general  level  of  interest  rates  and  was  at  the  beginning  of  the  year  13  per  cent.  The 
difference  between  the  amounts  paid  to  workers  as  pay  guarantee,  and  the  principal 
collected  from  employers,  shall  retrospectively  every year be reimbursed to the State out 
of  the Central  Fund  of  Unemployment  Funds.  (Section  16(1)). 

Decisions on pay guarantee are made by the Office  of the Manpower District where the 
employer  stated  in  the  application  is  domiciled.  If the  domicile  is  unknown,  the  matter 
is handled by the Office  of Manpower District where the work, specified  in the claim, has 
habitually  been  performed.  (Section  1(3)). 

26 

26 

Government  Bill  9/1973,  p. 3. 

26/43 

If  a  pay  guarantee  application  is  rejected,  the  Office  of  the  Manpower  District  shall 
instruct the worker to initiate a lawsuit against the employer and the State if the rejection 
is  a  result  from  inability  to  ascertain  the  basis  for  or  amount  of  the  claim  and  the 
employer  has  disputed  the  claim;  or against  the  State if  the  rejection  has  resulted  from 
inability to ascertain the basis for or amount of the claim, on condition that the employer 
has not disputed the claim. (Sections  1(3) and 7(1)). In case of rejection on other grounds, 
Law  No  1443/1994,  which  entered  into  force  on  1 January  1995,  makes  provision  for 
appeal  procedures under the jurisdiction  of the Unemployment  Insurance  Commission. 
Applications for pay guarantee shall be addressed to the Office  of Manpower District and 
are to be delivered to a local Employment Office.  An application for pay guarantee, based 
on  work  abroad,  can  also  be  filed  with  a  Finnish  embassy,  consulate  or  other 
representation  abroad.  (Section  3). 

The  Ministry  of  Labour  is  in  pay  guarantee  matters  assisted  by  a  special  tripartite 
delegation.  The  delegation  is appointed  for three years at the time to take initiative and 
watch over the development  of the pay guarantee, system.  (Decree  883/739,  Section  10). 

3) 

Insolvency  protection  as  part  of  social  security  (Articles  6-8) 

a) 

Limitations  of  insolvency protection  (Article 6) 

The  Finnish  Pay  Guarantee  Act  (649/73)  Section  1,  provides  for  the  protection  of  a 
worker's wages and any  other claims based on his employment relationship.  Apart from 
the ceiling  to the  amount,  there  are no exceptions  or limitations to this rule. 

If an employee  transfers  a claim  based  on  his employment,  the transferee  shall  only  be 
entitled to pay guarantee if the said transferee is an employees'  organisation or a fund or 
other body in the administration of which an employees' organisation participates (Section 
13) 

b) 

"Guarantee"  covering  outstanding  employee  contributions  to  statutory  social 
security  schemes  deducted  by  the employer  (Article  7) 

The  State  guarantees  the  workers'  pay  claims.  Each  year,  the  Central  Unemployment 
Insurance Fund pays the  State a posteriori  the difference  between  payments made under 
pay guarantee arrangements and the amount of capital  recovered from  employers. To this 
end,  funds  collected  in  the  form  of  unemployment  insurance  contributions  come 
exclusively  from  the  employers.  However,  deducted  from  the  amount  paid  are tax  and 
advance withholdings and, according to Section  10 of the Pay Guarantee Act for Seamen 
927/79,  the  employee's  own  pension,  so-called  service  fees  are also  deducted  from  the 
amount paid. 

c)  Guarantee  concerning  immediate  or  prospective  entitlement  to  benefits  under 

private  supplementary  old-age  insurance schemes  (Article  8) 

The  Finnish  law  applies  exclusively  to  the  relationship  between  employers  and  actual 
employees. 

Former  employees  may  in  other  words  not  receive  pay  guarantee  for  supplementary 
pension  claims  which  the  employer  through  commitments  in  the  former  employment 

27/43 

relationship  is  liable for. 

In Finland  a voluntary  insurance  may  be taken  out with  an insurance  company,  social 
insurance  office  or  be  provided  by  setting  up  a  pension  foundation.  The  Pension 
Foundation Act (29.12.1995/1774)  regulate pension funds and the Social  Insurance Fund 
Act  (27.11.1992/1162)  the  social  insurance  offices.  The  pension  foundations  are  of 
practical  importance;  in  1993  there were 214  active pension  foundations. 

When an employer is declared bankrupt, the pension fund  is often  indirectly  affected.  It 
may  either  be  dissolved  or be  declared  bankrupt  itself.  This  does  not  conform  to  the 
provisions  of  Article  8 of  the Directive,  which  seeks to  ensure that the Fund  is  able to 
meet  its  obligations  concerning  prospective  entitlement  to  old-age  benefits,  including 
survivors' benefits,  despite the insolvency  of the employer who is a member of the fund. 
Former employees'  pension  claims  do not have priority  in  such bankruptcies. 

The pension foundation's  claim in the employer's bankruptcy, which  covers the pension 
liability  based  on  voluntary  supplementary  schemes  in  accordance  with  the  Pension 
Foundation  Act  shall  have  priority 
in  bankruptcies  until  year  2011  (see  Act 
29.12.1995/1776  § 9). An employee's pension claim on the former employer, who in the 
employment contract might have committed him-/herself to pension benefits,  does on the 
other hand not have  priority  (see  the  Supreme  Court  1991/186). 

The Finnish legislation  is  aiming  at in various ways guarantee that pension  foundations 
and social  insurance offices  shall  guarantee full  pension  responsibility  (earlier 75%). To 
avoid  financial  difficulties  for  employers,  transition  periods have been  initiated  leading 
to full  responsibility  for pension guarantee within  15 years. The gradual  implementation 
aims at having  full  coverage  of  responsibility  from  the beginning  of year 2011. 

The  full  responsibility  shall  in  other  words  guarantee  the  supplementary  pensions  for 
employees and retired employees. In case of abuse by the foundation, the social  insurance 
office  or the employer, situations may however arise where there is no ability to fulfil  the 
obligation. In these situations, the responsible party may be tried and obliged pay possible 
damages.  In such  instances  there is  no  State guarantee however. 

Special  rules in Section  88 paragraph 2 of the Pension Foundation Act regulate situations 
when the pension  foundation  is dissolved  due to the ending  of the employer's  business. 
In  such  cases,  pension  benefits  of  employees  whose  employment  have  ended  within  a 
year  before  the  closing  of  the  enterprise,  shall  also  be  protected.  This  rule  has  been 
inaugurated for reasons of fairness. When the financial  conditions get worse, the employer 
often  reduces  his  personnel  by  giving  notice  and  people  can,  if  they  are  afraid  to  lose 
their job,  look  for work  elsewhere.  In this situation  the pension benefits  are not secureo 
for those whose employment ended more than one year before the employer's enterprise 
ceased to exist.  Insofar as the employer's insolvency  is liable to affect the payment by thi 
pension  funds  of  future  social  security  entitlements,  the  provisions  of  the  Finnish 
legislation  do  not accord  with  this  Article  of  the Directive. 

28/43 

4)  Refusai  and  reduction  of  insolvency  protection  in  the  event  of  abuse,  clashing 
interests  and  collusion  (Article  10) 

An  employee  is not  entitled  to pay  guarantee on the basis of any  agreement  or any  such 
comparable  de  facto  arrangement  which  has  evidently  been  made  with  the  intent  that  a 
worker's  claim,  based  on  employment,  would  devolve  on  the  State  as  pay  guarantee. 
(Section  2a  (403/84)  of the Pay  Guarantee  Act). 

Section  12  of  the  Act  states  that  an  Office  of  the  Manpower  District  may,  for  special 
reasons,  reject  an  application  for  pay  guarantee  submitted  by  a worker  who  has  earlier 
received  pay  guarantee,  if  the  application  relates  to  a  claim  against  the  same  employer 
for  work  performed  within  three years  of the previous  pay guarantee  decision.  The term 
"same  employer"  applies  equally  to  any  undertaking  over  which  the  previous  employer 
has control. For  a previous  employer  to be considered  as in  control  of  an undertaking,  it 
is  sufficient  for  the  same  person  to  have  a  controlling  share  in  both  companies,  either 
alone  or  together  with  his  family  members. 

Special  reasons  must  be  presented  for  the  rejection  of  an  application  for  pay  guarantee. 
The  burden  of  proof  lies  with  the  party  who  proposes  rejection. 

In  accordance with  Article 2(4) of the Pay  Guarantee  Act, the authorities responsible  for 
compliance  with  the  guarantee  provisions  are  entitled  to judge  whether  it  is  appropriate 
to  pay  more  than  twice  under  the  pay  guarantee  arrangements  the  amount  which  the 
employer  disbursed  to the  latter  in  the  year  preceding  the  application  for  pay  guarantee 
to  meet  an  obligation  arising  from  the  employment  relationship. 

Whoever  gives  false  information  or  otherwise  deliberately  or  by  neglect  causes  an 
unwarranted  disbursement  of  pay  guarantee  or  other  benefit,  or  the  disbursement  of 
excessive pay guarantee, is according to Section  14 (815/90) of the Act, obliged  to return 
or  compensate  the  sum  paid  in  excess.  Fraudulent  behaviour  is  punished  in  accordance 
with  the  Criminal  Code. 

To  further  avoid  abuse  employers  are  according  to  Section  17,  obliged  to  provide  the 
manpower authorities responsible for pay guarantee matters with all information  necessary 
for  the  implementation  of  the  Pay  Guarantee  Act.  The  specified  authority  is  entitled  to 
check  information  given  against  the  employer's  books. 

The  county  administrative boards  and  the  district  chief  of  police  are  obliged  to  provide 
official  assistance  needed  to  obtain  the  information.  The  manpower  authority  may  also 
turn to the tax authorities for information  on the employee's tax records necessary  for  the 
processing  of  a  pay  guarantee  claim. 

The  Finnish  construction  for  avoidance  of  abuse  falls  within  the  scope  of  the  options 
provided  in  Article  10 of  the  Directive. 

29/43 

TRANSPOSAL  OF THE DIRECTIVE  IN SWEDEN 

30/43 

I. 

INTRODUCTION 

Rules on the protection  of employees  in the event of insolvency  of their  employers  were 
incorporated  in  Swedish  legislation  in  1971. The Wage Guarantee  Act (1970:741)  came 
into force January  1, 1971 and stayed valid until the new Wage Guarantee Act (1992:497) 
(Lonegarantilageri)  came  into  force  July  1,  1992.  This  Act  has  since  been  amended 
several  times, the  latest  amendment  came  into force  in July,  1995. 

The  level  of  wage  protection  in  Sweden  is  equivalent  to that  offered  by  EEC  Directive 
80/987, but the  Swedish  legislation  is technically  not based  on the Directive. Before  the 
incorporation  of the  rules  on wage guarantee, the employees'  pay  claims were  protected 
in  the  event  of  their  employer's  bankruptcy  by  having  a  privileged  position  in  the 
preferential  order.  This  protection  was,  however,  only  of value  if  there  were  assets  left 
in bankruptcy. The wage guarantee rules adopted  when the Directive was transposed  now 
protect  employees'  wages  regardless  of  what  is  left  in  the  bankruptcy  estate.  The 
guarantee  covers the same kind  of pay  claims as those protected  by  the right  of  priority. 
A limitation  of the  State's commitment  was introduced  by stating a maximum  amount of 
compensation  by  the  guarantee.27 

During a three-year  period  between  the end  of the  1980's and  1992, the cost of the  wage 
guarantee  had  increased  sevenfold.  A  change  of the  regulations  was introduced  in  order 
to  cut  the  costs  and  a  new  Wage  Guarantee  Act  came  into  force  July  1,  1992.  The 
purpose  of  the  new  regulation  was  to  limit  the  expenses,  making  supervision  more 
effective  to ensure that the wage guarantee  was used  as intended,  while at the  same time 
not  unacceptably  restricting  the  employees'  protection.28  A  reduction  of  the  maximum 
amount  of  wage  guarantee  was  made.  From  an  earlier  sum  of  approx.  SEK  400  000 
(approx. ECU 45 000), the sum  is now SEK  100 000 (ECU  11 000), which  is considered 
adequate  to  fulfil  the  social  aim  of  the  wage  guarantee. 

The  increase  in  bankruptcies  had  stopped  in  1993 but  the government  still  regarded  the 
costs  to  be  high.  The  revenues  to  the  Wage  Guarantee  Fund  had  also  decreased  so  the 
Wage  Guarantee  Fund  had  to  borrow  money  from  the National  Debt  Office.  New  rules 
were  introduced  in  order  to  cut  costs. 

Another  reason  for  a change  in  legislation  was that  complaints  about  abuse  of the  wage 
guarantee had been  presented.  Enterprises were using the wage guarantee to subsidise the 
reconstructing after  bankruptcy,  something which led to an unfair  competition  situation.29 
The use of the wage guarantee could  also have the effect  that employees stayed  employed 
in  economically  unsound  businesses,  in  enterprises  which  in  the  long  run  lacked 
profitability. 

27 

28 

29 

Walin  G,  Rydin  B., Kihlgren  T.,  p.  149. 
Government  Bill  1993/94:208, p.  14  f. 
Government  Bill  1993/94:208, p.  16. 

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T R A N S P O S I T I ON  OF  T HE  D I R E C T I VE 

1) 

Scope  and  definitions  (Articles  1 and  2) 

a)  Employee 

Swedish  labour  law  is based  on  a uniform,  and  from  an  international  perspective,  wide 
meaning  of  the  notion  "employee".  The  implementation  of  the  Acts  is  however  not 
demarcated  in a uniform  manner due to the fact that the different  courts have to  interpret 
different  Acts  with  different  purposes.  In  the  Wage  Guarantee  Act  (1992:497) 
(Lônegarantilagen)  for  example,  as now in force,  it is explicitly  stated  (Section  9a)  that 
certain  categories  of  employees,  such  as those  who  within  two  years  after  the  declared 
bankruptcy  already  have been  granted  compensation  for  a claim  in  principally  the  same 
undertaking or business, are excluded from  its scope. Exceptions are those who have been 
advised  by the Public Employment Agency to accept the position  as well  as when,  in the 
individual  case, there  is a particular  reason  for  the guarantee to  set in. The  Act  (Section 
7)  also  refers  to  the  Preferential  Claims  Act  (1970:979)  (Fôrmànsrâttslagen),  which 
excludes from  protection  employees  who by  themselves,  or together with  near  relatives, 
own  20% or  more  of  the  enterprise. 

In the original  preparatory work to the Preferential  Claims Act (1970:979), it is presumed 
that the meaning of the notion employee continuously will be adapted to the  development 
on the labour market.30  So far adjustments  regarding relatively  independent workers have 
been  made. These categories of workers are now often  included  in the scope of the wage 
guarantee.31  The  method  used  in  deciding  who  is  and  who  is  not  an  employee,  is 
approaching  the  method  used  in  social  security  matters.32 

Certain  basic  criteria  must  always  be  fulfilled  before  a  person  can  be  considered  an 
employee in a legal  sense. There has to be an agreement of  some sort and the  agreement 
should refer  to work. How the parties label the contract is not the determining  factor;  the 
courts decide whether  a person  is an employee or not after  making an overall  assessment 
of  the  actual  situation  in  the  individual  case.33  In  the  preparatory  work  to  the  Co-
determination  Act  (1976:580)  (Medbestâmmandelagen, MBL)  a compilation  is  made  of 
ten  points  of  criteria  indicating  that  a  worker  is  an  employee.34  If  the  purpose  of  the 
agreement  between  the  parties  seems  disloyal,  the  courts  tend  to  disregard  the  formal 
content  of the contract. In cases where a person  has been  employed  and the  employment 
has  changed  into  commissioned  work,  the  courts  are  particularly  observant.  If  no  real 

30 

31 

32 

33 

34 

See  SOU  1969:5 p.  150. 
Walin G,  Rydin  B., and  Kihlgren T., p. 107. 
Sigeman, T., p. 68. 
The  most  fundamental  case  from  Swedish  supreme  court,  Hôgsta  Domstolen  (HD),  where 
making  an overall  assessment  is stated  is NJA  1949 s. 768. 
SOU  1975:1 p.722. 

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change has occurred  the courts often  conclude that the person  is still  an employee.35  The 
courts  otherwise  see  to  common  practice within  the type  of  agreement  at  hand.36 

Insolvency of the employer 

b) 

aa)  Concept  of  employer 

The  term  "employee",  as  well  as  the  term  "employer"  does  not  have  any  statutory 
definition  in  Sweden.  The  concept  is found  indirectly;  when  a  person  is found  to  be  an 
employee,  his  counterpart  is found  to  be  an  employer. 

In  private  law  the  courts  make  an  overall  assessment  in  each  individual  case. 

When  a dispute has arisen on whether a person is an employee and therefore  has the  right 
to receive his/her wage or salary  from  the Wage Guarantee Fund,  the dispute  is between 
others than  the  original  parties to the work agreement  and there are certain  aspects to be 
considered. The intention of the parties in the original work agreement is then not without 
importance for  the  court's  assessment.37  (See for  instance the  Supreme  Court's  ruling  in 
NJA  1992  p.  631).  It  is  of  importance  what  the  agreement  says  and  what  the  actual 
situation  has  been  during  the  time  prior  to  the  bankruptcy.  If  it  is  found  to  be  an 
employment relationship, the State is obliged to pay the wage guarantee. What the parties 
after  the bankruptcy  state about their relationship is of less importance because the  actual 
conflict  of  interest  is  not  between  them. 

bb) 

Insolvency 

Section  1  of  the  Wage  Guarantee  Act  (1992:497),  states  that  the  government  is 
responsible  for  employees'  pay  claims  in  the  event  of  the  employer's  declared 
bankruptcy.  Bankruptcy  is  a  prerequisite  for  the  Act  to be  applicable. 

An insolvent person,  physical  or legal, shall  according to the Bankruptcy  Act  (1987:672) 
(Konkurslagen)  Article  1, Section  2, be  declared  bankrupt  after  he  himself  or  a  creditor 
has  petitioned  the  District  Court  for  bankruptcy,  unless  the  law  states  otherwise.  Being 
insolvent  means  that  the debtor  cannot  rightly  pay  his/her debts  and  that  this  inability  is 
not  temporary. 

Section  7  stipulates  that  a  debtor's  statement  on  insolvency  shall  be  accepted  unless 

35  See  for  instance  Arbetsdomstolen, AD 1977 nr 39 and  98,  1978 nr  13 and  1989 nr  80. 
36  See  for  instance  NJA  1982 p.  784, AD  1981 nr  121 and AD  1987 nr 21. 
37  Sigeman, T.,  p. 64. 

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special  reasons  speak  to  the  contrary.  Such  reasons  may  be  that  the  petition  for 
bankruptcy is filed for competitive reasons or that the company's actual  assets exceed the 
level  at which a company is insolvent by definition.  The Court has to investigate whether 
the  person  filing  the  petition  is  authorised  and  whether  there  is  any  hindrance  to  the 
bankruptcy. 

Sections  8  and  9  include  three  so-called  presumption  rules  which  make  it  easier  for  a 
creditor  to  prove that  the  debtor  is  insolvent.  The  debtor  is  presumed  insolvent  if 

a.  the  enforcement  service  authority  in  execution  has  found  that  the  debtor  is  lacking 

assets  for  full  payment  of  execution  claims; 

b.  the  debtor  has  declared  a  stoppage  of  payments; 

c.  the  debtor  (with  an  obligation  to  keep  books)  has  been  requested  to  pay  an 
indisputable  claim  within  a  week  and  also  been  informed  that  a bankruptcy  petition 
otherwise  will  be  put  to  the  District  Court,  but  still  does  not  pay. 

In  practice,  however,  the procedure  most  currently  in use in  Sweden  is that  of  satisfying 
collectively  the  claims  of  creditors,  as  referred  to  in  the  Directive. 

c) 

Claims  arising  from  contracts  of  employment  and  employment  relationships 

An  employee  is  according  to  Section  7  of  the  Wage  Guarantee  Act  (1992:497),  in 
reference  to Section  12 of the Preferential  Claims Act (1970:979), entitled to a guarantee 
amount  for  (all)  claims referring  to unpaid  wages and  other remunerations  in  connection 
with  employment,  including  earned  holiday  pay  and  pension. 

The  State  is according  to  Section  1 of  the Wage  Guarantee  Act  liable  for  the  settlement 
of  an  employee's  claim  to  payment  from  an  employer  who  has been  declared  bankrupt 
in  Sweden.  It does  not  matter  where  the  employees  come from  or whether  the  company 
is Swedish  or not.  If the bankruptcy  has occurred  in  Sweden,  the presumption  is that the 
pay  claims  are  covered  by  the  Swedish  wage  guarantee. 

When  the bankruptcy  petition  is filed  in another Nordic country,  only  claims referring  to 
employment  predominantly  connected  with  Sweden  or  Swedish  conditions  may  be 
compensated  through  the  guarantee.  If  all  the  work  has  been  performed  in  another 
country,  references  to  Sweden  or  Swedish  conditions  are usually  not  adequate. 

The  Wage  Guarantee  Act  is  not  applicable  when  a  Swedish  citizen  has  been  employed 
by  a company  which  has been  declared  bankrupt  in  a foreign  country  but the person  has 

34/43 

been  working  in  a  Swedish  local  office.  (See  the  Court  of  Appeal,  RH,  1992:88, 
p.219).The  fact  that the company  has paid  social  fees  for  the employee,  including  fees 
to  the  Wage  Guarantee  Fund,  is  of  no  importance.  The  bankruptcy  must  have  been 
declared in Sweden or in another Nordic country. (That subsidiaries to foreign companies, 
being  their  own  legal  persons,  have  to  be  declared  bankrupt  in  Sweden  for  the  Wage 
Guarantee Act to be applicable, is more natural). On the other hand a foreign citizen, who 
is living abroad but earlier has performed work in Sweden for a Swedish company which 
has been declared bankrupt in Sweden, ought to be entitled to Swedish wage guarantee.38 

If the employer has been declared bankrupt prior to the bankruptcy at hand, claims which 
have been lodged, or could have been lodged  in that earlier bankruptcy will  not be paid. 

The  same right to  pension  claims  applies to  an employee's  relative  who  has  a pension 
claim  on the  debtor  in  bankruptcy  by  virtue  of  the  employee's  position.  Also  a person 
who is entitled to maintenance is entitled to a guarantee amount for maintenance secured 
by  attachment  of  wages.  Social  insurance  offices  having  paid  maintenance  are  not, 
however,  entitled  to guarantee amounts.  (Sections  1-6). 

d) 

Relevant guarantee  dates  (Article  3 (2)) 

Section 7 of the Wage Guarantee Act (1992:497), states that payment under the guarantee 
is  made for  a claim  to wages  or other remuneration  having  priority  under  Section  12 of 
the  Preferential  Claims  Act  (1970:979)  and  for  a  pension  claim  having  priority  under 
Section  12  or  13  of  the  same  Act.  To  what  extent  a  pay  claim  or  pension  may  be 
accepted  in a bankruptcy  situation  is  regulated  in the Bankruptcy  Act  (1987:672). 

Sweden  has  chosen  the first option  under  Article  3  (2)  of  the  Directive.  According  to 
Section  12  of  the  Preferential  Claims  Act,  the  guarantee  of  priority  of  pay  claims 
concerns  claims  that  refer  to  payments  for  the  last  six  months  of  employment  by  the 
bankrupt employer  and not earlier than three months before  the bankruptcy  petition was 
registered  at the District Court. 

There  are  no  general  rules  in  Swedish  legislation  on  the  impact  on  the  employment 
contracts  in  the  event  of  the  employer's  bankruptcy.  The  problem  has  however  been 
addressed  by the  Swedish courts. 

An  employment  contract  does  not  automatically  cease  to  be  valid  if  the  employer  is 
declared bankrupt. Both the employee and the bankruptcy trustee have, however, the right 
to  give  notice.  If  notice  is  given  in  connection  with  the  declaration  of  bankruptcy,  the 
employee's  pay  claims  are  treated  as  claims  within  the  bankruptcy,  claims  that  are 
included  in the Wage  Guarantee Act  and the Preferential  Claims  Act.  During the notice 

38  Waîin  G.,  Rydin  B., Kihlgren  T.,  p.  165. 

35/43 

period,  the  employee  is  obliged  to  work  if  requested.  Legally  it  is  seen  as  though  the 
employment  contract  between  the  bankrupt  employer  and  the  employee  continues, 
although the employer's functions are taken over by the trustee in bankruptcy.39 

The  provisions  are  also  concerned  with  claims  to  pay  during  notice  periods.  If  the 
employee  is  not  required  to  work  for  his  bankrupt  employer  and  is  not  working 
elsewhere, the provisions are concerned with pay claims during notice periods only if the 
person  is  registered  at  an  official  unemployment  agency  as  a job  seeker.  Pay  that  a 
worker receives from another employer during the notice period - or obviously could have 
received in an employment he reasonably  should have accepted - shall be deducted from 
the compensation from the wage guarantee (the Security of Employment Act (1982:80), 
Section  13).  Since the priority  of pay claims concerns claims that refer to payments not 
due  earlier  than  three  months  before  to  the  bankruptcy  petition  was  registered  at  the 
District Court, a person with a notice period of six months (the maximum notice period) 
who  has  not  found  a  new  position  might  risk  not  being  compensated  for  possible 
remaining  pay claims. 

The  employee  can  control  the  situation  to  some  degree  by  giving  his/her  notice  and 
thereby  secure  pay  claims  referring  to  the  three  months  prior  to  the  bankruptcy.  The 
employee's notice period is one month, after which, however, s/he is no longer employed 
and therefore  cannot  claim  further  compensation. 

The bankruptcy trustee may also conclude a new employment contract with the employee; 
a reconstructed contract in which the trustee is not regarded as the employer with regard 
to the law. In that case, any future pay claims will be against the bankruptcy estate itself. 
The claims, although  having priority  before  any other claims in the bankruptcy  (Article 
11,  Section  1, the Bankruptcy  Act),  are not included  in the wage guarantee. 

The  Swedish  provisions  also  include  claims  to  holiday  pay,  earned  during  the  current 
year,  or the year  prior to the year the bankruptcy  petition was  registered  at the District 
Court. 

Claims  to  pension,  earned  by  an  employee  or  his/her  successors  for  up  to  six  months 
before the petition  of bankruptcy was filed at the District Court as well  as the  following 
six  months,  are  also  protected  by  the  Preferential  Claims  Act.  This  includes  pension 
earned while working  for another employer if the bankrupt employer has taken over the 
responsibility  for that pension. 

Sigeman,  T.,  p.  339. 

36/43 

e)  Temporal  limits  to guarantee  payments  (Article  4  (2)) 

As  mentioned  under  d),  Section  7  of  the  Wage  Guarantee  Act  (1992:497)  refers  to 
Section  12 of the Preferential  Claims Act (1970:979), which  states that payments for  the 
last  six  months  of  employment  by  the  bankrupt  employer  are  protected  by  the  wage 
guarantee, but not earlier than three months before the bankruptcy  petition was registered 
at  the  District  Court.  This  construction  is  not  completely  in  accordance  with  the  first 
alternative  of  Article  4(2)  of  the  Directive.  The  wording  of  the  Directive  indicates  that 
a person  who has been  employed  for  three  months  within  the last  six  months before  the 
insolvency,  i.e.  employed  up to three  months prior to the insolvency,  shall  be  entitled  to 
wage  guarantee  for  his/her  wages  referring  to  the  last  three  months  of  employment.  In 
Sweden,  a  person's  pay  claims  are  not  guaranteed  for  any  reference  period  earlier  than 
three months before  the petition  for  bankruptcy  was filed at the District  Court.  Since pay 
claims which  have  matured  during  the  last six  months  of  employment  are guaranteed,  it 
means  on  the  other  hand  that  the  period  may  stretch  beyond  the  bankruptcy  date  and 
include  pay  claims  for  further  employment  or  pay  during  the  notice  period.  From  this 
point  of  view,  the  provisions  of  the  of  the  Swedish  law  are  more  favourable  than  the 
provisions  of  the  Directive. 

f) 

Ceilings  to guarantee  payments  (Article  4(3)) 

Article  5,  Section  2 of the Bankruptcy  Act  (1987:672)  places a general  limitation  on  the 
pay  claims that  can  be  accepted  in  a bankruptcy.  A claim  for  pay  or other  remuneration 
or  a  pension  claim  cannot  be  granted  if  it  obviously  exceeds  what  can  be  perceived  as 
reasonable  in  view  of  the  work  performed,  the  prosperity  of  the  enterprise  and  other 
circumstances.  When  there  is  no  such  limitation,  Section  9  of  the  Wage  Guarantee  Act 
(1992:497)  limits  the  guarantee  to  a  maximum  of  SEK  100  000  (approximately 
ECU  11 000)  for  each  employee. 

2)  Guarantee  Institutions  (Article  5) 

The  Swedish  government  is,  according  to  Section  1  of  the  Wage  Guarantee  Act 
(1992:497),  responsible  for  paying  employees'  pay  claims  in  case  of  the  employer's 
bankruptcy.  The  guarantee  is  financed  through  contributions  from  the  employers, 
including  fees  drawn  on  the  employees'  wages,  to  a wage  guarantee  fund.  The  State  is, 
however,  ultimately  responsible  for  the  payments  to  the  employees.  With  effect  from 
1  July  1995,  employers'  contributions  are  paid  to  the  State  budget  under  a  special 
heading.  The  money  is  distributed  by  the  County  Administrative  Board  (Lansstyrelsen) 
in  the  county  where  the District  Court  handling  the  bankruptcy  is situated  (Section  22). 
Deducted  from  the  payable  sum  is  any  claim  on  the  employee  the  employer,  according 
to  the  Act  on  the  Employer's  Right  of  Set-off  (1970:215),  has  the  right  to  refer  to.  An 
employee  who  is  dissatisfied  with  the  bankruptcy  trustee's  decision  on  whether  a  claim 
is  covered  by  the  guarantee  or  not  may,  according  to  the Wage  Guarantee  Act,  Section 
29,  appeal  to  the  District  Court. 

37/43 

3) 

Insolvency  protection  as  part  of  social  security  (Articles  6-8) 

a) 

Limitations of insolvency protection  (Article 6) 

The Wage Guarantee Act (1992:497), provides for the payment of (all) pay claims when 
an  employer  has been  declared  bankrupt  in  Sweden  or  in  another Nordic  country  when 
the claims are related  to  employment  predominantly  connected  with  Sweden  or  Swedish 
conditions.  Sweden  has opted  not to use the provisions  for  limitations  offered  in  Article 
6  of  the  Directive. 

b) 

"Guarantee"  covering  outstanding  employee  contributions  to  statutory  social 
security schemes deducted by the employer (Article 7) 

The  Swedish  State  is  according  to  the  Wage  Guarantee  Act  (1992:497)  liable  for  the 
settlement  of an  employee's  claim  to payment from  an  employer who has been  declared 
bankrupt  in  Sweden  or  in  another  Nordic  country  when  the  claims  refer  to  employment 
predominantly  connected  with  Sweden  or  Swedish  conditions.  The  pay  guarantee  is 
funded  by  an  employer's  contribution  in  the  sum  of  0.25%  of  an  amount  which,  in  the 
final  analysis,  corresponds to the total  paid  in cash  or any  other  form  of  payment  by  the 
employer  during  a year  in  respect  of  work  done (Chapter  1, Articles  2  and  3 of the  Act 
[1981:691] concerning  social  expenditure). 

The benefits  provided  for  under the national  agreement-based  social  security  system  are 
funded  in  part  from  taxes  and  employers'  contributions.  The  right  to  compensation  or 
benefit  is  not  dependent  on  whether  the  employer  in  question  has  contributed  or  not 
(Article  1 of  the  Wage  Guarantee  Act  and  Chapter  1 of  the  Act  [1962:381]  on  general 
insurance  schemes). 

c)  Guarantee  concerning  immediate  or  prospective  entitlement  to  benefits  under 

private  supplementary old-age  insurance  schemes (Article 8) 

The  Swedish  social  security  system  is built on a combination  of  statutory  provisions  and 
provisions  guaranteed  through  collective  agreements.  The  organisation  rate  among 
employees  in  Sweden  is very  high  (approximately  85%)  and  all  employers  affiliated  to 
the  Swedish  Employers'  Confederation  (SAF)  are  according  to  collective  agreements 
obliged to take out supplementary  insurance policies, including old-age pension, for  their 
employees. The employees do not have to be union members to be covered, which  means 
that  more  than  85% are covered  by  the  supplementary  schemes.  On  top  of  the  schemes 
through  collective  agreements,  there  are  private  social  security  plans  negotiated  in 
employment  contracts. 

All  pensions  based  on  collective  agreements  are  covered  by  a  collective  agreements 
guarantee,  meaning  that  employees'  pension  benefits  are  protected  even  if  the  employer 

38/43 

has  neglected  to  pay  the  insurance  fees  for  his/her employees. 

Employers may  also  safeguard  pension  commitments  in accordance with  provisions  laid 
down  in  Section  1 of the  Safeguarding  of Pension  Commitments  Act (1967:531)  (Lagen 
om  tryggande  av  pensionsutfastelser  m.m.) which  states  that  pension  commitments  to 
employees and  survivors can be  safeguarded  by  special  accounting for  pension  liabilities 
or  by  allocation  of  funds  to  a  pension  foundation,  which  is  supervised  by  the  County 
Administrative  Board  (Section  31).  Abuse  of  the  provisions  may  lead  to  a  fine  penalty 
(Section  7-8).  In  order  to  obtain  tax-deduction  for  pension  costs,  it  is  necessary  for 
employers  to  comply  with  the  provisions  set  forth  in  the  Act. 

Section  1 of  the  Wage  Guarantee  Act  (1992:497)  states  that  the  State  is  liable  for  the 
settlement  of  an  employee's  claim  to  payment  when  the  employer  has  been  declared 
bankrupt.  Section  7  states  that  the  guarantee  is  made  for  claims  to  wages  or  other 
remuneration having priority under  Section  12 of the Preferential  Claims Act (1970:979). 
This Act in turn  states that wages or other remuneration  due to employment  have priority 
-  no  exceptions  are  stated  - and  include  insurance  payments  for  private  pension  plans.40 
In accordance with  Section  12 in the Preferential  Claims Act, the guarantee covers  claims 
on  the worker's  pension  or  to  his  successor's  pension. 

Only  a pension  which  has been  earned  at the  earliest  six  months  prior to  the  petition  for 
bankruptcy  and  six  months  thereafter  may  be  covered  by  the  guarantee,  not  pension 
claims for  the future.  The  guarantee  also includes  pension  which  has been  earned  under 
a  previous  employment  provided  the  new  (bankrupt)  employer  has  taken  over  the 
responsibility  in  accordance  with  Sections  23  and  26  of  the  Safeguarding  of  Pension 
Commitments Act (1967:531). Where the pension  is in the form  of a single payment,  the 
guarantee  covers  only  what  may  be  considered  a reasonable  pension  for  a  period  of  six 
months before  and  six  months  after  the bankruptcy  petition was  registered  at the  district 
court.41  The  statutory  pension  is  distributed  by  the  Social  Insurance  Office  and  the 
pension  agreed  in  collective  agreements  through  an  insurance  company. 

The  legislation  on  the  protection  of  pension  obligations  (1967:531)  incorporates  rules 
concerning  the  way  in  which  an  employer  may  protect  a  claim  on  a  pension.  This 
protection  may  take  the form  of  a  special  settlement  of  commitments  under  the  pension 
and by the  payment  of  funds  to  a pension  fund  (Article  1). Employers'  compliance  with 
the provisions  of the  law is a condition  for the deduction  of pension  payments  in  respect 
of  local  taxes. 

Pension  rights  which  are  protected  by  a special  contributions  settlement  scheme  may  at 
the  same  time  be  guaranteed  by  inpayments  to  a  pension  fund.  Any  employer  who 
reduces  the  deducted  amount  with  a view  to  reducing  his  contributions  may  be  fined  if 
the  deficit  is  not  covered  by  pension  fund  provisions  (Articles  7  and  8). 

A  pension  fund  set  up  by  the  employer  to  protect  pension  rights  is  subject  to  the 

40 

41 

Wallin,  G.,  Rydin  B.,  Kihlgren  T.,  p.  112. 
Op.  cit..,  p.  126. 

39/43 

surveillance  of the làn where the employer has his headquarters (Article  31).  The fund's 
management  board  is  made  up  equally  of  representatives  of  the  employer  and  of  the 
employees. If more than 3/4 of workers belong to a trade union, the trade union appoints 
the  workers'  representatives  (Articles  16  and  17).  The  fund  may  grant  a  loan  to  the 
employer only  against a guarantee or with the agreement of the surveillance authorities. 
The fund  may  not  acquire  shares in  a company  which  has  set up the fund  without  the 
surveillance  authorities' authorisation  (Article  11). 

The employer  is  reimbursed by the fund  for  expenditure  or costs incurred  in respect  of 
pension payments proper, expenditure on pension-related insurance and any other expense 
associated  with  a pension  scheme.  Reimbursements  are made  on the basis  of the  fund's 
capital  surplus  and,  for  the  abovementioned  expenditure  items,  from  the  same  year's 
income where the fund  has no  surplus (Articles  14 and  15). 

A  pension  fund  pays  over pension  benefits  for  the  employer  only  where  it  can be  sure 
that  the  beneficiary  cannot  obtain  the  amount  due  from  the  employer  without  an 
appreciable delay or where the surveillance authority calls on it to do so (Article  13). A 
person with  a pension right is therefore  not obliged  to await,  for instance,  the employer 
going  into liquidation  in order to obtain  his pension. 

Where an activity  passes to another person, the agreement  of the workers affected  or of 
the surveillance  authority  is needed  so that pension  payment  liability  can be  transferred 
to the new owner. Where liability  is transferred, pension claims are reckoned to have the 
same legal  value as if the worker had been employed by the new owner from the day of 
his recruitment by the predecessor (Article  23). Where claims are guaranteed by a pension 
fund, the surveillance  authority decides whether the fund is transferred to the new owner 
and subject to what conditions (Article  24). Where an employer ceases an activity without 
pension  liability  being  transferred  to  a  third  party,  the  employer  must,  unless  the 
surveillance  authority  decides  otherwise,  guarantee  that  part  of  the  claims  which  is 
earmarked for acquiring the worker's pension rights, provided these rights have not been 
guaranteed by a pension fund following  a liquidation  or where the rights are guaranteed 
by  a credit insurance  scheme  (Article 25). 

Where an employer goes  into liquidation,  a pension  fund  constituted by the employer to 
protect pension  rights is also placed  in liquidation  (Article  19). The same applies where 
an employer  is  liable  for  pension  claims  under a special  settlement  scheme but has not 
guaranteed  them by  way  of  a pension  fund  and does not have the financial  resources to 
meet  these  claims  where  there  is  a  liquidation.  The  employee  or  his  successors  do, 
however,  have  a  priority  right,  under  Article  12(5)  of  the  Pension  Commitments  Act 
(1970:979),  to  the  pension  for  a period  of  six  months  before  and  six  months  after  the 
application for liquidation. Priority pension claims may be covered by the wage guarantee 
(Article  7 of  the Wage  Guarantee Act). 

No  exception  to the  guarantee  is  made  in  the  statutory  provisions  for  the  protection  of 
private insurance schemes and the State is ultimately responsible not only for employees' 
right  to statutory  pension  provisions,  but also for the protection  of  the employees' right 
to pension  through  private  pension plans. 

The guarantee covers, however, only pension benefits which have matured not earlier than 

40/43 

six  months before  and  six  months after  the bankruptcy,  i.e. a total  of  one year.  Workers' 
interests  do  not  appear  to be  protected  in  respect  of  prospective  entitlements. 

4)  Refusal  and  reduction  of  insolvency  protection  in  the  event  of  abuse,  clashing 
interests  and  collusion  (Article  10) 

Section  9a  of  the  Wage  Guarantee  Act  (1992:497),  amended  on  July  1,  1994 
(SFS 1994:636),  stated  that  employees  who  within  the  last  two  years  already  have  been 
granted  compensation  for  a claim,  within predominantly  the same business, are  excluded 
from  the scope of the Act. Apart from  an exception to include employees who have been 
advised  to take the position  by the Public Employment  Agency, the wage guarantee now 
also  applies,  by  an  amendment  of  July  1,  1995 (SFS  1995:675),  in  the  abovementioned 
situations  if  there  are  special  reasons  for  the guarantee  to  set  in. 

The Swedish legislation  of  1994 categorically  excluded a whole group of employees  from 
wage protection through the Wage Guarantee Fund. Section 9a, which in its form  of  1994 
was  aimed  at  limiting  abuse  of  the  wage  guarantee,  was  questioned  already  when  the 
proposed  Act  was  under  circulation  for  comments,  but  also  after  the  enactment. 

The  Swedish  legislation  was  also  challenged  by  ESA,  the  Efta  Surveillance  Authority. 
ESA  addressed  the  Swedish  government  during  the  autumn  of  1994  and  asked  for  an 
explanation  for  excluding  a whole  group  of  employees  from  protection. 

The  District  Court  of  Varberg,  in  case  T  1157/94,  turned  to  the  EFTA-court  for  an 
advisory  opinion,  in  accordance  with  Article  34  of  the  Agreement  between  the  EFTA-
States  on  the  Establishment  of  a  Surveillance  Authority  and  a  Court  of  Justice,  on  the 
interpretation  of  Article  10 (a)  of  Directive  80/987/EEC  in  connection  with  Section  9a 
of  the  Swedish  Wage  Guarantee  Act.  The  EFTA-court  affirmed  in judgement  E-l/95, 
June 20,  1995, that  Article  10 (a) of the Directive must be interpreted  in  such  a way that 
it  hinders  national  legislation  passed  in  order to avoid  abuse,  and  according  to which  an 
employee  does  not  have  the  right  to  compensation  if  s/he  within  two  years  prior  to  the 
declared  bankruptcy  has  been  granted  compensation  through  the  guarantee  for  a  claim 
which  springs  from  predominantly  the  same  enterprise. 

The  criticism  before  and  after  the  enactment  of  Section  9a  including  the  reporting  of 
Sweden  to ESA  led  to the later  amended  exception,  to let the guarantee  cover  the  above 
cases when  there  are  special  reasons  for  it.  Such  special  reasons  may  be  real  difficulties 
for  the  employer  to  find  another  job,  or  when  it  seems  exorbitant  that  the  employee 
should  be  affected  by  an  unsuccessful  reconstruction.  Also  the  economic  importance  of 
the  guarantee  for  the  employee  may  be  considered  as  a "special  reason".42 

Prior  to  the  amendment,  in  force  since  July  1,  1995,  an  exception  to  the  rule  in  an 
individual  case was not possible. The amendment  has given  the individual  the  possibility 
to benefit  from  the wage guarantee  arrangement. 
It is the bankruptcy  trustee's  duty  to 
investigate whether  Section  9a of the Wage Guarantee Act applies  and,  if  so, if there  are 

42  Government Bill  1994/95:180, p. 5-6. 

41/43 

special  reasons why the guarantee should apply by derogation. The preparatory work on 
the  rules  set  out  examples,  most  of  which  are  associated  with  material  or  non-material 
problems  encountered  by  individuals  where  an  activity  is  reconstituted  or thereafter  in 
finding  a new job.  These  examples  illustrate  such  special  reasons.  However,  the  article 
leaves too much room for excessively wide interpretation with regard to Article  10 of the 
Directive.  There  is  a risk of  getting  away  from  the general  objective  of  the  Directive, 
which is first and foremost to ensure that employees affected by an employer's insolvency 
receive what they  are due. 

The Ministry  of Labour has recently  brought out a document  which  proposes  repealing 
Section  9a of the Wage Guarantee Act.  Once the proposal  has been drawn up, it will  be 
presented to Parliament. The proposed amendment should come into force within the next 
few  months. 

The  Wage  Guarantee  Act  (Section  7),  also  refers  to  the  Preferential  Claims  Act 
(1970:979),  which  excludes from  protection  employees  who by  themselves,  or together 
with  near relatives,  own  20% or more  of the enterprise.  This  is  a revision  of  an earlier 
wording  which  demanded  ownership  of  an  essential  part  as  well  as  a  considerable 
influence in the company. The Act was reformulated since the expressions "essential part" 
and  "considerable  influence"  were  considered  as  indefinite  and  provided  insufficient 
guidance in the determination  of whether the rule was applicable or not. Now there is no 
demand for proof of the employee's  actual  influence  in the decision-making.  Ownership 
of  20%,  held  alone  or together  with  close  relatives,  is  thought  to generally  result  in  to 
information  and  hence  ability  to  affect  the  undertaking  and  therefore  justifies  the 
exclusion  of  this  category  of  employees  from  protection  through  the Directive.43 

The  exclusion  of  part  owners  can  be  seen  as  being  in  accordance  with  the  option  in 
Article  1(2)  of  the  Directive  to  rule  out  the  claims  of  certain  categories  of  employees 
because  of  the special  nature of  their employment  contract  or employment  relationship. 

At  the  time  Sweden  negotiated  its  accession  to  the  European  Union,  the  exclusion  of 
employees  who by  themselves  or together with  close  relatives  own  a significant  part of 
the enterprise and have substantial influence in the company,  was annexed to the Swedish 
Accession Agreement (Annex I. IV D.) Although the Swedish legislation had been altered 
before  the  accession,  the wording  of  Annex  1, D.  corresponds  with  the  earlier  wording 
of the Preferential  Claims Act and with the national  exclusion  in the EEA  agreement. In 
other words,  Sweden  has not  asked  for  an exception  in the  application  of  the Directive 
for employees who are part owners without influence  in the company,  and therefore  this 
group  of  employees  ought to be protected  by  the Directive. 

43  Ministry  of  Labour  A94/1501/RS  p. 3, in reply  to ESA, Doc. No: 94/14734-D. 

42/43 

•  BIBLIOGRAPHY 

HEUMAN, L.,  Specialprocess utsôkning och konkurs (Juristfôriaget,  Stockholm  1991). 

Kommittédirektiv  1995:163, Fôrmânsràtt vid konkurs. 

Prop.  1993/94:208, Fôrândringar i lonegarantisystemet. 

Prop.  1994/95:180, Lôneskydd vid upprepade konkurser. 

SIGEMAN, T. et.al, Lôntagarràtt (revised  edition, Juristfôriaget,  Stockholm  1994). 

SOU  1969:5, Utsôkningsràtt IX. fôrmânsrâttsordning m.m. 

SOU  1975:1, Demokrati i arbetslivet. 

WALIN, G., RYDIN, B., KIHLGREN, T., Fôrmânsràttslag. lônegaranti. kvittning mot 

lôn m.m. (Fritzes fôrlag,  Stockholm  1995). 

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ISSN 0254-1475 

COM(96) 696  final 

DOCUMENTS 

EN 

06  04 

Catalogue  number  :  CB-CO-96-705-EN-C 

ISBN 92-78- 13760-X 

Office  for Official  Publications of the European Communities 

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