ECJ 25 April 2013, case C-398/11 (Thomas Hogan and others - v - Minister for Social and Family Affairs, Ireland and Attorney General), Insolvency

Facts

The ten plaintiffs in this case were formerly employed by Waterford  Crystal. They were enrolled in the company’s pension scheme. It entitled  them to an old-age pension equal to two thirds of the balance of a sum  based on their last-earned salary and the State pension. The pension  scheme’s assets were administered by a trustee and separated from  the company in a trust. The scheme was funded by contributions from  the employees and the employer. The employees paid a percentage of  their salary. The employer made annual contributions to the pension  fund calculated to ensure that in the long term the pension scheme  had sufficient assets to meet its liabilities. In 2009, Waterford Crystal  became insolvent, as a result of which the pension scheme was  wound up and each employee became entitled to a share of the fund’s  assets. Given that the pension fund’s liabilities exceeded its assets,  the employees were informed that they would receive no more than a  percentage (somewhere between 16 and 41%) of the amounts to which  they would have been entitled if they had received the present value of  their accrued old-age pension rights.

National proceedings

The plaintiffs brought an action, claiming that Ireland had failed to  properly transpose Article 8 of Directive 2008/94 (“Article 8”). Article  8 enjoins Member States to ensure that the necessary measures are  taken to protect the interests of employees and former employees in  respect of rights conferring on them entitlement to old-age benefits  under supplementary occupational pension schemes outside the  national statutory social security schemes.
The plaintiffs based their claim on the ECJ’s 2007 ruling in Robins (C- 278/05). In that judgment, which was based on Directive 80/987 (that  was replaced in 2008 by Directive 2008/94), the ECJ ruled that:
•  accrued  pension  rights  need  not  necessarily  be  funded  by  the  Member States themselves or be funded in full;
•  a  system  of  protection  such  as  that  at  issue  in  Robins  (under  which entitlement to pension benefits could be reduced by as much as  80% in the event of insolvency) is incompatible with Directive 80/987;
•  if that directive has not been properly transposed into domestic  law, the liability of the Member State concerned is contingent on a  finding of manifest and grave disregard by that State for the limits set  at its discretion.
More in particular, the ECJ in Robins ruled that “neither Article 8 of the  Directive nor any other provision therein contains elements which make  it possible to establish with any precision the minimum level required  in order to protect entitlement to benefits under supplementary  pension schemes. Nevertheless, having regard to the express wish of  the Community legislature, it must be held that provisions of domestic  law that may, in certain cases, lead to a guarantee of benefits limited  to 20 or 49% of the benefits to which an employee was entitled, that is  to say, of less than half of that entitlement, cannot be considered to  fall within the definition of the word ‘protect’ used in Article 8 of the  Directive.
The Irish High Court referred to the ECJ seven questions on the  interpretation of Directive 2008/94.

ECJ’s findings

•  The  first  question  related  to  the  fact  that  the  plaintiff’s  claim  for loss of pension benefits was not a claim against their former  employer. The ECJ pointed out that the plaintiffs’ entitlement to old- age benefits arose from their contract of employment. Member States  may fulfil their obligation under Article 8 by ensuring, either that the employer is able to meet its pension obligations, or, that an institution  separate from the employer is able to do so. The plaintiffs’ interests in  respect of old-age pension were not protected by Ireland in the event  of their employer’s insolvency. Consequently, Directive 2008/94 must  be interpreted as meaning that it applies to the entitlement of former  employees to old-age benefits under a supplementary pension scheme  set up by their employer (§ 22-27).
•  The taking in account of State pension benefits, for the purposes  of applying Article 8, would be contrary to the practical effect of the  protection required by that article (§ 28-32).
•  Article 8 does not distinguish between the possible causes for  the underfunding of a supplementary occupational pension scheme,  but lays down a general obligation to protect the interests of employees  and leaves it to Member States to define the methods by which they  fulfil that obligation. Therefore, in order for Article 8 to apply, it is not  necessary to identity the causes of the underfunding (§ 35-40).
•  In  Robins the ECJ acknowledged that the Member States  have considerable latitude in determining the means and the level  of protection of rights to old-age benefits under supplementary  occupational pension schemes in the event of insolvency of the  employer. However, the ECJ held that domestic law that may lead to a  guarantee of benefits limited to less than half of the benefits to which  an employee was entitled does not fall within the definition of the word  “protect”. That assessment takes account of the need for balanced  economic and social development, by taking into consideration, on  the one hand, divergent and rather unpredictable developments in  the economic situations of the Member States and, on the other, the  necessity of ensuring that employees have a minimum guarantee of  protection. Against that background, it is not the specific nature of  the measures adopted by a Member State that determines whether  that Member State has correctly fulfilled the obligations laid down in  Article 8, but rather the outcome of those national measures. The Irish  legislation at issue (that allows an outcome under which the plaintiffs  will be receiving no more than 16-41% of their pension rights’ value)  does not seem to be capable of guaranteeing the minimum level of  protection required by Robins (§ 41-47).
•  The measures taken by Ireland subsequent to Robins have not  brought about the result that the plaintiffs would receive in excess of  49% of the value of their accrued old-age benefits. Is this fact in itself  a serious breach of Ireland’s obligations? Individuals harmed have a  right to reparation against a Member State where three conditions are  met: (1) the rule of EU law infringed must be intended to confer rights  on them; (2) the breach of that law must be sufficiently serious; and (3)  there must be a direct causal link between the breach and the loss. The  referring court’s 7th question relates to Condition 2. 
As soon as the judgment in Robins was delivered, the Member States  were informed that correct transposition of Article 8 requires an  employee to receive, in the event of the insolvency of his employer, at  least half of the old-age benefits arising out of the accrued pension  rights for which he has paid contributions under a supplementary  occupational pension scheme (§ 48-52).

Ruling

•  Directive 2008/94 applies to the entitlement of former employees  to old-age benefits under a supplementary pension scheme set up by  their employer.
•  Article  8  of  Directive  2008/94  prohibits  State  pension  benefits  from being taken into account in assessing whether a Member State  has complied with the obligation laid down in that article.
•  “Article 8 […] must be interpreted as meaning that, in order for that  article to apply, it is sufficient that the pension scheme is underfunded  as of the date of the employer’s insolvency and that, on account of his  insolvency, the employer does not have the resources to contribute  sufficient money to the pension scheme to enable the pension benefits  owed to the beneficiaries of that scheme to be satisfied in full. It is not  necessary for those beneficiaries to prove that there are other factors  giving rise to the loss of their entitlement to old-age benefits.
•  Directive  2008/94  must  be  interpreted  as  meaning  that  the  measures adopted by Ireland following the judgment […] of 25  January 2007 in […] Robins […] do not fulfil the obligations imposed  by that directive and that the economic situation of the Member State  concerned does not constitute an exceptional situation capable of  justifying a lower level of protection of the interests of employees as  regards their entitlement to old-age benefits under a supplementary  occupational pension scheme.
•  Directive 2008/94 must be interpreted as meaning that the fact  that the measures taken by Ireland subsequent to Robins […] have not  brought about the result that the plaintiffs would receive in excess  of 49% of the value of their accrued old-age pension benefits under  their occupational pension scheme is in itself a serious breach of that  Member State’s obligations.