The "Waterford Crystal" Judgment
Introduction
The Court of Justice of the European Union
("CJEU") delivered its judgment in Hogan
& Others v. Minister for Social and Family Affairs, Ireland,
Attorney General [2013] CJEU Case C-398-11 on 25 April
2013.
In summary, the CJEU held that the measures adopted by Ireland in
transposing Article 8 of Directive 2008/94 EC
("Insolvency Directive"), did not fulfil
the obligations imposed on it to protect employees' pension
benefits in the event of the insolvency of their
employer.
Background
In January 2009 a Receiver was appointed over the assets and
undertaking of Waterford Crystal Limited
("Waterford"). At the time
Waterford was the sponsoring employer of two defined benefit
pension schemes both of which were significantly underfunded.
On appointment, the Receiver immediately terminated contributions
to both schemes and the trustees wound them up.
On the winding-up of pension schemes in deficit in Ireland,
pension scheme trustees are obliged to pay out the available assets
in a particular order with pensioners taking first priority in the
order of payments. The effect of the application of this
priority order on the Waterford schemes was that benefits for
active and deferred members were significantly underfunded.
In 2010, UNITE, the union on behalf of some of the pension scheme
members ("Waterford Members"), initiated
an action in the Irish High Court against Ireland seeking damages
for its failure to properly transpose Article 8 of the Insolvency
Directive. Article 8 obliges Member States to ensure that
"all necessary measures are taken to protect"
members and pensioners of underfunded pension schemes where the
sponsoring employer becomes insolvent.
As these proceedings concerned the interpretation of EU law the
matter was referred to the CJEU in July 2011. The CJEU found
in favour of the Waterford Members earlier this year.
Ruling of the CJEU
The CJEU held that the measures adopted by Ireland in
transposing Article 8 of the Insolvency Directive did not fulfil
the obligations imposed on it to protect employees' benefits in
the event of the insolvency of their employer. It also held
that the measures taken by Ireland subsequent to the Robins Case in
the UK in 2007 (Robins and Others v. Secretary of State for
Work and Pensions (C-278/05)) which concerned similar facts
had not resulted in Waterford Members receiving in excess of 49% of
the value of their benefits, as was required by the Robins
Case. This was, in itself, a serious breach of
Ireland's obligations under Article 8.
Notably the CJEU held that the economic situation of a Member
State does not constitute an exceptional situation capable of
justifying a lower level of protection for employee benefits.
Implications
The CJEU ruling will be of immediate benefit to Waterford
Members. The matter has been referred back to the Irish High
Court and it is inevitable that this will lead to an award of
damages in favour of the Waterford Members.
Beyond the immediate impact for Waterford Members, this decision
has a number of wider potential implications for Irish law.
It is likely that some form of payment protection fund will have to
be introduced in order to adequately protect members of defined
benefit pension schemes in circumstances where the sponsoring
employer becomes insolvent.
It also seems likely that the Irish Government will have to
consider the introduction of debt on employer legislation to
prevent solvent employers from walking away from pension scheme
deficits.
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