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Better protection for workers whose firms go bankrupt

Every year thousands of people lose their jobs when the companies they work for go into liquidation. The problem then arises of how workers can obtain any payments to which they are entitled. The European Commission decided that changes were needed to the 1980 Directive on the protection of workers in the event of insolvency of their employer, in order to regulate a labour market in which the number of bankruptcies was rising. The European Parliament managed to tighten up the Commission's proposals.

The past twenty years have seen major changes in the labour market - a very different international business climate for industry and services, increased labour mobility and many instances of corporate restructuring and reorganisation. Bankruptcies and their trail of job losses frequently hit the headlines. People throughout Europe have heard of the plight of workers at Métal Europe, Air liberté and Sabena.

On the eve of EU enlargement, company relocations are likely to become more widespread - hence the need to achieve further protection for workers affected by the disappearance of their company.

Protecting all workers

A European Directive dating back to 1980 provided protection for workers if their employer were to go bankrupt, but it was no longer suited to the rapid changes in an increasingly transnational economy, nor to the different types of employee status which had emerged. In 2002 the Commission therefore proposed changing the 1980 Directive in order to provide a minimum level of protection for a greater number of workers should their employers become insolvent. The aim was to harmonise Member States' legislation in this field and to encourage cooperation between their administrations.

The European Parliament put forward a large number of proposals aimed at making the new rules more advantageous to workers, and managed to ensure that they would apply to virtually all employees. The new Community legislation now protects part-time workers, workers on fixed-term contracts and temporary workers. Only domestic workers employed by individuals and fishermen paid by a share of the catch are not covered.

MEPs also insisted on a broader definition of insolvency procedures, in order to ensure better protection for the victims of bankruptcies. Thanks to their efforts, the Directive encourages the Member States to extend workers' protection to the other insolvency situations provided for by their national law. On that legal basis, workers hit by the forced closure of their firms will have their outstanding pay claims met by a guarantee institution in their respective Member State.

The 1980 Directive already required Member States to set up a body to guarantee workers the payment of their outstanding claims vis-à-vis firms which had gone bankrupt. The changes adopted in 2002 spell out the tasks to be performed by those bodies. Should transnational firms operating in at least two Member States become insolvent, the Directive requires the guarantee institution in the State in which the employees work to pay them the oustanding claims.

No levelling down

Parliament approved the idea that the Member States should set ceilings for the payments made by the national guarantee institutions. MEPs nevertheless ensured that this option would not lead to a levelling-down in such payments, which would be unacceptable.

One key demand made by Parliament was for a definition of 'employee' to be introduced into the Directive and for it to be broadened beyond the concept of 'paid employee'. For instance, it might apply to self-employed workers who are economically dependent on an employer or who have just one customer, or to workers with a training contract (assistant doctors, etc.). The European Parliament repeatedly called for greater protection of "atypical" workers (freelance workers, home workers, those with multiple contracts, etc.).

To MEPs' great regret, these proposals were not taken up by the Member States. The definition of 'employee' remains a matter for each country. Parliament nevertheless approved the Directive, so that it could enter into force at an early date. At the same time, Parliament undertook to pursue discussions about the problem of atypical workers in Europe. The Commission has carried out a study of such workers and, in conjunction with the European Parliament, has held a public hearing on this issue, in order to come up with new measures in future.

The Member States have until 8 October 2005 to comply with the new Directive. In 2010 the Commission will report to the European Parliament and the Council on the Directive's implementation and application in all the Member States.

Protection of employees in the event of the insolvency of their employer: Theodorus J.J. Bouwman (Greens/EFA, NL)
Official Journal - final acts:
Protection of employees in the event of the insolvency of their employer



  Publishing deadline: 2 April 2004