Regeling v Bestuur van de Bedrijfsvereniging Voor de Metaalnijverheid (1999) IRLR 379
Mann & Others v Secretary of State for Employment House of Lords 15th July 1999
Under a 1980 European Directive Member States are required to provide protection for workers where their employers go insolvent primarily by guaranteeing wages and other sums that the workers would have been entitled to from their employers if they had not gone insolvent. Although this provision is now nearly 20 years old there have been very few cases dealing with that Directive but there have been two recent cases with some good news and some bad news.
Regeling
The first case, Regeling, went to the European Court of Justice from the Dutch Courts.
Under Dutch Law workers are entitled to protection for the three month period preceding the insolvency but in this case the employers had not been properly paying the workers for nearly eight months but had been making sporadic payments during that period.
The Dutch Courts aggregated the payments actually made by the employers and set them off against the wages due during the three month protected period. They then claimed that there was no further money outstanding, leaving the employees unprotected for the wages that were due during the first five months of the year.
The European Court of Justice held this was wrong. What should happen, across all Member States, is to set off any payments made by the employers against the oldest debt first so that the amounts due would fall within the protected period.
Which Weeks?
In the UK the period of debts that are protected preceding an insolvency is 18 months but the protection is only for eight weeks. The normal practice of the redundancy fund was to use the last eight weeks of employment or the last eight weeks in which there were wages owing.
In the second case of Mann and Others the House of Lords said that this practice was also incorrect. The individual workers are entitled to select which weeks they wished to use to claim protection in respect of unpaid wages.
Swan Hunter
The Mann and Others cases arose from the closure of the Swan Hunter Shipyard on Tyneside during 1993 and 1994. The shipyard was closed piecemeal over 18 months with groups of workers being dismissed on an ad hoc basis during that period and without any consultation with the unions.
Until now employees have not been choosing which weeks they wished to be covered. From now they should have that choice.
Implications
The combination of the two cases would mean that in circumstances where employers were making sporadic payments it is likely that workers would be able to claim up to the maximum eight weeks pay without partial payments made by the employers being set off against them for those weeks. Unfortunately, although the House of Lords decided that the Redundancy Fund had not properly dealt with the Swan Hunter cases they were not prepared to order a remedy by making the Secretary of State redo the calculations.
As a result the Employment Tribunal made nine protective awards against the administrative receivers. Each award was for the maximum of 90 days. However when the Swan Hunter workers made their applications for payments from the Redundancy Fund the awards were reduced, in many circumstances down to nothing.
This was particularly so for the first two rounds of redundancies where the Secretary of State set off notice payments against the protective award. This was a practice that had been declared unlawful by the European Court of Justice but the Government did not change the law until November 1993 and the provisions were not retrospective so that the first two sets of redundancies were dealt with under the old law.
As a result Swan Hunter workers challenged the calculations that had been made in respect of their insolvency entitlements. These cases were initially successful before the Employment Tribunal but the matter to the House of Lords which upheld the original payments made by the Secretary of State was appealed.
What is an Insolvency?
In the House of Lords the main reason that the cases were unsuccessful was that the House of Lords accepted a new argument by the Secretary of State that the administrative receiverships were not insolvencies for the purposes of the European Directive. The reason for this is that they are not governed by Court Orders but are administrative provisions invoked primarily by bankers.
The Insolvency Directive was introduced in 1980 before the Insolvency Act 1986 which created administrative receiverships. The European Directive is based upon the concept of Court supervised insolvencies.
As Swan Hunters were not insolvent within the meaning of the 1980 Directive the Swan Hunter workers were therefore not protected by European Law and could only rely upon the domestic protections. They were therefore unable to challenge the calculations made by the Secretary of State.
Week's Pay
Prior to the hearing in the House of Lords the Secretary of State did not concede that the method of calculation which had been adopted was incorrect particularly in the way the Department had used the ceiling of £205 on a weeks pay.
Essentially the Department had aggregated the various sums due to the individual workers and applied the £205 per week limit to the total. At the House of Lords it was conceded that in fact the calculations should be done guaranteed element by element rather than aggregated into one lump sum.
The lesson from these cases is that workers who have claims against the guarantee institution should ensure that they check how the payments that they have received from the Secretary of State have been calculated and which weeks have been used to form the basis of payment. It is quite clear that the methods of calculation have been incorrect in a number of ways and may now be open to challenge.