Robins & others v Secretary of State for Work and Pensions (European Court of Justice) – 25 January 2007


Following the Advocate-General’s opinion on this case in July 2006 , the European Court of Justice (ECJ) has at last made its decision.

The case now reverts to the UK courts for a final determination on whether the British steelworkers concerned will receive compensation from the Government for their lost pensions.

Background

The case was brought by the unions, Community and Amicus, on behalf of more than 800 staff at Allied Steel and Wire (ASW) who lost their jobs and most of their pension when the firm folded in 2002.  The ASW workers alleged that the Government failed to protect their pensions as required by the European Union Insolvency Directive (Directive 80/987) (the “Directive”).

The Directive

Article 8 of the Directive requires Member States to “ensure that the necessary measures are taken to protect the interests” of employees (and former employees) as regards their pension benefits where an employer becomes insolvent.

Questions

Three questions were referred to the ECJ by the UK High Court.  They centred on the interpretation of Article 8 and just how far the UK had to go in order to ensure compliance.  In summary, the questions addressed were:

(1)  Does Article 8 require Member States to ensure, by whatever means necessary, that employees’ accrued rights under occupational final salary pension schemes are “fully funded” by Member States in the event that the employer becomes insolvent and the assets of their schemes are insufficient to fund those benefits?

(2)  If the answer to Question 1 is “no”, are the requirements of Article 8 sufficiently implemented by UK legislation?

(3)  If the UK legislation fails to comply with Article 8, what test should be applied by the national court in considering whether the consequent infringement of Community law is sufficiently serious to attract liability in damages? In particular, is the mere infringement enough to establish the existence of a sufficiently serious breach, or must there also have been a manifest and grave disregard by the Member State for the limits on its rule-making powers, or is some other test to be applied and if so which?

Answers

In summary, the ECJ reached the following conclusions:

(1)  On a proper construction of Article 8 of the Directive, where the employer is insolvent and the assets of the occupational pension scheme are insufficient, accrued pension rights need not necessarily be funded by the Member States themselves or be funded in full.

In the court’s opinion the Directive was intended to guarantee employees a minimum level of protection for their interests (including pensions) under Community law in the event of the insolvency of their employer.  It considered that Article 8 did not demand a full guarantee of the rights in question and noted that it gave Member States considerable latitude for the purposes of determining the level of protection to put in place.

(2)  A system of protection such as that at issue in the main proceedings is incompatible with Article 8 of the Directive.

The court noted that two of the claimants in the proceedings will receive only 20% and 49% respectively of their pension benefits.

While the court appreciated that Article 8 of the Directive gave no indication of the minimum level of protection it requires Member States to put in place in respect of pension benefits, it was satisfied that provision of domestic law which could, in certain cases, lead to a guarantee limited to less than half of an employee’s entitlement could not be considered to fall within the definition of the word “protect” used in Article 8.

(3)  If Article 8 of the 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 on its discretion.

Under EU case-law, where a Member State is given considerable discretion regarding the implementation of a directive, for the Member State to be liable to individuals for damages, it is necessary for there to be a finding of “manifest and grave disregard” by the State in question of the limits on its discretion.  In this instance, Article 8 of the Directive gave Member States “considerable discretion” for the purposes of determining the level of protection of entitlement to benefits.

It was also noted that, in determining the above question, the UK court may take into account the Commission report concerning the transposition of the Directive by Member States.  In this report the Commission concluded that “the abovementioned rules [adopted by the UK] appear to meet the requirements of Article 8”.

What does this mean?

The ruling is favourable, in parts, to both sides and both are claiming victory.

Good news for the ASW Members:

The decision that the “system of protection” in place in the UK was inadequate to protect member’s benefits on a company insolvency opens the door for the UK court to find the Government liable to compensate the workers, at least in part, for their lost pensions.  However, this is tempered by the fact that, given the ECJ’s response to question (3), the benchmark for finding liability is set quite high.

Good news for the Government:

The ruling makes it clear that the Government does not need to “stand behind” the ASW pension scheme and fund the workers’ pension benefits.