European Court of Justice rules in favour of Waterford Crystal workers

By Caroline Browne, Partner

Article 8 of the European Directive 80/987/EEC provided as follows:-

“Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of the rights conferring upon them immediate or perspective entitlements to old age benefits, including survivors’ benefits, under supplementary company or intercompany pension schemes outside the national statutory social security schemes.”

The European Court of Justice (ECJ) on the 25 April 2013 found in favour of 10  former Waterford Crystal workers in a landmark case,  who alleged the Irish State had failed in their obligations to establish a pension protection system in the event of the insolvency of their employer in accordance with the European Directive set out above.

By way of background, Waterford Crystal was placed in receivership in January 2009 and the company’s pension scheme was wound up with a deficit of €110 million.  Pension schemes workers were offered payments representing between 18% and 28% of their expected entitlements.  Of significance was a recent 2007 European Court decision in the case of Robins v Secretary of State for Work and Pensions, which concerned a pension deficit in the amount of £140 million and similarly the workers faced significant reductions in their pensions entitlements. Pension scheme workers were offered between 20% to 49% and the ECJ held that this did not amount to the protection by the State as offered by the directive.

In the Waterford Crystal case, the ECJ rejected the State’s arguments that the economic situation in Ireland should be taken into account when assessing the State’s liabilities under the European Directive. The ECJ ruled that the economic situation of a member state “does not constitute an exceptional situation capable of justifying a lower level of protection for employees pension entitlements.

Result

For the 1500 Waterford Crystal workers, this case will now go back to the High Court to determine how much these workers should be paid in pensions. The implication of the Robins Decision is that the workers will likely receive in excess of 49% of the value of their accrued benefits under their pension scheme.

But the ruling is likely to have wider implications for the State in terms of its obligations towards to defined benefit pension schemes where the employer is deemed not to be in a position to fund the shortfall. It will require the introduction of measures to protect workers benefits under defined benefit schemes in the event of an employer insolvency. The mechanism is not yet known, but it appears likely that the State will be required to fund, to comply with its obligations under the directive.  The UK ,following the Robins Decision, established a Pension Protection Fund with the function is to provide compensation to pension members of eligible defined pension schemes when there the employer is insolvency, and where there are insufficient funds in the pension scheme.