The EU Court of Justice has held that the Irish State is obliged toprotect the pension benefits of former employees of Waterford Crystalwho were left with only 18-28% of their pension benefits when thecompany became insolvent.  

Ten former employees took legal action against the State in the IrishHigh Court claiming that it had breached its obligations under the 2008Employer Insolvency Directive which imposes a general obligation on EUmember states to ensure that, in the event of the insolvency of anemployer, the interests of the employees in respect of their entitlementto old-age benefits under occupational pension schemes are protected. The High Court referred a number of questions to the European Court onthe interpretation of the Directive.    

The European Court referred to a 2007 judgment in favour of anEnglish woman who brought a similar case against the UK Government. Inthat case it was held that domestic law which lead to employees beingguaranteed less than half of what they had been promised under a pensionscheme did not amount to “protection”.

The Court held that:

• The 2008 Employer Insolvency Directive is designed to apply in situations where a pension scheme is underfunded and the employer is insolvent.  It is not necessary for claimants to prove that there are other factors giving rise to the loss of pension entitlements.
• The provision of a state pension is not to be taken into account when assessing whether the member state has complied with its obligations under the Directive.
• The economic situation in Ireland does not constitute an exceptional situation which would justify providing a lower level of protection for the pension benefits of employees.
• The Irish State’s failure to guarantee at least half of the pension benefits from an insolvent company’s pension scheme is a “serious breach” of its obligations as a member state of the European Union.

The case will now be referred back to the Irish High Court to decideon the level of cover which the State will have to provide in respect ofthe Waterford Crystal pensions.

It is clear from the European Court’s judgment that the level ofprotection to be given by a member state to employees of insolventcompanies should be at least half of the pension benefits promised bythe insolvent company’s pension scheme.  

This ruling also comes just days after a detailed report on Ireland’spension system by the OECD, criticised the absence of adequateprotection of benefits for defined benefit members, including theabsence of a protection fund.  

It is likely that this ruling will have implications for otheremployees who have suffered losses to their pensions in similarsituations.  The likely outcome is that the State will have to findsubstantial sums of money to meet its liabilities following the EuropeanCourt’s decision.

Contributed by Lorna Osborne & Mary Greaney.