The “Waterford Crystal” Judgment

Introduction

The Court of Justice of the European Union (“CJEU”) delivered its judgment in Hogan & Others v. Minister for Social and Family Affairs, Ireland, Attorney General [2013] CJEU Case C-398-11 on 25 April 2013. 

In summary, the CJEU held that the measures adopted by Ireland in transposing Article 8 of Directive 2008/94 EC (“Insolvency Directive”), did not fulfil the obligations imposed on it to protect employees’ pension benefits in the event of the insolvency of their employer. 

Background

In January 2009 a Receiver was appointed over the assets and undertaking of Waterford Crystal Limited (“Waterford”).  At the time Waterford was the sponsoring employer of two defined benefit pension schemes both of which were significantly underfunded.  On appointment, the Receiver immediately terminated contributions to both schemes and the trustees wound them up.

On the winding-up of pension schemes in deficit in Ireland, pension scheme trustees are obliged to pay out the available assets in a particular order with pensioners taking first priority in the order of payments.  The effect of the application of this priority order on the Waterford schemes was that benefits for active and deferred members were significantly underfunded.

In 2010, UNITE, the union on behalf of some of the pension scheme members (“Waterford Members”), initiated an action in the Irish High Court against Ireland seeking damages for its failure to properly transpose Article 8 of the Insolvency Directive.  Article 8 obliges Member States to ensure that “all necessary measures are taken to protect” members and pensioners of underfunded pension schemes where the sponsoring employer becomes insolvent.

As these proceedings concerned the interpretation of EU law the matter was referred to the CJEU in July 2011.  The CJEU found in favour of the Waterford Members earlier this year.

Ruling of the CJEU

The CJEU held that the measures adopted by Ireland in transposing Article 8 of the Insolvency Directive did not fulfil the obligations imposed on it to protect employees’ benefits in the event of the insolvency of their employer.  It also held that the measures taken by Ireland subsequent to the Robins Case in the UK in 2007 (Robins and Others v. Secretary of State for Work and Pensions (C-278/05)) which concerned similar facts had not resulted in Waterford Members receiving in excess of 49% of the value of their benefits, as was required by the Robins Case.  This was, in itself, a serious breach of Ireland’s obligations under Article 8.

Notably the CJEU held that the economic situation of a Member State does not constitute an exceptional situation capable of justifying a lower level of protection for employee benefits.

Implications

The CJEU ruling will be of immediate benefit to Waterford Members.  The matter has been referred back to the Irish High Court and it is inevitable that this will lead to an award of damages in favour of the Waterford Members.

Beyond the immediate impact for Waterford Members, this decision has a number of wider potential implications for Irish law.  It is likely that some form of payment protection fund will have to be introduced in order to adequately protect members of defined benefit pension schemes in circumstances where the sponsoring employer becomes insolvent.

It also seems likely that the Irish Government will have to consider the introduction of debt on employer legislation to prevent solvent employers from walking away from pension scheme deficits.