The European Court of Justice (the “ECJ”) this morning delivered its ruling in the case of Hogan and Others v Minister for Social and Family Affairs, Ireland, Attorney General (the “Waterford Crystal case”). The Court held that Ireland has failed to fulfil its obligations under Article 8 of Directive 2008/94 EC (the “Directive”) on the protection of employees in the event of the insolvency of their employer.

By way of background, the plaintiffs were employees of Waterford Crystal Limited and members of its defined benefit pension scheme. The company was placed in receivership in January 2009 and the pension schemes went into wind up in March 2009 with a significant deficit (around €110 million).

Thomas Hogan and nine other former employees of the company brought an action in the High Court claiming that Ireland had not properly transposed Article 8 of the Directive. Under Article 8, Member States have an obligation to take necessary measures to protect employees’ interests in respect of pension benefits in an employer insolvency scenario.

The High Court took the view that interpretation of the provisions of the Directive was necessary in order for it to give its decision, and decided to stay the proceedings and to refer certain questions to the ECJ for a preliminary ruling.

The ECJ held that the measures adopted by Ireland do not fulfil the obligations imposed by the Directive. It also held that the economic situation of the Member State concerned does not constitute an exceptional situation capable of justifying a lower level of protection for employees’ pension entitlements. The lower level of protection the Court was referring to here was a level below half of the employees’ accrued pension benefits; based on an earlier ECJ ruling, the Robins case, the Member State’s obligation is to take measures to ensure that the employees receive in excess of 49% of the value of their accrued benefits under their pension scheme in an employer insolvency situation.

The case has now been referred back to the High Court for a final ruling on the Plaintiffs’ claim against the State.

This judgment potentially has major implications for the structure and regulation of the Irish defined benefit system. At a minimum, it requires the introduction of further measures to protect benefits under defined benefit schemes in the event of an employer insolvency. One option available to the State is the introduction of a pension guarantee fund similar to that introduced in the UK following the Robins case, though this is only one possibility.