In a long awaited landmark judgment, The European Court of Justice has today found in favour of ten former Waterford Crystal workers who alleged the Irish State had failed in their obligations to correctly implement European Directive 2008/94EC ('The Directive’) on the protection of employees in the event of the insolvency of their employer. Simply put, they alleged their defined benefit pension entitlements were not protected in 2009 when their former employer, Waterford Crystal Limited, became insolvent and at the same time their defined benefit pension scheme wound up with a deficit of €110 million. Those circumstances culminated in the workers only receiving a reported 18-28% of their expected pension entitlements which the ECJ found did not amount to protection by the State.

The case will now go back to the High Court in Dublin to determine how much the workers should be paid in pensions.

This challenge was taken on the back of a similar successful legal challenge against the UK Government in the 2007 case of Robins v Secretary of State for Work and Pensions C-278/05 where the ECJ found that the UK Government failed in its obligations to correctly implement the Directive.

The ECJ in the instant case also interpreted the Directive as meaning that State pension benefits cannot be taken into account in assessing whether a Member State has complied with the obligation laid down in the Directive. It added;

“The economic situation of the member state concerned does not constitute an exceptional situation capable of justifying a lower level of protection of the interests of employees as regards their entitlement to old-age benefits under a supplementary occupational pension scheme.”

Comment

Depending on what the Government’s legislative response from today’s judgment is, the pension schemes in the spotlight are likely to be those defined benefit pension schemes winding up in very significant deficit where the sponsoring employer is deemed not to be in a position to fund the shortfall.

It may be the case that the State will be required to fund or alternatively compensate scheme members in those schemes, by some as yet unknown mechanism, in order to be deemed to be adequately transposing the Directive into National Law.

Whether we see the establishment of a Pension Protection Fund, akin to that in place in the UK and precisely what the Government’s legislative response is going to be remains to be seen.

For further details, please refer here for the Judgment.