C-201/01

OPINION OF MR MISCHO — CASE C-201/01

O P I N I O N OF ADVOCATE GENERAL MISCHO delivered on 3 October 2002 1

1. In the context of implementing Council ment or employment relationships and Directive 80/987/EEC of 20 October 1980 existing against employers who are in a on the approximation of the laws of the state of insolvency within the meaning of Member States relating to the protection of Article 2(1). employees in the event of the insolvency of their employer 2 (hereinafter 'the direc- tive'), the Oberster Gerichtshof (Supreme Court) (Austria) has submitted to the Court a number of questions concerning the possibility for Member States to take measures to prevent abuses. 2. Member States may, by way of excep- tion, exclude claims by certain categories of employee from the scope of this directive, by virtue of the special nature of the employee's contract of employment or 2. In essence, the issue is whether the employment relationship or of the existence competent authority of a Member State of other forms of guarantee offering the can refuse to grant salary arrears to an employee protection equivalent to that employee of an insolvent undertaking who resulting from this directive. The categories holds 2 5 % of the undertaking's capital and of employee referred to in the first sub- failed to claim that salary for more than paragraph are listed in the Annex. sixty days after the onset of the undertak- ing's creditunworthiness became apparent to him.

...’ 3. Article 1 of the directive states:

' 1 . This directive shall apply to employees' claims arising from contracts of employ- 4. At the time of its accession to the European Union, the Republic of Austria 1 — Original language: French. exercised the option to exclude certain 2 — OJ 1980 L 283, p. 23. categories of employee from the scope of

2. This directive is without prejudice to national law as regards the definition of the terms "employee", "employer", "pay", (a) where a request has been made for the "right conferring immediate entitlement" opening of proceedings involving the and "right conferring prospective entitle- employer's assets, as provided for ment".' under the laws, regulations and admin- istrative provisions of the Member State concerned, to satisfy collectively the claims of creditors and which make it possible to take into consideration 6. Under Article 3 of the directive: the claims referred to in Article 1(1),

' 1 . Member States shall take the measures necessary to ensure that guarantee institu- and tions guarantee, subject to Article 4, pay- ment of employees' outstanding claims resulting from contracts of employment or 3 — (See Annex I to the Act of Accession, Social Policy, D employment relationships and relating to Employment Legislation.) pay for the period prior to a given date.

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2. At the choice of the Member States, the 2. When Member States exercise the option date referred to in paragraph 1 shall be: referred to in paragraph 1, they shall:

— either that of the onset of the — in the case referred to in Article 3(2), employer's insolvency; first indent, ensure the payment of outstanding claims relating to pay for the last three months of the contract of employment or employment relation- ship occurring within a period of six months preceding the date of the onset of the employer's insolvency; — or that of the notice of dismissal issued to the employee concerned on account of the employer's insolvency;

' 1 . Employees, home workers and their survivors and successors in law on death 8. Under the general and final provisions, (entitled claimants) have a claim to insol- the directive specifies in Article 10 that: vency guarantee money for the claims secured under sub-paragraph 2 where insolvency proceedings are commenced within Austria in respect of the assets of the employer (principal), even if the employment relationship (contract for ser- 'This directive shall not affect the option of vices) has ended. The following are equated the Member States: to the commencement of insolvency pro- ceedings:

(a) to take the measures necessary to avoid abuses;

2. Bona fide, non-time-barred and non-ex- (b) to refuse or reduce the liability referred cluded claims arising out of the employ- to in Article 3 or the guarantee obli- ment relationship are secured gation referred to in Article 7 if it (paragraph 3), even if they have been appears that fulfilment of the obli- attached, pledged or assigned; more spe- gation is unjustifiable because of the cifically existence of special links between the employee and the employer and of common interests resulting in collusion between them.' (1) claims to salary, in particular to cur- rent salary and salary arising out of the termination of the employment rela- tionship, 9. The directive was transposed into Aus- trian law by the Insolvenz-Entgeltsiche- rungsgesetz 1977 (Law on the Guarantee of Salary in the Event of Insolvency, here- inafter 'the IESG'). (2) claims to damages,

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porarily overcome only by the taking-out of 19. That application was rejected on the a mortgage on the house jointly owned by ground that, under Austrian case-law, the plaintiff and her husband as security for claims to salary which minority share- an additional loan of ATS 1 000 000. holders leave outstanding for more than sixty days must be classified as shareholder loans substituting for share capital, and that the Insolvenz-Ausfallgeld-Fonds (In- solvency Payment Insurance Fund) (IPIF) 14. The reprieve was only short-lived, cannot be improperly burdened as a result however, since, from September 1998, the of the failure to pursue outstanding salary company was no longer able to pay any claims against the employer. Mrs Walcher salaries. was therefore forced to bring an action before the courts against the guarantee institution.

24. It held that inaction on salary claims by 28. It is by no means the intention of the an employee of a company, who is at the Oberster Gerichtshof, on the basis of the same time its shareholder, was to be facts of the case, to deny Mrs Walcher the deemed a substitution for share capital in status of employee. It takes the view, a situation, as here, where the shareholding however, that, in not claiming payment of amounted to 25% and where the share- the outstanding salary from the company, holder was perfectly capable of realising she granted it a shareholder loan in sub- that the company was unable to raise stitution for share capital which cannot be credit. repaid, either directly or indirectly, until there has been some lasting improvement in the company's situation.

30. It also points out, first, that it is '(1) Is it contrary to the objectives of incompatible with the protective purpose Council Directive 80/987/EEC of of the guarantee to extend that protection 20 October 1980 on the approxi- to debts payment of which has not been mation of the laws of the Member claimed for a long period of time and which States relating to the protection of therefore can no longer be linked to the employees in the event of the insol- meeting of current living costs, and, sec- vency of their employer if, on account ondly, that if the IPIF were to intervene in of the principles also applied by the such a situation, claims against the assets in Austrian courts on loans made in the insolvency transferred to it would be substitution for share capital, a share- valueless, since they would be claims aris- holder who has no controlling ing from a shareholder loan made in influence on the company loses his substitution for share capital. entitlement to an insolvency guarantee payment where, in his capacity as an employee of the company, he does not, after the onset of creditunworthiness which was apparent to him, make any serious demand for payment of current wages in arrears for more than sixty 31. In the light of those various consider- days and/or does not resign early on the ations, the Oberster Gerichtshof takes the ground that his wages are withheld? view that the pursuit of claims against the IPIF by the plaintiff constitutes an abuse.

32. However, given that national courts (2) Does this loss of entitlement extend to cannot, in the assessment of the exercise of all unpaid claims under the employ- a right deriving, as in the present case, from ment relationship or only to those a provision of Community law, alter the arisen after the fictitious point in time scope of that provision or defeat the objec- at which an employee who was not a tives it pursues, the Oberster Gerichtshof shareholder would, on the ground that considers itself bound to ask the Court for a his wages were withheld, have handed preliminary ruling on the interpretation of in his notice of resignation from the the directive. employment relationship?'

35. As regards, therefore, the first question which I must answer, I shall start by pointing out that the referring court takes the view that, although the plaintiff has a 25% shareholding in the company which (a) to take the measures necessary 'to employs her, she indisputably has the status avoid abuses'; and of employee and, as such, falls within the scope of the directive.

(b) to refuse or reduce the guarantee obligation if it appears that fulfilment of that obligation is unjustifiable 36. For, on the one hand, the plaintiff must because of the existence of special links without any doubt be granted the status of between the employee and the employee under national law, the law in employer and of common interests accordance with which the term 'employee' resulting in collusion between them.

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39. I shall start by examining the situation formity with the social purpose of the of abuse. directive, which is to ensure a minimum level of protection for all workers'. 6

40. In this connection, it is appropriate, on 42. Even though that finding concerned a the one hand, to note that it follows from different provision of the directive from the settled case-law that '[t]he directive is one at issue here, it can, however, be intended to guarantee to employees a applied generally to the effect that all minimum level of protection under Com- exceptions to the basic principles of the munity law in the event of the insolvency of directive, and therefore that concerning their employer, without prejudice to more abuses as well, must be construed nar- favourable provisions existing in the rowly. Member States. To that end it provides in particular for specific guarantees of pay- ment of outstanding claims to remuner- ation.' 4

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impossible to pay salaries due must apply 49. Indeed, one would be more inclined to for a declaration of insolvency on the salute the solidarity which, in certain ground that it is objectively unable to circumstances, employees can, as here, discharge its liabilities, since claims to demonstrate towards their employer and salary cannot, for the purposes of the to criticise the opposite conduct, which is solvency of an undertaking, be treated to pursue immediately all available legal differently from other claims. remedies to obtain full payment of salary when due, even at the risk of accelerating the collapse of the undertaking.

46. The Community legislature wanted to ensure that employees who, unless the undertaking is turned round or taken over together with its staff, have lost their jobs 50. In any event, there can be no question and may therefore have to rely on unem- of deciding that an employee who does not ployment benefit for a long time in order to demand what is owed to him on the date on support themselves and their families are which he is entitled to do so voluntarily not also deprived of the pay for the work sheds his status as an employee in order to they actually performed within the under- don his businessman's hat and share the taking. economic risk with his employer.

47. Even though workers must know, after 51. In fact, an employee who tolerates the not having been paid their salary when due fact that his salary is not paid to him on on two or three occasions, that the solvency time still conducts himself as an employee, of their undertaking is more than doubtful, since, in so doing, he is trying to work to they cannot be expected to resign immedi- preserve his own job by consenting, for that ately, if they have no guarantee of finding a purpose, to a sacrifice borne of the con- job in another undertaking, and cannot fidence that he still has in the ability of his claim redundancy pay. employer to turn the undertaking's situ- ation around.

57. After all, there is no possible compari- son between an employee with a few shares in a public limited company, the capital of 54. The situation of an employee who is at which is divided into several million shares, the same time a co-owner of the undertak- and a shareholder in a private limited ing is different. In that case, the decision to company who, like the plaintiff, holds a forego payment of the salary due on the quarter of the share capital. The former is normal payment date will not be deter- just an ordinary investor who holds com- mined solely by the considerations set out pany shares in the same way as he might above, but will also reflect the desire not to hold treasury bonds and who, even if he lose part or, in most cases, all of the capital exercises his voting right at the sharehol- invested by bringing about the insolvency ders' annual general meeting, has no quan- of the company. tifiable influence over the management and development of the company, while the latter, even if he does not manage the private limited company personally, is involved in a genuine business venture, which is very different from the routine 55. The confidence that a shareholder in a investment of precautionary savings. company places in the ability of that company to pull through a difficult patch will often, in reality, be a manifestation of his refusal to face facts, that is to say to recognise that he has made an unwise investment, and that refusal will itself lead him to become involved in what is known 58. It will be noted, however, that any in medicine as the prolongation of life by intention not to put employees with a medical means. shareholding of whatever size in the under- taking on an equal footing with non-share- holder employees in the context of recourse to guarantee institutions would certainly undermine the development of employee share ownership, which, moreover, is very 56. Obviously, it cannot be established as a strongly encouraged in the majority of principle that any employee with a share- Member States.

61. After all, leaving aside the fact that Mrs Walcher holds 25% of the capital of the company and that she is the wife of the director, who also holds 2 5 % of the capital, the bookkeeping tasks she carried out in the undertaking mean that she could 65. In my opinion, the fact that someone in not have been unaware of the company's the position of the plaintiff does not claim, precarious situation. when due, payment of the salary owed to him can indeed be regarded as financial assistance that a shareholder in a private limited company grants to the company so that it can continue trading when its activities are jeopardised by a cash flow 62. Moreover, her desire to save the under- situation on account of which it is no taking at any cost is borne out by the fact longer able to meet its commitments.

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67. It also seems reasonable to me that reliance on the principles of company law should lead to the employee-shareholder's being granted a period of grace of sixty days, starting from the point at which the c o m p a n y ' s c r e d i t u n w o r t h i n e s s became apparent to him, within which to bring an action for payment of his outstanding salary or to leave his job. 70. I therefore take the view that the answer to the first question should be that the directive must be interpreted as mean- ing that it does not preclude national legislation under which an employee-share- holder with no controlling influence over the company does not, in the event of the 68. It must after all be acknowledged that insolvency of his employer, enjoy protec- an employee-shareholder, like any other tion which is identical in every respect t o employee of the undertaking, is faced with that granted to an employee who is not a a painful choice, and that he must weigh up shareholder where, in his capacity as a n carefully the advantages and disadvantages employee of the company, he does not, of the options available to him. Con- after the onset of the company's creditun- sequently, his inaction cannot, within a worthiness which has become apparent t o period of sixty days, be interpreted as a him, claim the regular pay which has reflection of his desire that his status as a stopped being paid to him for more than shareholder should take precedence over sixty days or resign early on the ground his status as an employee. that his pay has been withheld.

Permissible means of limiting the protec- 74. Before examining the substance of the tion granted to an employee-shareholder issue raised, I should first like to make an observation on the expression 'the fictitious point in time at which an employee who was not a shareholder would have resigned from the company', used by the referring 71. Accordingly, the principle of limiting court. the rights of an employee-shareholder hav- ing been accepted, I shall turn now to considering the permissible means by which this can be put into effect and in particular the means of doing so contemplated by the national court in its second question. It should be reiterated that, by that question, 75. If I understand the referring court the Oberster Gerichtshof seeks to establish correctly, it takes the view that there is a whether the loss of rights on the part of an point in time at which an ordinary employee-shareholder which formed the employee of an undertaking in difficulty subject of its first question extends to all must reasonably tender his resignation. the rights which an employee might hold in relation to his employer or only to those arising after the notional point in time at which an employee who was not a share- holder would have left the undertaking on the ground that he had not been paid. 76. I have already addressed that issue in my Opinion of 2 July 2002 in Mau, 7which concerns certain provisions implementing the directive in the Federal Republic of Germany. That Member State limits the payment of employees' outstanding claims to the pay relating to a period of three 72. In the national court's view, that loss of months, and the German Government has entitlement should be total, pursuant to the argued that employees would be well principles of commercial law and given that advised to resign after that period has it would be difficult to separate the rights elapsed. arising under a unitary employment rela- tionship into two parts, one corresponding to the period during which the employee- shareholder enjoyed the protection granted to every employee, and the other to the period during which the employee was eclipsed by the shareholder. 77. It was my submission, however, that an employee normally leaves his job only if he has found another one, which can take time, and that he may also entertain hopes (justifiably or not) that his employer's

— take the measures necessary to avoid abuses. 79. For all those reasons, it is my opinion that a 'fictitious point in time at which an employee who was not a shareholder would have resigned from the company' cannot really be used as a criterion. 82. It must be concluded, therefore, that even those Member States which limit that guarantee to three months in principle retain the possibility of reducing it to an even shorter period where this serves to avoid a serious risk of abuse. 80. The plaintiff in the main proceedings proposes another criterion. She contends that the measures intended to combat abuses must be limited to what is strictly necessary to achieve that objective. There- fore, employee-shareholders who do not 83. The Annex to the directive shows that claim their pay and do not exercise a Ireland and the United Kingdom have gone controlling influence should, in her view, as far as to exclude spouses of the employer enjoy the minimum guarantee due to any entirely from the scope of the directive. employee, that is to say, the pay for the last However, total exclusion of that kind three months preceding the insolvency of cannot be effected by indirect means. Thus,

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the judgment in Wagner Miret 8stated that tive is intended to ensure for the benefit of a Member State, which classifies the higher all employees who fall within its scope, and management staff of a company as that, as such, it must be interpreted nar- employees and which has not listed them rowly so that the effectiveness of the in Section I of the Annex to the directive, directive is not undermined. may not exclude them from the scope of the directive.

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90. Lastly, there is no indication of which any other employee who is a victim of the higher principle it is that states that com- insolvency of his employer. mercial law should take precedence over employment law. Indeed, as far as I can see, the current trend in the Member States is the opposite if anything, for very under- standable reasons, and it should be pointed out that employment law was specifically 93. There remains of course the situation developed as a separate branch of law, with referred to in Article 10(b) of the directive. rules different from those of civil law and I, like the Commission, take the view that, commercial law, in order to distinguish in that situation, in order to discourage any employment relationships from commercial attempt at fraud, the principle should be relationships and in order to guarantee the laid down that collusion, which it is for the rights of employees in their capacity as guarantee institution to establish, can individuals in a position of dependence. release that institution from any obligation in relation to the employee-shareholder. After all, the guarantee institution cannot be required to come to the aid of an employee who brings his status as such to the fore when this is to his advantage, but whose whole conduct demonstrates that his sole purpose was to protect the assets 91. As the Commission quite rightly points which he had invested in the company out, priority should not be given to pro- and which he will lose when the company tecting the guarantee fund and the com- collapses. In any battle, each individual pany's creditors until the shareholder- much choose his side; it is too late to employee can no longer be presumed to change allegiances once the battle is lost. be conducting himself as an ordinary employee.

— Article 10 of Directive 80/987/EEC must be interpreted as meaning that, in the application of the principles on loans made in substitution for share capital to an employee-shareholder with no controlling influence on the company, the loss of rights to which such a person exposes himself applies only to the rights relating to the period following expiry of the sixty-day time-limit referred to above, unless it transpires that the employer and the employee have engaged in collusive conduct to the detriment of creditors for the purposes of Article 10(b) of that directive. In that case, the loss of entitlement may encompass all of the unsatisfied claims held by the employee-shareholder.

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