OPINION OF ADVOCATE GENERAL
TANCHEV
delivered on 5 March 2020(1)
Joined Cases C‑674/18 and C‑675/18
EM
v
TMD Friction GmbH (C‑674/18)
and
FL
v
TMD Friction EsCo GmbH (C‑675/18)
(Request for a preliminary ruling from the Bundesarbeitsgericht (Federal Labour Court, Germany))
(References for a preliminary ruling — Social policy — Directive 2001/23/EC — Safeguarding of employees rights in the event of transfer of undertakings, businesses or parts of undertakings or businesses — Articles 3 and 5 — Directive 2008/94/EC — Safeguarding the rights of employees in the event of insolvency of employers — Article 8 of Directive 2008/94 — Supplementary pension benefits — Whether transferees responsible for supplementary pension benefits of employees of an undertaking transferred from an insolvent transferor)
1. When certain pension benefits are not payable, as a matter of Member State law, by an institution charged with protecting the pension rights of employees of insolvent undertakings pursuant to Article 8 of Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer, (2) in what circumstances, if any, can responsibility with respect to those benefits be imposed on the transferee of the insolvent undertaking, by operation of Articles 3 and/or 5 of Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses? (3)
2. This is essentially the issue arising in the references for a preliminary ruling from the Bundesarbeitsgericht, (Federal Labour Court, Germany) (‘the referring court’). The referring court seeks guidance on the compatibility with Directive 2001/23 of certain practices leading to a reduction in employee and ex-employee supplementary pension benefits, grounded in German law, that come into play when an undertaking is insolvent, and how this impacts on the responsibilities of transferees.
3. I have concluded that this question is primarily governed by the lex specialis reflected in Article 5 of Directive 2001/23. Further, in the circumstances of the main proceedings, Member State case-law which insulates transferees from meeting certain rights to pension benefits of employees of an insolvent transferor, with respect to periods of employment preceding the date of transfer, exceeds the discretion accorded to Member States under Article 5(2)(a) of Directive 2001/23 to limit the rights and obligations imposed on transferees, by Article 3(1) of Directive 2001/23, if the rights in issue are not legally effective against the transferor. (4) If the employees concerned have no entitlement under Member State law to take steps to rely on those rights before Member State courts to secure payment of the relevant pension benefits from the transferor, (5) such benefits are not ‘payable’ before the opening of insolvency proceedings under Article 5(2)(a) of Directive 2001/23. They therefore cannot be excluded from the transferee’s obligations under Article 3(1) of Directive 2001/23.
4. However, even when the limitation provided by Article 5(2)(a) of Directive 2001/23 is operative, this is subject to two caveats.
5. First, the limitation that is supplied by Article 5(2)(a) must have been exercised by the Member with the degree of precision and clarity to guarantee legal certainty required under the Court’s case-law. (6) This is a matter for verification by the referring court.
6. Second, as required by Article 5(2)(a) of Directive 2001/23, Member State law must provide protection that is ‘at least equivalent’ to that provided by Directive 2008/94. This is to be determined under the principles elaborated by the Court in its ruling of 19 December 2019 in Pensions-Sicherungs-Verein, (7) and is equally subject to verification by the referring court.
I. Legal framework
A. European Union law
7. Article 3(1) and (4) and Article 5(1), (2)(a) and (4) of Directive 2001/23 state as follows:
‘Article 3
1. The transferor’s rights and obligations arising from a contract of employment or from an employment relationship existing on the date of a transfer shall, by reason of such transfer, be transferred to the transferee.
…
4. (a) Unless Member States provide otherwise, paragraphs 1 and 3 shall not apply in relation to employees’ rights to old-age, invalidity or survivors’ benefits under supplementary company or intercompany pension schemes outside the statutory social security schemes in Member States.
(b) Even where they do not provide in accordance with subparagraph (a) that paragraphs 1 and 3 apply in relation to such rights, Member States shall adopt the measures necessary to protect the interests of employees and of persons no longer employed in the transferor’s business at the time of the transfer in respect of rights conferring on them immediate or prospective entitlement to old age benefits, including survivors’ benefits, under supplementary schemes referred to in subparagraph (a).
…
Article 5
1. Unless Member States provide otherwise, Articles 3 and 4 shall not apply to any transfer of an undertaking, business or part of an undertaking or business where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a competent public authority (which may be an insolvency practitioner authorised by a competent public authority).
2. Where Articles 3 and 4 apply to a transfer during insolvency proceedings which have been opened in relation to a transferor (whether or not those proceedings have been instituted with a view to the liquidation of the assets of the transferor) and provided that such proceedings are under the supervision of a competent public authority (which may be an insolvency practitioner determined by national law) a Member State may provide that:
(a) notwithstanding Article 3(1), the transferor’s debts arising from any contracts of employment or employment relationships and payable before the transfer or before the opening of the insolvency proceedings shall not be transferred to the transferee, provided that such proceedings give rise, under the law of that Member State, to protection at least equivalent to that provided for in situations covered by Council Directive 80/987/EEC of 20 October 1980 on the approximation of the laws of the Member States relating to the protection of employees in the event of the insolvency of their employer [OJ 1980 L 283 p. 23] …, and, or alternatively, that,
…
4. Member States shall take appropriate measures with a view to preventing misuse of insolvency proceedings in such a way as to deprive employees of the rights provided for in this Directive.’
8. Article 8 of Directive 2008/94 states as follows:
‘Member States shall ensure that the necessary measures are taken to protect the interests of employees and of persons having already left the employer’s undertaking or business at the date of the onset of the employer’s insolvency in respect of rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary occupational or inter-occupational pension schemes outside the national statutory social security schemes.’
B. Member State law
9. Paragraph 613a of the Bürgerliches Gesetzbuch (German Civil Code; ‘the BGB’) (subparagraph 1), is entitled ‘Rights and duties in the case of transfer of business’. It states as follows in subsection (1).
‘(1) If a business or part of a business passes to another owner by legal transaction, then the latter succeeds to the rights and duties under the employment relationships existing at the time of transfer. If these rights and duties are governed by the legal provisions of a collective agreement or by a works agreement, then they become part of the employment relationship between the new owner and the employee and may not be changed to the disadvantage of the employee before the end of the year after the date of transfer …’
10. According to the orders for reference, due to Paragraph 613a(1) of the BGB, German law provides, in principle, that the rights of the employee transferred to the transferee in the event of a transfer of a business to occupational old-age pension benefits are preserved. However, pursuant to the case-law of the referring court, commencing with a judgment of 17 January 1980, and overriding provisions of the Insolvency Code, Paragraph 613a(1) is not applicable in so far as the transferee of the business is not liable for the part of the future occupational pension that is based on periods of service completed by the employee before the insolvency proceedings had been/were opened. This is based on the principle of equal satisfaction of creditors. When insolvency proceedings are opened, debts must be satisfied solely pursuant to the pertinent provisions of the Insolvenzordnung (German Insolvency Code).
11. Paragraph 7(1) of the Gesetz zur Verbesserung der betrieblichen Altersversorgung (Betriebsrentengesetz — BetrAVG) (Law on the improvement of occupational pensions) provides that rights definitively acquired must be recognised by a legal organ of insolvability guarantee, while Paragraph 7(2), sixth sentence, provides that the legal organ of insolvability guarantee is not obliged to take into account modifications to the basis for calculation of occupational pension benefits that have intervened after a declaration of insolvency.
12. Paragraph 14 of the Law on the improvement of occupational pensions, entitled ‘Insolvency insurance institution’ specifies that the insolvency insurance institution is the Pensions-Sicherungs-Verein Versicherungsverein auf Gegenseitigkeit, (‘PSV’). According to the order for reference, the same law provides that rights that have become acquired, due to the achievement of certain milestones connected with, inter alia, periods of service, are guaranteed by the PSV (see in particular Paragraph 1b and Paragraph 30f of the Law on the improvement of occupational pensions).
II. The facts in the main proceedings and the questions referred for a preliminary ruling
Case C‑674/18, EM v TMD Friction GmbH
13. In Case C‑674/18, the applicant, EM, who was born in 1980, commenced employment with Textar GmbH in 1996. Employees of Textar GmbH were guaranteed, inter alia, an occupational old-age pension under a company-wide works council agreement. Pursuant to that pension scheme, the amount of the old-age pension for each year of service is between 0.2% and 0.55% of the gross monthly remuneration earned as at a specific date prior to that employee’s departure from the employment relationship.
14. EM’s employment relationship was later transferred to TMD Friction GmbH. Insolvency proceedings regarding the assets of TMD Friction GmbH were opened on 1 March 2009. In April 2009, the business of TMD Friction GmbH, which continued even after the insolvency proceedings had been opened, was transferred to the defendant (8) due to a sale by the court-appointed insolvency administrator.
15. The PSV — the legally designated insolvency insurance institution in Germany for occupational old-age pensions — informed EM that, because of his age (29 years) he had not accrued any vested pension entitlements by the date the insolvency proceedings were opened and would not, under German law, receive benefits from the PSV upon the occurrence of an event theoretically giving rise to an entitlement to benefits (such as reaching retirement age).
16. Before the referring court, EM asserted that the defendant had to provide him with an occupational old-age pension in the future upon the occurrence of an event giving rise to an entitlement to benefits (for example, reaching retirement age), the amount of which also covered the periods of service completed before the insolvency proceedings opened.
17. Before the referring court TMD Friction GmbH argued that, in the event of a transfer of a business after the opening of insolvency proceedings regarding the assets of the transferor of the business, the transferee was liable only for the part of the occupational old-age pension based on service completed after the insolvency proceedings had been opened.
18. In those circumstances, the referring court sent the following questions to the Court for a preliminary ruling.
‘(1) Does Article 3(4) of [Directive 2001/23 allow — in the event of a transfer of a business after the opening of insolvency proceedings regarding the assets of the transferor of the business under national law, which, in principle, also requires the application of Article 3(1) and (3) of [Directive 2001/23] to employees’ rights to old-age, invalidity or survivors’ benefits under supplementary company or intercompany pension schemes — a restriction to the effect that the transferee is not liable for pension entitlements based on periods of service completed prior to the opening of the insolvency proceedings?
(2) If the first question referred is answered in the affirmative:
In the event of a transfer of business after insolvency proceedings regarding the assets of the transferor of the business have been opened, are the measures necessary pursuant to Article 3(4)(b) of [Directive 2001/23] to protect the interests of employees in respect of rights conferring on them immediate or prospective entitlement to old-age benefits under supplementary company or intercompany pension schemes based on the level of protection required by Article 8 of [Directive 2008/94]?
(3) If the second question referred is answered in the negative:
Is Article 3(4)(b) of [Directive 2001/23] to be interpreted to mean that the measures necessary to protect the interests of employees in respect of rights conferring on them immediate or prospective entitlement to old-age benefits under supplementary company or intercompany pension schemes have been taken if the national law provides that
– the obligation to provide the employee covered by the transfer of a business in insolvency proceedings with old-age benefits under supplementary company or intercompany pension schemes in the future is transferred to the transferee of the business,
– the transferee of the business is liable for future pension entitlements to the extent that they are based on periods of service completed after insolvency proceedings are opened,
– in that case, the insolvency insurance institution designated under national law does not have to assume responsibility for the part of the future pension entitlements that was acquired before the insolvency proceedings had been opened, and
– the employee may assert, in the insolvency proceedings of the transferor, the value of the part of the future pension entitlements that was acquired before the insolvency proceedings had been opened?
(4) If, in the event of a transfer of a business, the national law also requires the application of Article 3 and Article 4 of [Directive 2001/23] during insolvency proceedings, is Article 5(2)(a) of [Directive 2001/23] applicable to employees’ pension entitlements under supplementary company or intercompany pension schemes that did arise before the insolvency proceedings had been opened, but do not lead to benefit entitlements on the part of the employee until the occurrence of the covered event and therefore not until a later point in time?
(5) If the second or the fourth question referred is answered in the affirmative:
Does the minimum level of protection to be provided by the Member States pursuant to Article 8 of [Directive 2008/94] also cover the obligation to guarantee pension entitlements that were not yet statutorily vested under national law when the insolvency proceedings were opened and that are only statutorily vested in the first place because the employment relationship is not terminated in connection with the insolvency?
(6) If the fifth question referred is answered in the affirmative:
Under what circumstances can a former employee’s losses suffered in respect of occupational old-age pension benefits as a result of the insolvency of the employer be regarded as manifestly disproportionate and therefore oblige the Member States to ensure a minimum degree of protection against such losses pursuant to Article 8 of [Directive 2008/94], even though the employee will receive at least half of the benefits that will arise from his acquired pension rights?
(7) If the fifth question referred is answered in the affirmative:
Is the protection for employees’ pension entitlements that is necessary pursuant to Article 3(4)(b) of [Directive 2001/23] or Article 5(2)(a) of [Directive 2008/94] — and is equivalent to that of Article 8 of [Directive 2008/94] — also accorded if it does not arise from national law, but rather only from direct application of Article 8 of [Directive 2008/94]?
(8) If the seventh question referred is answered in the affirmative:
Does Article 8 of [Directive 2008/94] also have direct effect, such that it can be asserted before the national court by an individual employee if, although he receives at least half of the benefits arising out of his accrued pension rights, his losses suffered as a result of the insolvency of the employer are nevertheless to be regarded as disproportionate?
(9) If the eighth question referred is answered in the affirmative:
Is an institution organised under private law that the Member State has designated — in a manner that is binding on employers — as an insolvency insurance institution for occupational pensions that is subject to State supervision of financial services and levies the contributions required for insolvency insurance from employers under public law, and, like an authority, can establish the conditions for enforcement by way of an administrative act, a public body of the Member State?’
Case C‑675/18, FL v TMD Friction EsCo GmbH
19. According to the order for reference, FL’s case differs from EM’s case only in that his entitlement to a pension was vested at the opening of the insolvency proceedings.
20. FL was born in 1950 and commenced employment with Textar GmbH in 1968. A company-wide works council agreement guaranteed employees, inter alia, an occupational old-age pension. Pursuant to the pension scheme, the amount of the old-age pension for each year of service is 0.5% of the gross monthly remuneration earned by the employee as at a specific date prior to his departure from the employment relationship.
21. FL’s employment relationship was later transferred to TMD Friction GmbH. Insolvency proceedings on the assets of TMD Friction GmbH were opened on 1 March 2009. On 22 April 2009, the business of TMD Friction GmbH, which continued after insolvency proceedings were opened, was transferred to TMD Friction EsCo GmbH due to a sale by the court-appointed insolvency administrator.
22. Since 1 August 2015, at retirement, FL has received an occupational old-age pension of EUR 145.03 per month from TMD Friction EsCo GmbH on the basis of the pension scheme.
23. Since 1 August 2015, FL has also received an old-age pension of EUR 816.99 per month from the PSV. Under German law, the PSV calculated this on the applicant’s gross monthly remuneration as at the date on which insolvency proceedings were opened (1 March 2009).
24. Before the referring court, FL argued that TMD Friction EsCo GmbH should pay him a higher occupational pension, one rather based on the final salary pension scheme applicable to him — an occupational old-age pension of EUR 1 115.50 per month arose after 45 eligible years of service with TMD Friction EsCo GmbH or its legal predecessors and gross monthly remuneration of EUR 4 940.00 relevant before the departure from the employment relationship. TMD Friction EsCo GmbH should deduct from this only the benefit of EUR 816.99 provided by the PSV, and owed him a pension EUR 149.48 per month higher. (9)
25. TMD Friction EsCo GmbH argued that when an undertaking is transferred after insolvency proceedings are opened with respect to the transferor, the transferee was liable only for the part of the occupational old-age pension based on service completed after that opening.
26. The referring court therefore refers for a preliminary ruling the same questions as those which appear at point 18 above, save for the fact that it replaces questions 3, 5, and 6 at point 18 above with the following.
‘(3) If the second question referred is answered in the negative:
Is Article 3(4)(b) of [Directive 2001/23] to be interpreted to mean that the measures necessary to protect the interests of employees in respect of rights conferring on them immediate or prospective entitlement to old-age benefits under supplementary company or intercompany pension schemes have been taken if the national law provides that
– the obligation to provide the employee covered by the transfer of a business in insolvency proceedings with old-age benefits under supplementary company or intercompany pension schemes in the future is transferred to the transferee of the business,
– the transferee of the business is liable for pension entitlements, the amount of which is determined, inter alia, on the basis of the length of service and the remuneration upon the occurrence of the covered event, to the extent that they are based on periods of service completed after insolvency proceedings are opened,
– in that case, the insolvency insurance institution designated under national law does not have to assume responsibility for the part of the pension entitlements accrued before the insolvency proceedings were opened to the extent the amount of those entitlements is calculated on the basis of the remuneration received by the employee as at the date on which the insolvency proceedings were opened, and
– neither the transferee nor the insolvency insurance institution is liable for the increases in the pension entitlements that arise due to increases in remuneration after the insolvency proceedings have been opened, but in respect of periods of service completed before that point in time,
– the employee may assert, however, this difference in the value of his entitlements in the insolvency proceedings of the transferor?
(5) If the second or the fourth question referred is answered in the affirmative:
Does the minimum level of protection to be provided by the Member States pursuant to Article 8 of [Directive 2008/94] also cover the part of the pension entitlements accrued as at the date on which the insolvency proceedings were opened because the employment relationship is not terminated in connection with the insolvency?
(6) If the fifth question referred is answered in the affirmative:
Under what circumstances can a former employee’s losses suffered in respect of occupational old-age pension benefits as a result of the insolvency of the employer be regarded as manifestly disproportionate and therefore oblige the Member States to ensure a minimum degree of protection against such losses pursuant to Article 8 of [Directive 2008/94], even though the former employee receives at least half of the benefits that arise from his acquired pension rights?’
27. Written observations were filed at the Court by EM, FL, the Federal Republic of Germany, and the European Commission. All participated at the hearing of 12 December 2019, along with TMD Friction GmbH and TMD Friction EsCo GmbH (hereafter collectively referred to as ‘the defendants’).
III. Assessment
A. Approach
28. I will here address three matters by way of setting out my approach to resolving the legal issue arising in the main proceedings.
1. Horizontal nature of the main proceedings
29. First, questions 8 and 9 are inadmissible. The main proceedings concern the interpretation of the aforementioned EU directives in an action between private parties, so that the direct effect, or otherwise, of these directives can be of no decisive relevance. (10) This notwithstanding, questions 8 and 9 concern direct obligations arising from Directive 2008/94, with question 9 referring, by way of description, to the PSV. (11)
30. However, the PSV is not a party to the proceedings, and questions 8 and 9, answers to both of which would impact on its interests, go beyond merely concerning adverse repercussion for a third party, (12) as permitted under the Court’s case-law. (13) Thus, if the Court were to answer questions 8 and 9 on direct effect, questions which were referred in substance and answered on 19 December 2019, in the above mentioned ruling in Pensions-Sicherungs-Verein, (14) then breach of equality of arms and the rights of the defence under Article 47 of the Charter of Fundamental Rights of the European Union would seem inevitably to result. (15) Since the PSV is not a defendant, the questions are also hypothetical.
31. Thus, the minimum guarantee afforded by Article 8 of Directive 2008/94 (16) can only be relevant to the main proceedings in so far as this provision is linked to legal consequences following for the defendants in the light of, for example, of interpretation of Article 5(2)(a) of Directive 2001/23. (17)
32. Given that the main proceedings concern a horizontal action between two private parties, the referring court is bound to consider the whole body of rules of national law and to apply methods of interpretation that are recognised by those rules in order to interpret it, in so far as possible, in the light of the wording and purpose of the directives concerned in order to achieve the result sought by the directive, and consequently to comply with the third paragraph of Article 288 TFEU. (18)
2. No interpretation of Member State law
33. Second, as useful by way of background as the information furnished to the Court has been on provisions of German insolvency and pensions law, I recall that it is settled case-law that the Court has no jurisdiction to interpret national provisions or decide whether interpretation of those provisions by the authorities of the Member State is correct. (19) Thus, this Opinion is confined to interpretation of the relevant provisions of Directives 2001/23 and 2008/94, and will not venture into reflections on the meaning of concepts of German law.
3. Core concerns of the referring court and reformulation of questions
34. Third, in the interests of providing the referring court with a useful answer, I will identify what I perceive to be the core objectives underpinning the questions referred and reformulate them.
35. These would seem to be three fold: (1) to determine whether the main proceedings are governed by Article 3 or 5 of Directive 2001/23, or both; (2) once identified, whether, in the circumstances to hand, the pertinent provision, properly interpreted, transfers responsibility for the benefits sought by EM and FL to the defendant transferees; and (3) the role of Article 8 of Directive 2008/94 in this exercise.
36. According to settled case-law, in the context of a reference for a preliminary ruling, the Court may provide the national courts with all the guidance which it considers necessary to resolve the dispute in the main proceedings, but those national courts alone are entitled to determine whether the factual conditions triggering the application of a rule of EU law are satisfied in the case pending before the national courts and to establish the consequences which they have for the judgment which those courts are required to deliver. (20)
37. Moreover, the Court has reiterated, in the context of the interpretation of Articles 3 to 5 of Directive 2001/23, that, with a view to providing the national court with a useful answer, the Court may have to reformulate the questions referred to it. (21)
38. Thus, I propose that the first four questions be set aside, given that they are predicated on the priority of Article 3 of Directive 2001/23 over Article 5 thereof, which is supported in neither the Court’s case-law, nor in Directive 2001/23 itself. In the light of the first of the three objectives mentioned above (point 35), the first question might be worded along the following lines.
‘(1) When Member State law limits the supplementary occupational pension benefits of employees for which a transferee of an undertaking is responsible, due to the insolvency of the transferor, are the rights of employees concerned with respect to transferees governed primarily by Article 5 of Directive 2001/23 or Article 3 thereof, or both of these provisions?’
39. Identification of the pertinent provisions, and any hierarchy between them, is a qualitatively different exercise from determining whether the problem arising in the individual case falls within their material scope.
40. As explained in detail below (points 44 to 59) I have reached the conclusion that, if the insolvency proceedings fall outside of the material scope of Article 5 of Directive 2001/23, other provisions contained in that directive, such as Article 3(4), cannot be interpreted so as to encapsulate the insolvency proceedings, since Article 5 of Directive 2001/23 is a lex specialis.
41. I propose therefore that the Court should answer a further question along the following lines.
‘(2) Does the insolvency procedure in issue in the main proceedings fall within the material scope of either Article 5(1) or (2) of Directive 2001/23?’
42. As explained below (see points 61 to 79) I have concluded that the main proceedings fall with the material scope of Article 5(2) of Directive 2001/23. However, a third question is needed in order to meet the second of the objectives identified in point 35 above. On the facts arising in the main proceedings, do either of the subparagraphs of Article 5(2) of Directive 2001/23 bind the defendants to guarantee the pension benefits sought by EM and FL? To that end, a third question might be posed:
‘(3) In the circumstances of the main proceedings, does either Article 5(2) (a) or (b) of Directive 2001/23 permit a restriction under Member State law to the effect that a transferee is not liable for supplementary pension benefits based on periods of service completed prior to the opening of an insolvency procedure?’
43. Finally, as reflected in questions 5 to 7, the referring court would like to know more about the impact of Article 8 of Directive 2008/94, on the interpretation Directive 2001/23. I thus propose the following final question:
‘(4) In the circumstances of the main proceedings, what role is to be played by Article 8 of Directive 80/987 when a transferred employee seeks to impute obligations with respect to pension benefits to a transferee when the transferor is subject to insolvency proceedings, particularly with respect to the principle of proportionality?’
B. Answers to the questions as reformulated
1. Question 1
44. Question 1, as reformulated, should be answered to the effect that, when Member State law limits the supplementary occupational pension benefits of employees for which a transferee of an undertaking is responsible, due to the insolvency of the transferor, under EU law the rights of such employees with respect to transferees are governed, primarily, by Article 5 of Directive 2001/23.
45. It is apparent from the case file that insolvency is the prerequisite of the attenuation of transferred employees’ pension rights introduced in case-law of the referring court dating back to 17 January 1980, and which forms the core of its concerns. As pointed out in the written observations of the Commission, the opening of the insolvency procedure caused of the loss of the right of the applicant employees.
46. It is worth underscoring that the protection afforded by Directive 2001/23 encompasses all the rights of employees, provided that they are not covered by an exception expressly provided for by the directive itself. (22) In principle, Article 3(1) of Directive 2001/23 obliges the transferee to take account of the full period of employment in the calculation of rights of a financial nature. (23) Only exceptions falling within those supplied by Directive 2001/23 are permissible, and exceptions are to be interpreted strictly, given that they negate the main objective of Directive 2001/23: the protection of employees in relation to certain transfers of undertakings. (24)
47. The first four questions appear to be based on a misapprehension of the architecture of Directive 2001/23, in that they are predicated on the assumption that the case-law of the referring court dating back to 17 January 1980 precluding pre-insolvency periods of employment in the transferees’ occupational pension obligations to transferred employees, falls with the scope of Member State discretion inherent in the words unless ‘Member States provide otherwise’ in Article 3(4)(a) of Directive 2001/23, or that they might be subject to compliance with Article 3(4)(b) of that directive.
48. Rather, as argued in the written observations of Germany, and supported by EM and FL, Article 5 of Directive 2001/23 is a lex specialis, (25) which governs, and exclusively, the extent to which Member States may exclude employees transferred from insolvent transferors from the protections of Articles 3 and 4.
49. First, this follows inevitably from the wording of Article 5. Its relationship with Articles 3 and 4 is limited to providing a discretion in the hands of the Member States to extend the protection afforded by Articles 3 and 4 ‘to any transfer of an undertaking … where the transferor is the subject of bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to liquidation of the assets of the transferor and are under the supervision of a competent public authority’ (Article 5(1)). A generalised reference to Articles 3 and 4 of Directive 2001/23 also appears in Article 5(2), and the further scope for limitation of the protection afforded by Articles 3 and 4 with respect ‘to a transfer during insolvency proceedings which have been opened in relation to a transferor (whether or not those proceedings have been instituted with a view to the liquidation of the assets of the transferor) and provided that such proceedings are under the supervision of a competent public authority’. (Article 5(2)(a)).
50. Moreover, as argued by the representative of EM at the hearing, Article 5 is to be interpreted in such a way as to discourage abusive recourse to insolvency proceedings, given that Member States are bound to take measures to prevent such abuse under Article 5(4) of Directive 2001/23. Interpreting the directive in manner which affords Member States a discretion to attenuate the rights of employees in the context of (forms of) insolvency proceedings falling outside of Article 5 of the directive, by reference to another provision of Directive 2001/23, such as Article 3(4), would be inconsistent with this goal. (26) It would also jar with the architecture of Directive 2001/23.
51. In consequence, there is nothing in either the architecture, which might also be termed its internal context, (27) or wording of Directive 2001/23 to suggest that Article 5 thereof is subordinated to either Article 3 generally, or the rules contained in Article 3(4) on old-age pensions under company or inter-company supplementary pension schemes. Only Article 5(2)(a) is conditional upon another provision of EU law, namely Directive 80/987, which preceded Directive 2008/94. (28) Indeed, as pointed out in the written observations of EM, the reference to Directive 2008/94 (in the form of its predecessor, Directive 80/987) in Article 5 of Directive 2001/23 further reinforces its status as a lex specialis.
52. Recital 7 of Directive 2001/23 reflects the purpose of creating an express facility to accommodate Member State discretion in a specific field. It states, inter alia that Council Directive 77/187/EEC of 14 February 1977 on the approximation of the laws of the Member States relating to the safeguarding of employees ’ rights in the event of transfers of undertakings, businesses or parts of businesses (29) was amended ‘in the light of … the legislative tendencies of the Member States with regard to the rescue of undertakings in economic difficulties’.
53. The approach I am advocating is further supported by the legislative history of Directive 2001/23.
54. Article 5 of Directive 2001/23 became part of this directive as a result of an amendment to Directive 77/187 by Article 4a of Council Directive 98/50/EC of 29 June 1998 amending Directive 77/187. (30)
55. The introduction of special rules with respect to insolvency is reflected in recital 7 of Directive 98/50. (31) It states that ‘with a view to ensuring the survival of insolvent undertakings, Member States should be expressly allowed not to apply Articles 3 and 4 of Directive 77/187/EEC to transfers effected in the framework of liquidation proceedings, and certain derogations from that Directive’s general provisions should be permitted in the case of transfers effected in the context of insolvency proceedings’. (My emphasis).
56. Further, recital 3 of Directive 98/50, states that its purpose was to amend Directive 77/187 ‘in the light’, inter alia ‘of the case-law of the Court of Justice’. (32)As has recently been explained in admirable detail by Advocate General Szpunar, (33) this case-law established an exception to the safeguards laid down in Directive 77/187, initially justified by the specific nature of insolvency law. (34)
57. The Commission proposal on which Directive 98/50 was based, (35) equally provided that ‘with a view to ensuring the survival of insolvent undertakings, Member States should be expressly allowed not to apply Articles 3 and 4 of the Directive of transfers effected in the framework of liquidation proceedings, and certain derogations from the Directive’s general provisions should be permitted in the case of transfers effected in the context of insolvency pre-liquidation proceedings’, while the Opinion of the Economic and Social Committee stated that the ‘proposal’s new provisions on insolvency situations are a welcome attempt to introduce an element of flexibility’. (36)
58. In short, there is nothing in the legislative history to Directive 2001/23 to suggest that the flexibility to be afforded to Member States with respect to the transfer of insolvent undertakings was to be subordinated to pre-existing general rules on the benefits listed in Article 3(4) of Directive 2001/23. These include old-age benefits under supplementary company or inter-company pension schemes, the category arising in the main proceedings. I add that it is simply contrary to legal logic that one and the same situation can be governed by two different provisions such as Articles 3 and 5 of Directive 2001/23.
59. It is for these reasons that I am proposing the answer to question 1 as reformulated that appears in point 44 above.
2. Question 2
60. Question 2 should be answered in the sense that the insolvency procedure described in the order for reference falls outside of the material scope of Article 5(1) of Directive 2001/23, but within the material scope of Article 5(2)(a) of that directive.
(a) The answer to the question with respect to Article 5(1) of Directive 2001/23
61. The established case-law of the Court dictates a negative answer to this question with respect to Article 5(1), particularly in the light of the fact that case-law preceding Article 5(1) of Directive 2001/23 is essential to determining the meaning of Article 5(1). (37) Under that case-law, the decisive criteria for determining whether an insolvency procedure constitutes ‘bankruptcy proceedings or any analogous insolvency proceedings which have been instituted with a view to the liquidation of the assets of the transferor and are under the supervision of a public authority’ have been the ‘form’ of that procedure and its ‘objective’. (38)
62. The Court has held that, for a transfer of an undertaking to be covered by the exception laid down in Article 5(1) of Directive 2001/23, three cumulative conditions must be satisfied. Namely, that the transferor is the subject of insolvency or similar proceedings, that those proceedings were initiated for the purposes of the liquidation of the transferor’s assets, and that they are under the control of a competent public authority. (39) On the basis of the case file, it is only the second of these conditions which is not met in the main proceedings. It concerns the liquidation objective.
63. The representative of the defendants underscored at the hearing that the transfer in issue in the main proceedings saved jobs and the business was able to continue and flourish. The written observations of Germany state that the goal of German law, as it presently stands, is to maintain employees in employment, and it was further contended at the hearing that limiting the responsibilities of transferees of insolvent undertakings with respect to pensions renders acquisition of the transferred undertaking more attractive. The price of the undertaking would otherwise be higher. These factors also appear in the order for reference.
64. However, as pointed out in the written observations of EM, it is precisely this type of objective that has been precluded in the case-law concerning Article 5(1) of Directive 2001/23. The requirement that proceedings have been instituted for the purposes of liquidation is not met in the case of proceedings aimed at ensuring the continuation of the activity of the undertaking concerned. (40) This applies irrespective of the name attributed to the proceedings in issue under Member State law. Indeed, in Commission v Italy (41) arguments raised by the Italian Government justifying its own failure to implement Directive 2001/23 with respect to undertakings in ‘critical difficulty’ on the basis that, otherwise ‘a potential transferee might be dissuaded from acquiring the undertaking if he had to retain the surplus personnel of the undertaking transferred’ (42) were not accepted by the Court.
65. I am unable to see how the procedure in issue in the main proceedings can be viewed other than one designed to preserve the operational character of the undertaking or its viable units, (43) rather than one focusing on the liquidation of assets aimed at maximising satisfaction of creditors’ collective claims. (44) This is what is required under the Court’s case-law before an insolvency procedure can fall within the exception contained in Article 5(1) of Directive 2001/23.
66. Most noteworthy are the facts that the procedure took place over an arc of only four months. The undertaking was transferred from one subsidiary of the TMD group to another within this time frame, saving the undertaking as a going concern. It is uncontested that the undertaking continued trading at the same address; and both the transferor and the transferee were bound by the same collective agreement. No order winding up assets appears to have been issued by any authority.
67. In any event, if an insolvency procedure is frequently used for the purpose of restructuring, it is not aimed at liquidating an undertaking. (45) It has long since been established in the case-law that procedures designed to promote the continuation of a business with a view to its subsequent recovery fall outside the material scope of Article 5(1) of Directive 2001/23. (46) This is the case in the main proceedings.
68. If that were the end of the analysis required, I would not hesitate to advise the Court to rule that, the pension benefits of both EM and FL are to be guaranteed by the defendants as if the insolvency proceedings never took place. However, the discretion conferred on the Member States by Article 5(2)(a) also falls for consideration, as well as the issue of where the case-law of the referring court dating back to 17 January 1980 fits in with this.
(b) The answer to the question with respect to Article 5(2) of Directive 2001/23
69. First, I note that Article 5(2)(b) is irrelevant to this exercise because there seems to be no agreement in the main proceedings to alter ‘the employees’ terms and conditions of employment designed to safeguard employment opportunities by ensuring the survival of the undertaking, business or part of the undertaking or business’.
70. Next, Article 5(2)(a) of Directive 2001/23 has to date been the subject of far less analysis by the Court than Article 5(1). (47) My guide, therefore, in determining its meaning will be the (limited) case-law to date, and the wording, context and objectives of the provision. (48)
71. The Court has held that ‘the basic assumption’ underlying Article 5(2)(a) of Directive 2001/23 ‘is application of Articles 3 and 4’. (49) This is consistent with the established rule to the effect that provisions of Directive 2001/23 that furnish exceptions to the rights and obligations binding the transferee are to be interpreted strictly. (50)
72. Both the wording and the travaux préparatoires to Article 5(2)(a) show that it was inserted in order to vest Member States with a discretion to limit the rights and obligations transferred by a transferor, particularly when the proceedings are not initiated for purpose of the liquidation of the transferor’s assets.
73. As far as travaux préparatoires are concerned, I refer to the material at points 55 and 57 above. Member States were only to be afforded ‘certain derogations’ to ensure the survival of insolvent undertakings.
74. The opening wording of Article 5(2)(a) of Directive 2001/23 states ‘where ‘Articles 3 and 4 apply to a transfer during insolvency proceedings which have been opened in relation to a transferor (whether or not those proceedings have been instituted with a view to the liquidation of the assets of the transferor) …’.
75. This wording can only be taken to mean that, for the purposes of these proceedings, the rights and obligations transferred to transferees under Article 3(1) of Directive 2001/23 applies to all insolvency proceedings which are not instituted with a view to liquidation of the assets of the transfer, as is the case in the main proceedings, given that there is no express option for the Member State to provide otherwise, in contrast with the wording of Article 5(1) of Directive 2001/23, which begins ‘[U]nless Member States provide otherwise’. The opening words of Article 5(2)(a) of Directive 2001/23, when ‘Articles 3 and 4 apply to a transfer during insolvency proceedings’ refers not to a discretion in the hands of the Member States, but the factual and legal prerequisites for the application of Articles 3 and 4 of Directive 2001/23, such as the existence of a ‘transfer’. Member State discretion comes into play in sub-paragraphs (a) and (b) of Article 5(2).
76. This interpretation is also in conformity with the case-law of the Court. (51) The derogation measures departing from this which Member States may put in place with regard to insolvency proceedings which have not been instituted with a view to the liquidation of the transferor, are prescribed by subparagraph (a).
77. Further, it is stated in the written observations of Germany that a limited exception operates under German law concerning rights in the process of being acquired before the declaration of insolvency with a view to securing the recovery of the enterprise, as permitted by Article 5(2)(a) of Directive 2001/23. It is precisely limited exceptions that are encapsulated by Article 5(2)(a) of Directive 2001/23.
78. Thus, the 18 January 1980 ruling of the referring court, and its subsequent case-law, can be viewed as a derogation exercise here applied to insolvency proceedings falling within the material scope of Article 5(2)(a) of Directive 2001/23. The fact that no derogation was in place before the insertion of Article 5 into Directive 2001/23 is immaterial. There is no obligation on Member States to take specific measures to implement directives, provided the measures are legally binding. (52) It is of no consequence that the case-law of the referring court dates back to 18 January 1980, prior to the entry into force of Directive 2001/23, given that rules already in place in Member State law can implement a directive. (53) As I will explain however, in my answer to question 3 below, implementation by case-law can strike difficulties in terms of the legal certainty requirements of EU law.
79. In any event, it is for these reasons that I propose the answer to question 2 as reformulated in point 60 above.
3. Question 3
80. Question 3, as reformulated above, should be answered in the sense that Article 5(2)(a) permits a restriction under Member State law to the effect that a transferee is not liable for supplementary pension benefits based on periods of service completed prior to the opening of an insolvency procedure if those benefits are legally effective, (54) so that the employees concerned are entitled under Member State law to take steps to rely on those rights before Member State courts to secure payment of the relevant pension benefits from the transferor. (55) In all events, whether any exercise by the Member State of the discretion afforded by Article 5(2)(a) of Directive 2001/23 through case-law has occurred with the precision and clarity necessary to guarantee legal certainty, is a matter for verification by the referring court.
81. The case of TMD Friction GmbH clearly falls down, with respect to EM, because, as argued in EM’s written observations, under the wording of Article 5(2)(a) of Directive 2001/23 pension benefits were not ‘payable’ (‘dues’ in French) at the date of the transfer’, as is required by this provision, because the circumstance giving rise to retirement benefits had not occurred; namely, in EM’s case, achievement of retirement age.
82. In contrast, the position with respect to FL is more complex, given that he is a former employee. Although FL achieved retirement age after the declaration of insolvency (retiring on 31 July 2015), the case file additionally states that FL’s pension benefits were ‘vested’ at the time of the opening of the insolvency procedure. It is therefore for the referring court to determine whether FL was entitled to secure from the insolvent transferor, as at the date of the opening of the insolvency procedure, the supplementary pension benefits in issue, in the sense described at point 80 above. If he was, exempting the transferee from responsibility for their payment is consistent with Directive 2001/23.
83. The word ‘payable’ is open only to the interpretation that it means the moment at which the employee is entitled to receive old-age benefits, for example through the occurrence of the event giving rise to their entitlement. Acceptance of arguments made in the written observations of Germany to the effect that the obligation becomes ‘payable’ for a right in the process of being acquired when an economic charge arises for the transferor, (that is, pre-insolvency) would give rise to an unworkable situation with respect to distribution of assets in insolvency.
84. Aside from being inconsistent with the wording of Article 5(2)(a) of Directive 2001/23, it is also incompatible with legal certainty, and the smooth functioning of the rule on equal satisfaction of creditor debts. As pointed out in the written observations of EM, because EM is yet to retire, his loss can only be estimated, at the not insignificant sum of EUR 430 per month out of an estimated occupational pension of EUR 1 300 per month. This contrasts with the very precise arithmetic underpinning the losses of FL, calculated at EUR 149.98.
85. Further ‘payable’ under Article 5(2)(a) of Directive 2001/23, given it limits the rights of employees under Directive 2001/23, must be interpreted strictly. (56) It must also be interpreted with due consideration to Directive 2019/1023 of the European Parliament and of the Council of 20 June 2019 on preventive restructuring frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt, and amending Directive (EU) 2017/1132 (Directive on restructuring and insolvency), (57) which Member States must transpose by 17 July 2021. (58) It provides that a ‘preventive restructuring framework laid down pursuant to this Directive should not affect claims and entitlements against a debtor that arise from occupational pension systems if those claims and entitlements accrued during a period prior to the restructuring.’ (59) This suggests an interpretation of Directive 2001/23 that maximises the obligations with respect to pensions of transferees of undertakings undergoing restructuring, rather than one that minimises them.
86. Legal certainty obliges the Member State court, in all events, to verify whether the case-law of the referring court, dating back to 18 January 1980, can amount to a valid exercise of the limitation afforded by Article 5(2)(a) of Directive 2001/23. (60)
87. The Court has recently reaffirmed, in the context of calculation of pension benefits, that legal certainty must be observed all the more strictly in the case of rules liable to entail financial consequences, so that rights conferred on individuals by EU law must be implemented in a way which is sufficiently precise, clear and foreseeable, to enable the person concerned to know precisely their rights and obligations, to take steps accordingly, and rely on those rights before the national courts. (61)
88. The Court has equally held, in the context of derogations from directives concerning the rights of workers in the employment relationship, that ‘where European Union law gives to Member States the option to derogate from certain provisions of a directive, those States are required to exercise their discretion in a manner that is consistent with general principles of European Union law, which includes the principle of legal certainty. To that end, provisions which permit option derogations from the rules laid down by a directive must be implemented with the requisite precision and clarity necessary to satisfy the requirements flowing from that principle’. (62)
89. The case files suggest, and this was confirmed by the agent for the Commission at the hearing, that the active measures taken by Germany to implement Directive 2001/23 have centred around Paragraph 613a of the German Civil Code. The impression given at the hearing was one of disconnect between Article 5 of Directive 2001/23 and legislative measures in Germany on insolvency. This is all the more reason for the referring court to verify compliance with the principles elaborated in points 87 and 88 above.
90. It is for these reasons that question 3 should be answered as set out in point 80 above.
4. Question 4
91. Question 4 as reformulated should be answered to the effect that fulfilment under Member State law of the requirements of Article 8 of Directive 2008/94 is a prerequisite for the application of Article 5(2)(a) of Directive 2001/23. A reduction in the amount of occupational old-age pension benefits paid to a former employee, on account of the insolvency of his or her former employer, is regarded as being manifestly disproportionate, when the former employee receives less than half of the amount of the benefits arising from his or her acquired rights, or as a result of the reduction, the former employee is already living, or would have to live, below the at-risk-of-poverty threshold determined by Eurostat for the Member State concerned, which is for the referring court to decide.
92. The status of Article 8 of Directive 2008/94 as a pre-requisite to attenuation of the obligations imposed on transferees by Article 3(1) of Directive 2001/23 is irrefutable from the wording of Article 5(2)(a) of Directive 2001/23 and the words ‘provided that’.
93. As explained above, the potential relevance of Article 8 of Directive 2008/94 is confined to FL, given that Article 5(2)(a) of Directive 2001/23 only allows the exclusion of debts ‘payable’ before the transfer or the opening of insolvency proceedings on the further condition that Member State law furnishes ‘protection at least equivalent to’ that provided by Directive 2008/94. The case-law, since the ruling in Robins and Others, (63) imposed a proportionality test, entailing a minimum obligation to guarantee 50% of the old-age benefits arising out of the accrued pension rights under a supplemental occupational pension scheme. (64) The Court has also held that Article 8 … ‘seeks to guarantee the protection of the long-term interests of employees, given that, as regards immediate or prospective entitlements, such interests extend, in principle, over the entire retirement period’. (65)
94. It is important to note that the Robins principle described above evolved further, in the light of the ruling by Court in its judgment of 19 December 2019, Pensions-Sicherungs-Verein. The Court held:
‘Article 8 of Directive 2008/94 must be interpreted as meaning that a reduction in the amount of occupational old-age pension benefits paid to a former employee, on account of the insolvency of his or her former employer, is regarded as being manifestly disproportionate, even though the former employee receives at least half of the amount of the benefits arising from his or her acquired rights, where, as a result of the reduction, the former employee is already living, or would have to live, below the at-risk-of-poverty threshold determined by Eurostat for the Member State concerned.’ (66)
95. While this would be a matter for verification by the Member State court, given that FL seeks only a supplementary pension from the defendant which is EUR 149.48 higher than what is currently being received, this threshold would appear to be met, particularly when it is stated in the written observations of FL that this is a loss of only 12.8%. Further, the argument raised in the written observations of FL to the effect that the concessions made by workers like FL in securing the continuation of the undertaking are pertinent to the proportionality exercise are not recognised in the case-law.
96. I underscore, however, that, the obligation contained in Article 8 of Directive 2008/94 is an essential minimum guarantee for the protection of employees in the event of the insolvency of employers (recital 3). Article 8 binds Member States irrespective of the arrangements put in place by Member States, with respect to transferees, on the general subject of transfer of old-age, invalidity and survivors’ benefits under Article 3(4)(a) of Directive 2001/23, and the minimum obligations imposed on Member States in Article 3(4)(b) with respect to such benefits generally.
97. In summary, Article 8 of Directive 2008/94 is a back-stop guarantee obliging Member States to ‘ensure for employees … the minimum degree of protection required by that provision’. (67) The hallmark of this obligation is the establishment of protection that is wholly economically independent of the insolvent transferor. (68) It stands behind the employee irrespective of the arrangements put in place by Member States pursuant to Directive 2001/23 under Article 3(4) with respect to pensions. This is consistent with one of the key aims, going back to the 1970s, of the so-called ‘restructuring directives’; the mitigation of adverse social consequences of restructuring operations. (69)
98. Question 4, as reformulated, should thus be answered as suggested in point 91 above.
IV. Conclusion
99. I therefore propose the following answers to the questions referred, as reformulated:
(1) When Member State law limits the supplementary occupational pension benefits of employees for which the transferee of an undertaking is responsible, due to the insolvency of the transferor, the rights of the employees concerned with respect to the transferee are governed primarily by Article 5 of Council Directive 2001/23/EC of 12 March 2001 on the approximation of the laws of the Member States relating to the safeguarding of employees’ rights in the event of transfers of undertakings, businesses or parts of undertakings or businesses.
(2) The insolvency procedure in issue in the main proceedings falls within the material scope of Article 5(2)(a) of Directive 2001/23.
(3) Article 5(2)(a) of Directive 2001/23 permits a restriction under Member State law to the effect that a transferee is not liable for supplementary pension benefits based on periods of service completed prior to the opening of an insolvency procedure if those benefits are legally effective, in the sense that the employees concerned are entitled under Member State law to take steps to rely on those rights before Member State courts to secure payment of the relevant pension benefits from the transferor. Whether the exercise by the Member State of the discretion afforded by Article 5(2)(a) of Directive 2001/23 through case-law has occurred with the precision and clarity necessary to guarantee legal certainty, is a matter for verification by the referring court.
(4) Fulfilment under Member State law of the requirements of Article 8 of Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer is a prerequisite for the application of Article 5(2)(a) of Directive 2001/23. A reduction in the amount of occupational old-age pension benefits paid to a former employee, on account of the insolvency of his or her former employer, is regarded as being manifestly disproportionate, when the former employee receives less than half of the amount of the benefits arising from his or her acquired rights, or as a result of the reduction, the former employee is already living, or would have to live, below the at-risk-of-poverty threshold determined by Eurostat for the Member State concerned, which is for the referring court to decide.