JUDGMENT OF THE COURT (Fifth Chamber)

17 September 1997(1)

(Social policy — Protection of employees in the event of the employer'sinsolvency — Directive 80/987/EEC — Employee residing and employed in a Stateother than that in which the employer is established — Guarantee institution)

In Case C-117/96,

REFERENCE to the Court under Article 177 of the EC Treaty by the ØstreLandsret, Denmark, for a preliminary ruling in the proceedings pending before thatcourt between

Danmarks Aktive Handelsrejsende, acting on behalf of Carina Mosbæk

and

Lønmodtagernes Garantifond

on the interpretation of Article 3 of Council Directive 80/987/EEC of 20 October1980 on the approximation of the laws of the Member States relating to theprotection of employees in the event of the insolvency of their employer (OJ 1980L 283, p. 23),

THE COURT (Fifth Chamber),

composed of: J.C. Moitinho de Almeida, President of the Chamber, L. Sevón,D.A.O. Edward, P. Jann and M. Wathelet (Rapporteur), Judges,

Advocate General: G. Cosmas,

Registrar: H. von Holstein, Deputy Registrar,

after considering the written observations submitted on behalf of:

• Lønmodtagernes Garantifond, by U. Andersen and A. Rubach-Larsen, bothof the Copenhagen Bar,
  
  
• the German Government, by E. Röder, Ministerialrat in the FederalMinistry of the Economy, and B. Kloke, Oberregierungsrat in the sameministry, acting as Agents,
  
  
• the French Government, by C. de Salins, Head of Subdirectorate in theLegal Directorate of the Ministry of Foreign Affairs, and C. Chavance,Foreign Affairs Secretary in the same directorate, acting as Agents,
  
  
• the United Kingdom Government, by S. Ridley, of the Treasury Solicitor'sDepartment, acting as Agent, assisted by N. Green, Barrister, and
  
  
• the Commission of the European Communities, by H. Støvlbæk andM. Patakia, of its Legal Service, acting as Agents,

having regard to the Report for the Hearing,

after hearing the oral observations of Danmarks Aktive Handelsrejsende, acting onbehalf of Carina Mosbæk, represented by C. Elmquist-Clausen, of the CopenhagenBar; of Lønmodtagernes Garantifond, represented by U. Andersen; of the FrenchGovernment, represented by C. Chavance; of the United Kingdom Government,represented by S. Ridley, assisted by N. Green; and of the Commission, representedby H. Støvlbæk, at the hearing on 24 April 1997,

after hearing the Opinion of the Advocate General at the sitting on 29 May 1997,

gives the following

Judgment

1. By order of 27 March 1996, received at the Court on 12 April 1996, the ØstreLandsret (Eastern Regional Court, Denmark) referred to the Court for apreliminary ruling under Article 177 of the EC Treaty a question on theinterpretation of Article 3 of Council Directive 80/987/EEC of 20 October 1980 onthe approximation of the laws of the Member States relating to the protection ofemployees in the event of the insolvency of their employer (OJ 1980 L 283, p. 23;'the directive‘).
   
   
2. The question arose in a dispute between Mrs Mosbæk and the LønmodtagernesGarantifond, the guarantee institution responsible pursuant to the directive forsettling outstanding claims in Denmark ('the Fund‘), following the insolvency ofMrs Mosbæk's employer.
   
   
3. Mrs Mosbæk, who lives in Denmark, was employed from 1 June 1993 by theEnglish company Colorgen Ltd ('Colorgen‘) as commercial manager for Denmark,Norway, Sweden, Finland and, subsequently, Germany.
   
   
4. Colorgen, whose registered office was at Warrington, England, was neitherestablished nor registered in Denmark either as an undertaking or in any othercapacity, and in particular was not registered with the tax or customs authorities. It was represented there only by Mrs Mosbæk. For the performance of heractivities, Colorgen had rented an office.
   
   
5. During the whole of the employment relationship, Mrs Mosbæk's remuneration waspaid directly to her by Colorgen, with no deductions for tax, pension or other socialsecurity contributions under Danish law.
   
   
6. In July 1994, Colorgen was declared insolvent, and its employees, including MrsMosbæk, were dismissed. Pursuant to Article 3 of the directive, Mrs Mosbækdeclared, both to the Fund and to the company's English receiver, an outstandingclaim of DKR 471 996, representing her salary, commissions and expenses.
   
   
7. The Fund refused to settle the claim on the ground that responsibility lay with theguarantee institution of the State where the employer was established, in this casethe National Insurance Fund.
   
   
8. On 19 December 1994, Mrs Mosbæk brought court proceedings against the Fundin Hillerød, Denmark.
   
   
9. The case was then referred, at the Fund's request, to the Østre Landsret, whichconsidered it necessary to refer the following question to the Court of Justice:
   
   'In a situation where the employer is not established in the Member State in whichthe employee is resident and is solely represented in the State of the employee'sresidence by way of the said employee's work, which inter alia is carried out inoffice premises rented by the employer for the employee's use, is it the guaranteeinstitution in the country where the employer is established or the guaranteeinstitution in the country where the employee is resident which, on the employer'sinsolvency, according to Article 3 of Directive 80/987/EEC is to guarantee paymentof the employee's outstanding claims resulting from the employment relationshipin question?‘
   
   
10. As a preliminary point, it must be borne in mind that the directive is intended toguarantee to employees a minimum level of protection under Community law inthe event of the insolvency of their employer, without prejudice to more favourableprovisions existing in the Member States. To that end it provides in particular forspecific guarantees of payment of outstanding claims.
    
    
11. Article 1(1) of the directive provides:
    
    'This directive shall apply to employees' claims arising from contracts ofemployment or employment relationships and existing against employers who arein a state of insolvency within the meaning of Article 2(1).‘
    
    
12. Article 2(1) provides:
    
    'For the purposes of this directive, an employer shall be deemed to be in a stateof insolvency:
    
    (a)    where a request has been made for the opening of proceedings involving theemployer's assets, as provided for under the laws, regulations andadministrative provisions of the Member State concerned, to satisfycollectively the claims of creditors and which make it possible to take intoconsideration the claims referred to in Article 1(1), and
    
    (b)    where the authority which is competent pursuant to the said laws,regulations and administrative provisions has:
    
    
    • either decided to open the proceedings,
      
      
    • or established that the employer's undertaking or business has beendefinitively closed down and that the available assets are insufficientto warrant the opening of the proceedings.‘

    
    
    

13. Article 3 of the directive requires the Member States to take the measuresnecessary to ensure that guarantee institutions guarantee payment of employees'outstanding claims resulting from contracts of employment or employmentrelationships and relating to pay for the period prior to a given date.
    
    
14. Finally, Article 5 provides:
    
    'Member States shall lay down detailed rules for the organization, financing andoperation of the guarantee institutions, complying with the following principles inparticular:
    
    (a)    the assets of the institutions shall be independent of the employers'operating capital and be inaccessible to proceedings for insolvency;
    
    (b)    employers shall contribute to financing, unless it is fully covered by thepublic authorities;
    
    (c)    the institutions' liabilities shall not depend on whether or not obligations tocontribute to financing have been fulfilled.‘
    
    
15. What the national court wishes to know is, essentially, which guarantee institutionis responsible under Article 3 of the directive for guaranteeing payment of anemployee's claims on the employer's insolvency, where that employer is establishedin a Member State other than that in which the employee resides and wasemployed.
    
    
16. Whilst it is true that the directive contains no provisions expressly envisaging thecircumstances described in the order for reference, it cannot be inferred that itdoes not apply to the claims of employees residing and employed, or having beenemployed, in a Member State other than that in which their employer isestablished.
    
    
17. The purpose of the directive is to guarantee a minimum level of protection foremployees who have suffered as a result of their employer's insolvency, there beingno restriction imposed, in particular in Article 1(1) of the directive which definesits scope, as regards cases where the employee's place of residence or employmentdoes not coincide with the employer's place of establishment.
    
    
18. In order to be effective, Community law — which guarantees freedom of movementfor persons within the Community and thus encourages situations involving, as inthe present case, foreign elements — requires such an interpretation of the directive,the second recital in the preamble to which states that it is intended to reduceexisting differences between Member States 'which can have a direct effect on thefunctioning of the common market‘.
    
    
19. It is therefore necessary to determine the guarantee institution responsible forpaying claims where the employer is established in a Member State other than thatof the employee's place of residence or employment.
    
    
20. That institution, it is clear from the scheme of the directive, must be the guaranteeinstitution of the State in which, in accordance with Article 2(1) of the directive,either it is decided to open the proceedings for the collective satisfaction ofcreditors' claims, or it has been established that the employer's undertaking orbusiness has been definitively closed down.
    
    
21. In the first place, for the directive to apply, Article 2(1) requires two events to haveoccurred: first, a request for proceedings to be opened to satisfy collectively theclaims of creditors must have been lodged with the competent national authority;secondly, there must have been either a decision to open those proceedings, or afinding that the business has been closed down where the available assets areinsufficient (Joined Cases C-94/95 and C-95/95 Bonifaci and Others and Berto andOthers v INPS [1997] ECR I-0000, paragraph 35, and Case C-373/95 Maso andOthers v INPS [1997] ECR I-0000, paragraph 45).
    
    
22. As the Fund, the French and United Kingdom Governments and the Commissionhave pointed out, it thus appears that the operation of the guarantee systemestablished by the directive, and hence the intervention of the guarantee institution,are conditional, first and foremost, upon a request being made for the opening ofproceedings to satisfy creditors' claims collectively, thus making it possible for thesalary claims in question to be taken into consideration.
    
    
23. In practice, the opening of such proceedings is most often requested in the Statein which the employer is established. That general tendency should be reinforcedby the entry into force of the Convention on Insolvency Proceedings signed atBrussels on 23 November 1995 (not yet published in the Official Journal of theEuropean Communities), Article 3(1) of which uses as the main criterion forjurisdiction 'the centre of a debtor's main interests‘.
    
    
24. In the second place, Article 5(b) of the directive provides that the guarantee systemwhich it is designed to establish is to be financed by employers, unless it is fullycovered by the public authorities. It accords with the scheme of the directive, inthe absence of any contrary indication therein, for the guarantee institutionresponsible for employees' outstanding claims to be the one which levied, or at allevents should have levied, the insolvent employer's contributions. That cannot bethe case of the institution of the Member State in which the employee resides andwas employed without the employer having some establishment or commercialpresence there.
    
    
25. Thus, Article 5(b) of the directive confirms the link between the obligation of theguarantee institution to pay and the place of establishment of the employer who,as a general rule, contributes to the financing of the institution. As has alreadybeen emphasized in paragraph 23 of this judgment, the State of the employer'sestablishment is most often that in which the request for the opening of theproceedings is made.
    
    
26. Finally, the fact that the directive has not provided for a system of set-off orreimbursement of payments between the guarantee institutions of the variousMember States tends to confirm that the Community legislature intended, in theevent of an employer's insolvency, that the guarantee institution of only oneMember State should become involved, in order to prevent unnecessaryentanglements between national systems and, in particular, situations in which aworker might claim the benefit of the directive in several Member States.
    
    
27. The answer to the question must therefore be that, where the employer isestablished in a Member State other than that in which the employee resides andwas employed, the guarantee institution responsible, under Article 3 of thedirective, for the payment of that employee's claims in the event of the employer'sinsolvency is the institution of the State in which, in accordance with Article 2(1)of the directive, either it is decided to open the proceedings for the collectivesatisfaction of creditors' claims or it has been established that the employer'sundertaking or business has been closed down.
    
    Costs
    
    
28. The costs incurred by the German, French and United Kingdom Governments andby the Commission of the European Communities, which have submittedobservations to the Court, are not recoverable. Since these proceedings are, for theparties to the main proceedings, a step in the action pending before the nationalcourt, the decision on costs is a matter for that court.
    
    On those grounds,

    THE COURT (Fifth Chamber),

    in answer to the question referred to it by the Østre Landsret by order of 27 March1996, hereby rules:
    
    Where the employer is established in a Member State other than that in which theemployee resides and was employed, the guarantee institution responsible, underArticle 3 of Council Directive 80/987/EEC of 20 October 1980 on theapproximation of the laws of the Member States relating to the protection ofemployees in the event of the insolvency of their employer, for the payment of thatemployee's claims in the event of the employer's insolvency is the institution of theState in which, in accordance with Article 2(1) of the directive, either it is decidedto open the proceedings for the collective satisfaction of creditors' claims or it hasbeen established that the employer's undertaking or business has been closeddown.
    
    
    

Moitinho de Almeida Sevón EdwardJann Wathelet

Delivered in open court in Luxembourg on 17 September 1997.

R. Grass

J.C. Moitinho de Almeida

Registrar

President of the Fifth Chamber

1: Language of the case: Danish.