Willie Penrose (Longford-Westmeath, Labour) | Oireachtas source

I thank the Ceann Comhairle for selecting this important issue. I welcome the Minister of State, Deputy Ann Phelan, to the House and wish her well on her new and very important role for rural people in particular.

The downturn in the economy has clearly brought to our attention the significant and glaring weakness in the protection of employees who may find themselves very vulnerable in light of various types of insolvency that can now arise. One of the major failings is the restrictive way in which the Protection of Employees (Employers' Insolvency) Acts 1984 to 2006 recognise insolvency. They classify some failures of businesses as insolvency but others do not qualify under the strict criteria laid down. In particular, there has been no recognition of informal insolvencies which have arisen in recent months which are the nub of a problem. These arise where employers stop trading but do not go into liquidation or receivership or have the company wound up officially. In such cases, employees lose jobs but their employers simply walk away, meaning employees are left in the lurch with no wages or entitlements of any kind being paid.

The Irish Congress of Trade Unions has been very active in this area and it submitted comprehensive proposals last February to the Government seeking appropriate amendments to the legislative framework so as to stamp out the occurrence of such insolvency issues. Very often employers dismiss employees, cease trading but do not wind up the company. In doing so they avoid paying employees unpaid wages and other awards made by employment rights bodies. In such cases, the employees would find it impossible to access the Department of Social Protection insolvency payment scheme because of a failure to wind up a company in a proper fashion. This is in contrast to the redundancy payment scheme, which does not bar access to employees in such circumstances.

The purpose of the insolvency payment scheme is to protect pay related entitlements owed to employees who lose employment because of the insolvency of an employer, in accordance with the requirements of the EU directive. Under the scheme, employees may claim arrears of pay, holiday pay, pay in lieu of statutory notice and employment rights awards owed to them by an insolvent employer. The Department of Social Protection would make payments only in circumstances where the employer is legally insolvent and no payments would be made to employees from the insolvency payment scheme in circumstances where the employer has not properly wound up the company.

The Protection of Employees (Employers' Insolvency) Acts provide that an employer is only insolvent for the purpose of accessing this fund when the employer falls within a particular category. These are where a business is in liquidation; when a business is in receivership; when an employer is legally bankrupt; where the employer has died and the estate is being administered under relevant legislation; and where an employer is insolvent under legislation from another EU member state. Informal insolvencies are not covered by this and as a consequence, any affected employees would be barred from accessing a much-needed safety net.

The question arises of whether the Legislature has failed to provide employees in informal insolvency arrangements as I described with appropriate access to the insolvency scheme and whether this failure is in breach of the EU directive on the protection of employee rights in the event of an insolvency by an employer. The answer is unequivocally "Yes" on both counts. The directive provides that to ensure equitable protection for the employee's concern, the state of insolvency should be defined in legislative trends in the member states, and that concept should also include insolvency proceedings other than liquidation. That is Directive 2008/94/EC.

My submission is there should be recognition of deemed insolvency, as I have described it, in order to fulfil the objective of the directive. A deemed insolvency would arise where an employer has ceased trading and payments have de facto been stopped on a permanent basis, with this done for proceedings other than the five categories already in national law. The questions would then arise as to what is meant by "permanent basis" and what forms should be used to determine a scenario of "deemed insolvency".

How do we define permanent basis? The Irish Congress of Trade Unions, ICTU, has suggested that where payments have stopped for six weeks or more that should constitute a permanent basis. We must then ascertain the forum to be used to make the determination that a situation of deemed insolvency exists to protect the insolvency accountant. This could be done by the Department of Social Protection, which is already responsible for deciding payments under the insolvency and redundancy payment schemes. This situation for employees could be easily addressed in this fashion by amending the rules of the insolvency payment scheme to recognise a situation of deemed insolvency, where trading has ceased and payments have de factobeen stopped on a permanent basis defined as a period of six weeks or more. Further amendments will be required to facilitate the Minister for Social Protection assuming responsibility for the payments and so that the Department can continue to pursue the payments from the directors of the company.

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