CJEC, 5th chamber, September 18, 2003, No C-125/01

THE COURT (Fifth Chamber),

1. By order of 21 February 2001, received at the Court on 19 March 2001, the Sozialgericht Leipzig (Social Court, Leipzig) referred to the Court for a preliminary ruling under Article 234 EC three questions on the interpretation of Article 9 of 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).

2. Those questions were raised in proceedings between Mr Pflücke and the Bundesanstalt für Arbeit (Federal Office for Employment; 'the Bundesanstalt') concerning a compensation payment in respect of outstanding wage claims resulting from his employer's insolvency ('Konkursausfallgeld'; 'insolvency compensation').

Community law

3. Directive 80-987 is intended to guarantee employees a minimum level of protection under Community law in the event of the insolvency of their employer.

4. Article 3 of Directive 80-987 requires Member States to take the measures necessary to ensure that guarantee institutions guarantee payment of employees' outstanding claims resulting from contracts of employment or employment relationships and relating to pay for the period prior to a given date. Article 4 of that directive allows Member States to impose certain restrictions on the liability of guarantee institutions, but does not address the possibility of laying down a time-limit for the lodging of applications.

5. Article 5 of Directive 80-987 provides:

'Member States shall lay down detailed rules for the organisation, financing and operation of the guarantee institutions, complying with the following principles in particular:

(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 the public authorities;

(c) the institutions' liabilities shall not depend on whether or not obligations to contribute to financing have been fulfilled.'

6. Article 9 of the directive states:

'This Directive shall not affect the option of Member States to apply or introduce laws, regulations or administrative provisions which are more favourable to employees.'

7. Article 10 of the directive provides:

'This Directive shall not affect the option of Member States:

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

(b) to refuse or reduce the liability referred to in Article 3 or the guarantee obligation referred to in Article 7 if it appears that fulfilment of the obligation is unjustifiable because of the existence of special links between the employee and the employer and of common interests resulting in collusion between them.'

National law

8.

Pursuant to Paragraph 141(b)(I)(1) of the Arbeitsförderungsgesetz (law on the promotion of employment) of 25 June 1969 (BGBl. 1969 I, p. 582) in the version applicable at the material time ('the AFG'), an employee is entitled to a compensation payment in respect of pay outstanding on account of his employer's insolvency where, at the commencement of the insolvency proceedings in respect of the assets of his employer, he still has claims for pay relating to the three months immediately preceding the commencement of those proceedings.

9. Paragraph 141(e)(I) of the AFG provides as follows:

'The compensation payment is to be awarded, upon application, by the competent employment office. The application must be made within two months from the commencement of insolvency proceedings. Where the employee has failed to comply with the time-limit for reasons for which he is not responsible, a compensation payment on account of insolvency shall nevertheless be made, provided his application is made within two months of the impediment ceasing. The employee is responsible for a failure to comply with the time-limit where he has failed to show the degree of diligence appropriate to the assertion of his rights.'

10. The AFG has been replaced by Book III, on the promotion of employment, of the Sozialgesetzbuch (German Social Code), of 24 March 1997 (BGBl. 1997 I, p. 594). However, pursuant to Paragraph 430(5) of that book, the AFG remains applicable to payment of insolvency compensation where that insolvency occurred, as in the case at issue in the main proceedings, before 1 January 1999. The rule relating to the two-month time-limit, and extensions thereof, laid down in Paragraph 141(e)(I) of the AFG has essentially been reproduced in Paragraph 324(3) of that book.

The dispute in the main proceedings and the questions referred

11. Mr Pflücke was employed as a bricklayer by G. & S. Bau GmbH in Pfaffenhofen (Germany) until he handed in his notice, which took effect on 30 June 1997. His former employer, from which he is still seeking payment of wages of DEM 3 502.80 for June 1997, completely ceased trading on 31 December 1997, and is now the subject of insolvency proceedings which were commenced on 2 January 1998.

12. Under German law, in order to recover that claim for outstanding pay from the competent guarantee institution - namely, the Bundesanstalt - Mr Pflücke should have applied to that institution for payment of insolvency compensation within two months of the date on which the insolvency proceedings were commenced, in other words between 3 January and 2 March 1998.

13. Mr Pflücke did not make any such application during that period. His legal counsel at the time merely notified Mr Pflücke's claim for outstanding pay to the court in charge of the insolvency proceedings on 2 February 1998.

14. The court-appointed receiver then certified the existence of pay arrears of DEM 3 132.65 only. The certificate that he sent to Mr Pflücke on 10 March 1999 was forwarded to the Bundesanstalt by Mr Pflücke on 9 April 1999. On 9 June 1999, Mr Pflücke expressly applied for insolvency compensation from the Bundesanstalt.

15. The Bundesanstalt rejected that application by decision of 14 July 1999. It maintained that Mr Pflücke was not entitled to insolvency compensation since he had not applied for it within the period prescribed. It added that it was not possible to grant Mr Pflücke an extension of that period, as provided for in Paragraph 141(e)(I)(3) of the AFG, since his legal counsel had been aware of the company's insolvency.

16. On 16 August 1999, Mr Pflücke lodged an objection to that decision. He submitted that since the court-appointed receiver had initially contested the amount of the claim, he had first had to bring the matter before the Arbeitsgericht München (Labour Court, Munich) (Germany) and, after that court delivered a judgment by default on 6 April 1999, had applied immediately - on 9 April 1999 according to him - to the Bundesanstalt for insolvency compensation. The application was thus lodged with the Bundesanstalt in good time.

17. The Bundesanstalt rejected that objection by decision of 21 October 1999. Mr Pflücke brought an action challenging that decision before the Sozialgericht Leipzig on 22 November 1999.

18. That court essentially concurs with the Bundesanstalt's assessment and considers that, under German law, Mr Pflücke's action must be dismissed.

19. The Sozialgericht Leipzig explains that Mr Pflücke's actions were based on a manifestly incorrect interpretation of the applicable law. At the same time as notifying the insolvency court of the claim for outstanding wages, his legal counsel should also have applied to the Bundesanstalt for the insolvency compensation or should have done so by the end of the period laid down for lodging applications. The Sozialgericht points out that it is possible to lodge such an application as a precaution and at no cost to the individual concerned, that it is then for the guarantee institution to ascertain whether the claim for payment is founded, and that the Bundesanstalt would therefore not have been entitled to refuse Mr Pflücke's application. The late lodging of the application for insolvency compensation by his legal counsel was thus a legitimate ground for rejecting Mr Pflücke's application.

20. The Sozialgericht Leipzig nevertheless has some doubts as to whether the time-limit at issue in the main proceedings, as laid down by German law, is compatible with Directive 80-987, and, more specifically, with Article 9 thereof. In those circumstances, it has decided to stay proceedings and refer the following questions to the Court for a preliminary ruling:

'1. Is a time-limit for lodging applications for payment by the guarantee institution of outstanding wage claims compatible with Article 9 of 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?

2. Does the Court of Justice share the Chamber's view that such a time-limit for lodging applications does not constitute a legal provision which is more favourable to employees within the meaning of Article 9 of Directive 80-987-EEC?

3. Is the Chamber obliged, pursuant to the case-law of the Court of Justice, to refrain from applying the provision concerning the time-limit for lodging applications?'

The first and second questions

21. By its first and second questions the national court seeks to ascertain essentially whether Directive 80-987, properly construed, precludes the application of a time-limit laid down by national law for the lodging of an application by an employee seeking to obtain, in accordance with the detailed rules laid down in that directive, payment of insolvency compensation.

Observations submitted to the Court

22. The German, Danish and Finnish Governments submit that a two-month time-limit for lodging applications, such as the one at issue in the main proceedings, is compatible with both Directive 80-987 and Community law in general.

23. More specifically, the German Government submits that such a time-limit is essential in order to ensure the independent financing of the guarantee institution required under Directive 80-987.

24. The Danish Government submits that, according to the settled case-law regarding the procedural autonomy of Member States, the Member States are free to set a time-limit by which applications for payment of insolvency compensation must be lodged with the guarantee institution in order to be admissible.

25. It adds that there are other arguments in favour of that analysis. First of all, such a time-limit serves several administrative and procedural purposes. Over time, the possibility for the guarantee institution to examine the outstanding claims asserted by an employee diminishes, in particular where the undertaking owing those sums no longer exists. Moreover, it is more efficient if such claims are notified to the guarantee institution immediately after the onset of insolvency. That allows the guarantee institution to rapidly assess the actual scale of the liquidation and ensures uniform treatment of the notified claims.

26. Second, such a time-limit serves a purpose linked to the financing of the guarantee institution. It is important that that guarantee institution - after its subrogation to the rights of the employees in question - can participate in any distribution of the assets which may occur, a consideration which justifies the time-limit for notification imposed on employees.

27. Finally, such a time-limit allows the guarantee institution to close its files relating to the insolvency or winding-up of an undertaking. Accordingly, the time-limit pursues the objective of legal certainty, the importance of which has been recognised by the Court in similar cases.

28. The Finnish Government submits that since Directive 80-987 does not provide any guidelines as to the procedure which must be followed to obtain insolvency compensation, the Member States are required to adopt the national provisions necessary to ensure the efficiency of the guarantee institutions. The time-limit for lodging an application for payment of such compensation makes it necessary for the applicant to act without delay, which both increases legal certainty and reduces the potential for abuse to the detriment of the guarantee institution.

29. The Commission submits that, in the case at issue in the main proceedings, the time-limit for lodging applications did not render impossible in practice or excessively difficult the exercise of the then existing rights to compensation payments in the case of insolvency. Moreover, in its view, that time-limit is proportionate to the aim pursued and does not infringe the principle of equivalence of procedural rules, under which such rules must not be more favourable for rights arising solely under national law than they are for identical claims under Community law.

Reply of the Court

30. Directive 80-987 does not contain any provision which settles the question whether the Member States are entitled to set a time-limit for the lodging of an application by an employee seeking to obtain, in accordance with the detailed rules laid down in that directive, payment of insolvency compensation.

31. Articles 4, 5 and 10 of Directive 80-987, which permit the Member States not only to set the detailed rules regarding the organisation, financing and operation of the guarantee institution, but also to limit, in certain circumstances, the protection which it is designed to provide to employees, provide for neither a temporal limitation of the rights that employees derive from that directive nor a restriction on Member States' freedom to set a time-limit for lodging applications.

32. Furthermore, the fact that Article 9 of Directive 80-987, to which the national court refers in its first and second questions, states that the Member States may provide for a higher level of protection than that required under the directive can be explained by the fact that the directive merely guarantees employees a minimum level of protection under Community law in the event of insolvency of their employer. That article cannot therefore be interpreted as precluding Member States from setting a time-limit for lodging applications.

33. In those circumstances, the Member States are, in principle, free to provide in their national law for a time-limit for the lodging of an application by an employee seeking to obtain, in accordance with the detailed rules laid down in that directive, payment of insolvency compensation, provided however that such provisions respect the general principles of Community law.

34. As to those principles, it is settled case-law that such time-limits prescribed in national law may not be less favourable than those governing similar domestic applications (principle of equivalence) and may not be framed in such a way as to render impossible in practice the exercise of rights conferred by Community law (principle of effectiveness) (see, in particular, Case 33-76 Rewe [1976] ECR 1989, paragraph 5, and Case C-159-00 Sapod Audic [2002] ECR I-5031, paragraph 52).

35. More specifically, it is incorrect to take the view, as the national court appears to do, that the setting of a time-limit for lodging applications is per se incompatible with the principle of effectiveness solely because it will necessarily mean that employees who fail to comply with the time-limit will not in fact benefit from the protection introduced by Directive 80-987 (see, to that effect, Case C-78-98 Preston and Others [2000] ECR I-3201, paragraph 34).

36. It also follows from that case-law that the setting of reasonable time-limits essentially satisfies the principle of effectiveness, inasmuch as it constitutes an application of the principle of legal certainty (see, in particular, Preston and Others, cited above, paragraph 33). In a situation such as the one at issue in the main proceedings, the more time that passes after the employer becomes insolvent, the more difficult it is to establish the veracity of claims for pay, which could reduce legal certainty.

37. However, as regards payment of claims for salary which, by their very nature, are of great importance to the individual concerned, the shortness of the time-limit prescribed should not have the result that the individual concerned does not in practice succeed in complying with that time-limit, so that he does not benefit from the protection that Directive 80-987 is specifically intended to guarantee him.

38. While it is true that compared with the time-limits applicable in other Member States, the two-month time-limit laid down by German law is not the shortest, the fact remains that several other Member States prescribe significantly longer periods or have chosen not to set such a time-limit.

39. The national court must therefore determine whether the time-limit at issue in the main proceedings is justified by overriding reasons relating to legal certainty, in particular the proper working of the guarantee institution.

40. On that point, the German Government states that the guarantee institution must notify the insolvency court of the claims for outstanding salary to which it is subrogated. Given the very short deadlines applicable to the lodging of that notification, it must act rapidly, which presupposes that it has been put in a position to do so by the claimants of insolvency compensation.

41. Admittedly, if it were impossible to set an appropriate time-limit within which claims for pay must be notified to the guarantee institution, there would be an unsatisfactory legal situation in which that institution would have to bear the full cost of claims for salary which, if they had been notified earlier to the guarantee institution by the employee concerned, could have been entirely or partially recovered from the assets of the insolvent company.

42. That consideration cannot, however, justify prescribing a time-limit for lodging the application for insolvency compensation which is considerably shorter than the period within which the guarantee institution must assert its subrogated rights before the insolvency court.

43. The German Government also points out that pursuant to Paragraph 141(e)(I)(3) of the AFG, an employee who has failed to comply with the two-month time-limit for reasons for which he is not responsible is still entitled to insolvency compensation provided his application is made within two months of the impediment ceasing.

44. A derogating provision of that kind is capable of safeguarding the practical effect of the protection accorded by Directive 80-987 only where the authorities called upon to apply it are not overly strict in their assessment of whether the individual concerned has shown the necessary diligence in asserting his rights.

45. In that regard, it is clear from the order for reference that Mr Pflücke used legal counsel to defend his interests and that it was because of the late lodging of the application for insolvency compensation by that legal counsel that the application was refused by the Bundesanstalt. It is for the national court to determine whether those steps are sufficient to consider that Mr Pflücke showed the necessary diligence in asserting his rights.

46. In the light of the foregoing considerations, the answer to the first and second questions must be that Directive 80-987 does not preclude the application of a time-limit laid down by national law for the lodging of an application by an employee seeking to obtain payment of insolvency compensation, in accordance with the detailed rules laid down in that directive, provided that the time-limit is no less favourable than those governing similar domestic applications (principle of equivalence) and is not framed in such a way as to render impossible in practice the exercise of rights conferred by Community law (principle of effectiveness).

The third question

47. By its third question, the national court is asking whether it must refuse to apply the national provision laying down a time-limit for the lodging of applications for insolvency compensation.

48. It is settled case-law that if the national court finds that the national provision laying down the time-limit is not compatible with the requirements of Community law and that no compatible interpretation of that provision is possible, that court must refuse to apply it (see, to that effect, Case 106-77 Simmenthal [1978] ECR 629, paragraph 21, Case C-91-92 Faccini Dori [1994] ECR I-3325, paragraph 26, and Case C-188-00 Kurz [2002] ECR I-10691, paragraph 69).

49. The answer to the third question must therefore be that if the national court finds that the national provision laying down the time-limit is not compatible with the requirements of Community law and that no compatible interpretation of that provision is possible, it must refuse to apply the provision in question.

Costs

50. The costs incurred by the German, Danish and Finnish Governments and by the Commission of the European Communities, which have submitted observations to the Court, are not recoverable. Since these proceedings are, for the parties to the main proceedings, a step in the action pending before the national court, the decision on costs is a matter for that court.

On those grounds,

THE COURT (Fifth Chamber),

in answer to the questions referred to it by the Sozialgericht Leipzig by order of 21 February 2001, hereby rules:

1. 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 does not preclude the application of a time-limit laid down by national law for the lodging of an application by an employee seeking to obtain, in accordance with the detailed rules laid down in that directive, a compensation payment in respect of outstanding salary claims resulting from his employer's insolvency, provided that the time-limit is no less favourable than those governing similar domestic applications (principle of equivalence) and is not framed in such a way as to render impossible in practice the exercise of rights conferred by Community law (principle of effectiveness);

2. If the national court finds that the national provision laying down the time-limit is not compatible with the requirements of Community law and that no compatible interpretation of that provision is possible, it must refuse to apply the provision in question.