LAA101

LAA101 – European Law Coursework

Introduction

The case focuses on the direct and indirect effects of the European Union (EU) directives. The EU law is supreme over national law because when the member states signed the treaty, their right to sovereignty was surrendered. Thus, individuals have new rights in addition to those provided by the member states. The EU directives must be implemented by each member state, otherwise the indirect effect emerges. The paper provides advice to Mathew of the possibility of enforcing his rights under the EU Directive 2012/65 through indirect effect.

Facts

Matthew is a UK citizen and works with Mega Bank in Germany and has a gross salary of €200,000/year. The European Union (EU) Directive 2012/65 on the banking sector has a provision that requires Member States to create a compensation mechanism for banking industry workers in case their employer goes bankrupt. Germany has not adopted that Directive which explicitly covers outstanding wages owed to employees. Following the bankruptcy of Mega Bank Matthew was left without a job and owed 6 months wages worth €100,000, plus a possible €1,000,000 bonus for his performance in 2015. Although Mathew wants to make a claim for the outstanding wages, the current German bankruptcy laws forbids him, because he earns a gross salary of more than €50,000/year.

Issue

The issue raised is that Matthew plans to claim the outstanding wages from Mega Bank but the current German bankruptcy laws forbids him from doing so, because only employees with a gross salary below €50,000/year can claim for any compensation for outstanding wages. Thus, should Mathew enforce his rights under the EU Directive 2012/65 through direct effect or indirect effect?

 Law

Indirect effect is a principle in the EU which contrasts the direct effect, and it permits persons to under some conditions invoke the EU law. The indirect effect is experienced when a member state fails to implement a directive at all or correctly.[1] For instance, in Von Colson and Kamann v Land Nordrhein-Westfalen[2], the member state failed to correctly implement a directive, while in Marleasing v La Comercial Internacional de Alimentacion[3] there was an indirect effect because the member state had not at all implemented the directive. According to the EU Directive on Insolvency Protection, each member state is required to make provision with reference to the plan for the payment of unpaid wages to its employees in case bankruptcy.[4] Nonetheless, there is no specific requirement that allows the State to make payments, although in the UK, employees can make claim and be paid by the National Insurance Fund.  Thus, failure to implement the directive 2012/65/EU by Germany had an indirect effect because it weakened the individual rights to be compensated for services rendered. The European Union Directive 2012/65 on the banking sector and compensation requires member states to implement a compensation mechanism to cover workers in the sector in case their employer goes bankrupt.

Case Argument

Matthew has the possibility of enforcing his rights under the EU Directive 2012/65 through direct effect or indirect effect. As a member of the EU, Germany is bound by the directives of the EU. Thus, the directive 2012/65EU/ on the banking sector and compensation mechanism for banking industry workers in case their employer goes bankrupt, supersedes the current German bankruptcy laws which forbid compensation for gross salary of more than €50,000/year. State liability exits in this case because of the non-implementation of directives by the EU member states. For instance in Francovich v Italy (1991) C-6/90[5] provides explanation on when a member state of the EU is liable under the European Law. In the case, the EU Court of Justice established that the members are liable for compensations payment to persons who have suffered a loss because of the failure by the State to transpose an EU directive into the national law.[6]  The Directive which explicitly covers outstanding wages owed to employees was to be transposed by all Member States by 31/12/2014, but Germany has not done so to date. Thus, German government breached its duty and obligation and this gives Mathew the power to enforce his rights under the directive 2012/65/EU to be compensated.

The role of the Community rules is to protect the rights of persons, and their infringement by States impairs the effectiveness of the rules and breaches the laws. Thus, Mathew can enforce his rights under the directive via an indirect effect because there has been a failure by a member state to adapt to the directive 2012/65/EU. Under the Francovich vs. Italy[7] the EU court held that the State was liable and was required to make damage to persons affected by the breach of Community Law. Like in the Italian case, the breach by the German State in this case is the non-implementation of directive 2012/65/EU. The German’s lack of directive implementation has left Mathew (the Plaintiff) in a disadvantage position because he was owed 6 months wages worth €100,000, plus a possible €1,000,000 bonus for his performance in 2015 and sought compensation.

With reference to Francovich vs. Italy[8] the claim made was based on two elements which are the applicability of direct effect and failure by the State to implement the directive. In the same case, the William’s case can be weighed under the case requirements. For instance, the member state failed to undertake the necessary means to realise the anticipated outcomes as stipulated by the directive, thus giving rise to the damages.[9] The European Court Journal judges can make three conditions that have to be satisfied in order for State to be liable. Firstly, the outcomes required by the directive 2012/65/EU entail the conferring of individual rights to be compensated and not be discriminated because his wage was above the maximum set by the German’s bankruptcy laws. Secondly, the rights are determined by contents in the directive’s provisions, and lastly there was a causal link between the failure by the state and that damages suffered by William.[10] Thus, based on the Francovich vs. Italy[11] the member state must be held responsible for its failure to implement a directive that allows individuals to have their infringed rights redressed. In order to protect the EU law, the member state is obliged to ensure that the compensation is made by the bank notwithstanding the bankruptcy laws that govern the banking sector in Germany.

The revised bankruptcy law implemented on March 1 2012 in Germany significantly weakens workers’ position in the case of company insolvency.[12] The law stipulates that an employee can be dismissed without any payments, redundancy notice periods, and social plans within a period of three months. Nonetheless, Mathew can be covered under the EU directive 2012/65/EU which supersedes the State law on Bankruptcy. According to Kramer, directives are legally binding and tend to be effectively enforced if persons relied on them.[13] Based on the ECJ national courts have the responsibility of granting relief to a person who has suffered as a result of no-implementation of a directive, and can follow formal process to bring the bank to court in order to be compensated. Krammer noted that “the provisions of directives cannot be pleaded directly by individuals before the implementation date has expired and only if the State has not properly implemented them and here directive not properly transposed.”[14] In this case, Williams can plead on the provisions of the directive because the implementation data expired in 2014 and the state failed to implement and transpose it. Thus, the national law provision on bankruptcy and compensation of employees is not in line with the EU law provisions.

Conclusion

The EU directives were out forward to protect individuals by ensuring that the interests of governments did not weaken the rights of the individuals. Under the Mathew case, the claimant can enforce his rights under the EU Directive 2012/65 through indirect effect. For instance, the State failed to implement the directive 2012/65/EU to ensure that employees in an event of bankruptcy, the workers in the banking sector are compensated. The non-implementation of the directive resulted into an indirect effect. It is under the directive of the EU that the rights of Williams are protected without necessarily infringing the state sovereignty. The member states of EU have the liability of ensuring that the rights of people are protected under the EU law. Thus, by depending on the directives, Williams can be compensated because Germany refused to implement the directive on banking and compensation mechanism.

Bibliography

Cases

Francovich v Italy (1991) C-6/90 

Marleasing SA v La Comercial Internacional de Alimentacion SA (1990) C-106/89 

Von Colson v Land Nordrhein-Westfalen (1984) Case 14/83.

Books and Journals

Grant, Beryl. Employment Law: A Guide for Human Resource Management. London: Thomson Learning, 2001.

Fletcher, Maria. "Extending "indirect effect" to the third pillar: the significance of "Pupino"?" ELW (2005) 30.6, 862-877.

Others

Kramer, Tomasz. Main characteristics of EU Law Relations between EU Law and National Legal Systems. European Centre for Judges and Lawyers, EIPA Luxembourg

Wolf, Ernst. New bankruptcy law strengthens German employers (27 July 2012), < https://www.wsws.org/en/articles/2012/07/germ-j27.html>.