The wage guarantee scheme: continued payment of wages in the event of the employer’s bankruptcy
The Unemployment Insurance Act includes a scheme that entitles employees to payment in the event of payment problems on the part of the employer. The regulation is also called the wage guarantee regulation. It also regulates which benefits an employee can claim in case of bankruptcy of the employer. In this article I will discuss the main provisions of the wage guarantee scheme that apply in the event of bankruptcy and I will go into a recent judgment of the Supreme Court on this subject.
Bankruptcy of the employer
If an employer has gone bankrupt, the bankruptcy trustee will, in principle, proceed as soon as possible to terminate the employment contracts on the basis of Section 40 of the Bankruptcy Act. In any case, the trustee does not have to apply a longer term than six weeks. The law stipulates that the salary and premium debts related to the employment contract are estate debts. Estate debts refer to the costs of the bankruptcy. Estate debts have a very high rank and the trustee can be expected not to allow them to arise and accrue unnecessarily.
The wage guarantee scheme in the event of an employer’s bankruptcy
Pursuant to sections 61 and 64 of the Unemployment Act, the UWV takes over the wage payment obligation of the bankrupt employer. The period for which the wages are covered by the wage guarantee scheme is limited. Wages do fall under the wage guarantee scheme:
- wages for a period of 13 weeks prior to the liquidator’s termination of the employment contract;
- the wages for the notice period, up to a maximum of six weeks;
- the vacation pay, the vacation allowance and the amounts, which the employer owes to third parties in connection with the employment relationship with the employee, for the year preceding the end of the six-week notice period (this is somewhat simplified).
The amounts are also capped by law. However, most people’s wages are less than the maximum amounts.
Wage claims that fall outside the wage guarantee scheme
It is clear from the above that not all conceivable claims arising from the employment contract are covered by the wage guarantee scheme. Depending on the situation, the employee then has an estate claim, a preferential claim on the basis of Section 3:288 opening words and under c to e of the BW (claim with privilege) or an unsecured claim (claim without privilege) or a combination of these.
UWV’s position in the wage guarantee scheme
The claims of the employee and third parties against the employer are transferred to the UWV, in so far as these claims are settled by the UWV. This means that the UWV acquires direct claims against the insolvent employer.
It may be beneficial to the estate if a restart takes place, whereby the employees are employed by the re-launched company. The relauncher becomes the new employer and therefore the bankrupt employer saves on wage costs. The Supreme Court recently issued a judgment on such a situation. This judgment is briefly discussed below.
Supreme Court ruling on wage guarantee scheme
The following facts emerge from the judgment. An employer, employing 84 people, goes bankrupt. A few days later, the trustee terminates the employment contracts with due observance of a six-week notice period. A few days after the declaration of bankruptcy, the company is restarted as a going concern. This means that the re-starter takes over the ongoing business activities of the bankrupt. The re-starter takes over the assets and employs the employees under the same conditions as they were previously employed by the bankrupt employer. The UWV will soon be informed about this by the insolvency administrator. The UWV will make payments to the employees on the basis of the wage guarantee scheme. These payments relate to the six-week notice period. This involves an amount of € 353,067. Subsequently the UWV submits a claim against the estate for this amount to the trustee. The trustee disputes this claim. The trustee believes that the employees were no longer entitled to wages from the bankrupt employer from the moment they started working for the re-starter.
No work, no pay?
The statutory regulation concerning the right to wages in the event of failure to perform work was amended on January 1, 2020. The Supreme Court notes that in this case, where the facts played out in 2016, the old regulation still applies. However, the Supreme Court notes that the new Article 7:628 (1) of the Dutch Civil Code does not intend to change the allocation of risks between the employer and employee. The new regulation implies that the employer is obliged to pay the salary determined according to the time frame if the employee has not performed the agreed work wholly or partially. This does not apply if the total or partial non-performance of the agreed work should reasonably be at the expense of the employee. Since the amendment of the law, it is therefore formulated as: no work, pay, unless…
Employee no longer willing to perform work?
The Supreme Court considered that if an employee, after his employer has been declared bankrupt, is reinstated in the employ of the acquirer on equal terms of employment for all or part of his business, the trustee in bankruptcy may deduce that the employee is no longer willing to perform work for the bankrupt employer. In such a case, the cause of the ceasing to perform the work should not lie with the bankrupt. From the moment of entering into service with the transferee, the employee is therefore no longer entitled to salary. The UWV was therefore not obliged to pay on the basis of the wage guarantee scheme. The trustee was therefore found to be in the right.
Strategy of employee in case of payment problems with employer
The wage guarantee scheme has only been discussed to a limited extent in this article. For employees who are employed by an employer who is unable to pay salaries, it is important to take action quickly, otherwise there is a chance that claims for benefits under the wage guarantee scheme will be lost. One strategy may be to file a report with the UWV and, in addition, to file for the employer’s bankruptcy.
Lawyers insolvency law and labour law Rotterdam
At LVH Advocaten we have specialists in the field of labour law and insolvency law. Please contact Peter de Graaf if you have any questions about the wage guarantee scheme, a bankruptcy petition and/or a restart. The judgment discussed can be found here.
