If insolvency proceedings are opened with a company that is also an employer, the employment relationships of its employees remain unchanged. However, the bankruptcy of a company can be a warning sign in the eyes of employees that the employer is unable to meet their wage and other financial demands (e.g. compensation for unused leave from work, severance pay, etc.).

EU legislation takes this situation into account. Directive 2008/94/EC [1] requires Member States to set up institutions to ensure the payment of employees’ outstanding claims in order to guarantee the protection of employees in the event of an employer’s insolvency. In the Czech Republic, this obligation is reflected in Act No. 118/2000 Coll., on the Protection of employees in the event of employer insolvency and on amendments to certain acts, as amended (the “Employee Protection Act”). If an insolvent employer fails to satisfy an employee’s outstanding wage claims, this obligation passes to the regional branch of the Labour Office under the Employee Protection Act.

French law has dealt with the requirement of Directive 2008/94/EC by providing in the Labour Code that every private employer must insure its employees. This insurance must cover the risk of non-payment of employees’ financial claims under the employment contract if the employer goes into insolvency, compulsory liquidation or in the event of proceedings for business rescue measures. However, according to the case-law of the French Court of Cassation, the guarantee provided by the so-called AGS (employee wage guarantee scheme) does not extend to the claims of all employees. The guarantee applies only to claims arising from the employment contract of an employee, whose employment has been terminated at the initiative of the insolvency administrator, liquidator or the employer itself. The guarantee is therefore excluded in cases of immediate termination of employment , termination by court order or retirement.

But doesn’t this practice result in unequal treatment of employees? And if so, is the difference in treatment objectively justified? Is the interpretation of the Court of Cassation in compliance with Directive 2008/94/EC?

The CJEU answered these questions in its judgment of 22 February 2024[2], in which it dealt with the case of a company, against which insolvency proceedings were opened in 2018. Some employees of this company opted for immediate termination of employment due to breach of duty by the employer. These employees subsequently appealed to the court, which confirmed that these facts justified this unilateral termination. The employees concerned were therefore entitled under French law to compensation for failure to comply with the period of notice, untaken leave, severance pay and compensation. However, according to the case law of the Court of Cassation, these claims are not covered by the guarantee provided by AGS.

The CJEU recalled that Directive 2008/94 does not distinguish between employees’ claims in terms of whether their employment contract was terminated by the employer or by themselves (or by another entity). The French Government objects that the difference in treatment is justified in this case by the need to continue the activity of the undertaking, to preserve jobs and to satisfy debts over time, whereas the immediate termination of the employment relationship by the employee following the opening of the employer’s insolvency proceedings is contrary to those needs. However, this argument did not hold up at the CJEU. According to the CJEU, the obligation of the guarantee institution to guarantee the claims of employees cannot be excluded if the employment relationship is terminated by the employee due to a breach of duty by the employer. Moreover, according to the CJEU, if the immediate termination of the employment relationship by the employee is justified, it cannot be regarded as the result of the employee’s will – in fact, it is the result of a breach of duty by the employer.

It follows from the above conclusions of the CJEU that the case-law of the Court of Cassation establishes an unjustified inequality and violation of the principle of non-discrimination. And what does this mean for EU Member States? National laws are obliged to transpose the requirement to ensure the payment of outstanding claims of employees by a guarantee institution in the event of the employer’s insolvency. At the same time, legislation and case law must respect the general principle of equality and non-discrimination and treat employees in comparable situations equally.

[1] Directive 2008/94/EC of the European Parliament and of the Council of 22 October 2008 on the protection of employees in the event of the insolvency of their employer

[2] Judgment of the Court of Justice of 22 February 2024 in Case C-125/23, ECLI:EU:C:2024:163