Maurice Quinlivan (Limerick City, Sinn Fein)
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I remind members participating remotely that they must do so from within the Leinster House complex. Apologies have been received from Deputy Shanahan. Today we will look at pre-legislative scrutiny of the general scheme of the protection of employees (employers’ insolvency) (amendment) Bill 2024. The Bill provides for a number of important amendments to the protection of employees (employers’ insolvency) Act 1984. This Act covers employees' pay-related entitlements in the event of their employer's insolvency by way of the insolvency payment scheme. The Bill addresses a 2018 Supreme Court judgment which found that Ireland had not fully transposed directive 2008/94/EC on the protection of employees in the event of insolvency of their employer.

The committee is pleased we have the opportunity to consider these matters further with representatives from the Department of Enterprise, Trade and Employment: Ms Dara Breathnach, principal officer, redundancy and insolvency policy unit, Mr. Peter O’Brien Hogan, assistant principal officer, redundancy and insolvency policy unit, and Mr. Josh Byrne, administrative office, redundancy and insolvency policy unit.

Before we start, I wish to explain some limitations to parliamentary privilege and the practices of the Houses as regards references witnesses may make to persons in their evidence. The evidence of witnesses who are physically present or who give evidence from within the parliamentary precincts is protected pursuant to both the Constitution and statute by absolute privilege. Witnesses are reminded of the long-standing parliamentary practice to the effect that they should not criticise or make charges against any person or entity by name or in such a way as to make him, her or it identifiable or otherwise engage in speech that might be regarded as damaging to the good name of that person or entity. Therefore, if their statements are potentially defamatory in respect of an identifiable person or entity, they will be directed to discontinue their remarks and it is important that they comply with any such direction. The opening statement has been circulated to members. To commence consideration of this matter, I invite Ms Breathnach to make the opening statement on behalf of the Department.

Ms Dara Breathnach:

I thank the Chair and committee for the opportunity to discuss the general scheme of the protection of employees (employers’ insolvency) (amendment) Bill 2024. I am accompanied by my departmental colleagues, Mr. Peter O’Brien Hogan and Mr. Josh Byrne.

We welcome the opportunity to contribute to the committee’s scrutiny of the scheme and to assist in any way we can. Our Department is responsible for employment law generally, including the Protection of Employees (Employers’ Insolvency) Act 1984. This general scheme proposes to amend the 1984 Act, which is legislation that protects certain employee entitlements where their employer becomes insolvent.

Before turning to the specific provisions of the general scheme, I wish to give the committee some background on the 1984 Act and the reasons this Bill is required. These protections derive from European law, specifically Directive 2008/94/EC, which is a recast of an earlier directive. This was transposed into Irish law by the 1984 Act, as amended. The Act provides for the payment of certain sums to employees from the Social Insurance Fund on the insolvency of their employer. This is colloquially known as the “insolvency payments scheme”.

Access to the insolvency payments scheme is contingent on the employer being insolvent. Insolvency is currently defined in the Act as where the employer is in liquidation, receivership, bankruptcy, has died and the estate is insolvent or is insolvent under the laws of another EU member state or the UK. Where an employer becomes insolvent, employees can often be owed moneys such as arrears of wages, minimum notice or holiday pay. When this happens, employees are protected under the insolvency payments scheme. A liquidator or similar appointee will make applications on the employees’ behalf to the Department of Social Protection which administers the scheme on behalf of the Minister for Enterprise, Trade and Employment. When a claim is accepted, payment is made from the Social Insurance Fund to the liquidator who in turns pays out to the employees. Payments under the scheme are subject to certain limits relating to salary level and number of weeks claimed.

However, there are gaps in the legislation this general scheme is intended to address. Some businesses cease trading but do not fully wind up. This may be because the directors have insufficient assets to fund the liquidation or for other reasons. This is often known as informal insolvency, although that has no actual formal legal meaning itself. Where this occurs, former employees who have moneys owed to them have no legal mechanism to claim these payments from the insolvency payments scheme. The Supreme Court found, in the case of Magdalena Glegola v . The Minister for Social Protection,Ireland and the Attorney General,that this does not meet the requirements of the directive. The Supreme Court held that the State has therefore failed to transpose Article 2(1)(b) of the directive.

To address this gap, this general scheme provides for a new "employer deemed insolvent" application. Using this new application, an employee can apply to have their employer deemed insolvent and, if successful, may obtain payment of certain outstanding debts from the Social Insurance Fund. This new process will address the shortcomings in the Act identified by the Supreme Court. An employer being “deemed Insolvent” under this process will not have any implications for other definitions of insolvency, such as in the Companies Act or Bankruptcy Act, to avoid unintended consequences. The general scheme also provides for a historical employer deemed insolvent application. I will give more detail on that when I discuss the detailed provisions. Some further technical changes to the Act are also proposed to improve its operation.

There are four main policy objectives of this general scheme. The first is to ensure Directive 2008/94/EC is fully transposed into Irish law. This will ensure that employees of employers who do not wind up their business formally will benefit from the directive’s protections. The second is to ensure the scheme’s operation is in alignment with broader Government policy on personal insolvency. The third is to further improve the operation and administration of the scheme by reducing policy uncertainty in how the salary ceiling applies to certain payments. Finally, we want to ensure that Circuit Court awards for gender discrimination are brought back within the ambit of the scheme.

The scheme itself is comprised of 27 heads, divided into six Parts. I will provide a brief overview of its main aspects. Part 1 deals with the standard Short Title and definitions used in the Bill. Part 2 inserts new definitions into the principal Act, that is, the 1984 Act. It also inserts a provision to ensure that the statutory salary ceiling applies to all types of payments from the scheme and will specify how that ceiling is applied. Part 3 provides for a new employer deemed insolvent application. This will allow the Minister to deem an employer insolvent where they cease trading without formally winding up their business. This will be subject to certain checks on employer status and will enable employees of those employers to apply for payment from the scheme. This is intended to address the Glegolajudgment by extending the protections of the Act to those employees.

Part 4 provides for the historical employer deemed insolvent application. This will cover employees who were unable to access their directive entitlements for payment of moneys owed to them during the period from October 1983 up to the commencement of this Part. This historical employer deemed insolvent application will be open for applications for the first two years following the Bill’s commencement.

Part 5 expands the scheme’s coverage to another category of employee. These are employees of sole trader employers who entered into personal insolvency arrangements introduced in 2012 as an alternative to bankruptcy. Where moneys are owed to such employees and they receive only a proportion of those moneys under the relevant insolvency arrangement, they will be able to claim the balance via the insolvency payments scheme. We understand these cases are extremely rare but we believe it is appropriate to make this change.

Part 6 allows for the making of regulations for Revenue to share employer data for the purposes of assessing employer deemed insolvent applications. It also specifies the decisions that are not appealable to the WRC for technical reasons. Finally, it amends the Employment Equality Act 1998 to ensure that Circuit Court awards for gender discrimination are covered under the insolvency payments scheme.

I hope this overview has been of benefit to the committee. Parts 2 to 4, inclusive, of the general scheme will complete the proper transposition of Article 2(1) of the directive. These proposals reflect the recommendations of an interdepartmental working group that examined the issue in 2023. The Department published that working group report and I understand it has been made available to the committee.

We recognise that this general scheme is quite intricate. It will be difficult for employees to understand and we do not expect them to have to do so. In this regard, we have been working closely with our colleagues in the Department of Social Protection on how we can make the expanded scheme operational. Our shared aim is to make the customer journey straightforward for employees who may need to avail of the employer or historical employer deemed insolvent applications.

If the general scheme ultimately proceeds through the legislative process to enactment, we will undertake a communications campaign to ensure that people who may be entitled to claim are made aware of those entitlements and how to access them. We will make that process as easy as possible while also making sure we protect the public purse. My colleagues and I are happy to take any questions the committee may have.

Maurice Quinlivan (Limerick City, Sinn Fein)
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I thank Ms Breathnach for her opening statement. I now invite members who wish to contribute to do so. As the committee will be aware, we have a rota in place so please indicate and I will call each member in. Deputy O'Reilly is first.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I thank Ms Breathnach for coming in today and providing that information this morning. I have a couple of questions. This is quite technical but in respect of the gaps identified and referenced in the submission and discussed in the many meetings of the interdepartmental group, is the Department satisfied they all will now be covered and the directive will be fully transposed in a way that were that case to be taken again, the court would simply say the work is done?

Ms Dara Breathnach:

Yes, we are absolutely satisfied that the gaps will now be filled. In fact, we believe our proposals slightly exceed the minimum terms of the directive because the directive would have required a finding that an employer has definitively closed down. As the committee knows, that is quite difficult to do. We felt we would not be able to do that at any jurisdiction below the High Court, which is where company law is generally dealt with. We believed if we did something slightly different and allowed for this, deemed for a highly specific purpose, it would exceed the requirements of the directive.

It is better for access for justice for the employees because they are not put through the significant expense that would be involved in undertaking a High Court action.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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That goes towards my next question. Ms Breathnach referenced the need to make the scheme operational for workers. I know that work is not finished and I am not looking for a run-down on that. In engaging in the process, will it be the case that a worker will need legal representation or is it the intention that once it is done, it will be easy and accessible? Will it work through a website? How is it envisaged? I am not looking for chapter and verse but as Ms Breathnach says, it is intricate and complicated and the last thing we want is people who have an entitlement looking at the process thinking they would rather not as they need it but cannot engage with it. If Ms Breathnach could flesh that out for us it would be excellent.

Ms Dara Breathnach:

We agree 100%. We do not want it to be the case that somebody looks at it and thinks that even though it is only however many hundred or thousand euro, they cannot do it. This should be something that a person can make their way through themselves. We will be providing very clear information. We have been working with our colleagues in the Department of Social Protection about what the process will look like. We will be looking at a form that is to be submitted. Applicants will need to make an initial application to their employer and if the employer does not respond or make the payment after a certain period of time and we are looking at eight weeks, they should send that together with the form and statutory declaration to the Department of Social Protection. From the applicant’s perspective that should be pretty much a one-and-done scenario. There will be a lot behind it and as the Deputy can see, the provisions are really detailed. However the employee should not have to see them. Some people may choose to look for legal representation but we do not think they should have to.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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That is where my interest is, that is, whether they can do it without legal representation. Unfortunately and Ms Breathnach has seen this herself, where she or I might say that is handy enough, it is a form and we can log on and fly through it, I would not like to think any person might say to another - and we all know the incidents I am referring to - that they do not need to have legal representation but would be better off having it and that slices off what might be a very small amount of money but is probably a lot to that person. The more easily accessible and plain the language is the better. While there is going to be a communication strategy, that is essential as we want people to be able to access this. I am pretty sure I know the answer to this next question but I will ask it to be on the safe side. Does this cover only the statutory entitlements and not anything the employee or worker might have by way of a collective agreement or enhanced redundancy payments or anything like that?

Ms Dara Breathnach:

To clarify for the record; redundancy is not covered in this because it does not need to be. Redundancy is already covered by separate legislation. An applicant does not need the requirement of employer insolvency to access the redundancy payment scheme in the same way that one does for the insolvency payment scheme.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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This covers holidays and any other incidentals that are-----

Ms Dara Breathnach:

Exactly. Certain pension payments are also included and those can get quite involved.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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Anything to do with pensions - and I have one, as we all do - gets very complicated. To go in to that for a moment as that is where I envisage a person might need some kind of representation or someone to help them, pensions are very complicated and it is easy to see the money when you get it but the operation of pension schemes can be extremely complex. I have a small concern where a person might have entitlement to something to put into his or her pension to bring it up to a certain level. In that instance, does Ms Breathnach think it can be simplified and that a person might be able to use it without professional training? Pensions are so difficult and everyone's pension is different. It is so difficult.

Ms Dara Breathnach:

Pensions are certainly complex area but in this particular case, it would not be a question of bringing the fund to a specific threshold but one of any unpaid employer contributions. To be perfectly honest, we feel it is relatively unlikely, as it stands, that most employers in this situation would be providing pensions. That will inevitably have some change with the introduction of auto-enrolment but when it comes to auto-enrolment, the amounts that are owing should be extremely clear. It will be a question of the amount owing from the insolvency payment scheme.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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That is excellent, I thank Ms Breathnach. Part 4 of the historical employer deemed insolvent application will go all the way back to 1983. How many cases does Ms Breathnach think apply? It is possibly unknowable.

Ms Dara Breathnach:

It is virtually unknowable. The reason for 1983 was because that was supposed to be the transposition date of the original directive. We then got very clear legal advice that this failure has subsisted since 1983 and therefore, we need to make provision for the people who might be affected by that. We have gone through some modelling work with the Department of Social Protection to try to put some numbers on it and estimated there could be in excess of 4,000, coming up to 5,000 applications. That is over a 40-year period. Ultimately, we are not sure it will come to that level. That was our low-end estimate but there will be many people who at this point simply will not be bothered chasing.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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I can appreciate that. In the event that there is an insolvency or deemed to be an insolvency and the employer is around but abroad, will it be necessary for the worker to make extensive efforts to contact them if they are in another jurisdiction? If they are simply not around, will this kick in?

Ms Dara Breathnach:

If the employer is known to be abroad and is a private individual, it would be prudent to try to serve them. However, I emphasise that there will be very few sole trader individuals in this circumstance. What we have provided for is that the employee will serve on the last known address of a company. This tends to be companies that finish business without winding up and it is very often because they do not have the assets to justify a liquidation.

Louise O'Reilly (Dublin Fingal, Sinn Fein)
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In the event that it happened that the person simply walked away and went to another jurisdiction, that would simply kick in? They do not have to come back or make contact or anything like that, they can be deemed as absent? Those are all of my questions. I apologise, I have to go, I am attending an event in Buswells Hotel. I thank the witnesses.

Maurice Quinlivan (Limerick City, Sinn Fein)
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I call Deputy Stanton.

David Stanton (Cork East, Fine Gael)
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It is nice to see Ms Breathnach again and I thank Mr. Hogan and Mr. Byrne for being here. I congratulate them on the work they have done on this. As they said, it is quite complex. It is very technical. We have to get our heads around it. The submissions we have received from the various interest groups have been positive in the main. One issue has come up in head 5 and that is to do with the €600 statutory cap. I am always a bit nervous about locking caps into primary legislation. Previously, when I was involved with other legislation, what I tried to do and did successfully in some cases, was to give the Minister the power to change that by statutory instrument. I am not sure if that is possible here. Is it something the Department has considered?

Ms Dara Breathnach:

It absolutely is. We will be echoing the cap. As the Deputy is aware, the statutory cap applies both in relation to redundancy payments and to those insolvency payments.

We are retaining a ministerial power to change that cap by order. That will always be kept in mind.

David Stanton (Cork East, Fine Gael)
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Ms Breathnach may be aware that SIPTU also has another issue with respect to the cap itself. It maintains that it disproportionally impacts people on higher wages. I am not sure whether she is aware of that or seen that calculation. Can she comment on that? What are her views in this regard?

Ms Dara Breathnach:

Inevitably, it impacts people on higher wages. It is a floor-level protection and something that is kept under review.

David Stanton (Cork East, Fine Gael)
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IBEC is concerned about the uncertainty of whether an individual is an employee and how that can be proved. There are certain provisions in the legislation that will require an employee to provide evidence. Can Ms Breathnach comment on that? That is one of the only concerns IBEC had.

Ms Dara Breathnach:

When it comes to employment status, which is a bit outside my bailiwick, it is my understanding that a person whose employment status is not entirely clear can make an application to the Department of Social Protection for a determination as to whether he or she is an employee. I do not recall any case in which there has been a claim to the insolvency payment scheme where the employment status of the individual was actually an issue. It would be rare. The scope section in the Department of Social Protection or, sometimes, Revenue, as the case may be, should be able to determine whether or not a person is an employee for the purposes of these protections.

David Stanton (Cork East, Fine Gael)
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Can Ms Breathnach give us an indication of the envisaged budget for this?

Ms Dara Breathnach:

There are a number of different things, including a provision for up to €14.5 million for the historical employer-deemed insolvent applications and another provision of €500,000 per year, plus a cost of €172,000 per year for Department of Social Protection resources for the processing. We also had a provision of up to €500,000 for necessary IT development, but the Department has been able to deliver that at a significantly lower cost. There is a possibility of certain minor savings annually through the application of the cap. We are accessing those savings at approximately €4,500 per year.

David Stanton (Cork East, Fine Gael)
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Another consideration SIPTU had concerned the time limit for the historical employer-deemed insolvent application. It recommends extending the time limit to six years. Does Ms Breathnach have a view on that? Has she seen that?

Ms Dara Breathnach:

It is certainly something that could be considered. We believe that with a good communications campaign, we will be able to emphasise to people the urgency of getting their paperwork and application in order to get their money as soon as possible. Six years would be excessive. While it would not quite leave an open-ended burden on the Social Insurance Fund, it would certainly create greater uncertainty than we would like.

David Stanton (Cork East, Fine Gael)
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Maybe a compromise can be reached in this regard. The current time limit proposed is two years, is it not?

Ms Dara Breathnach:

It is.

David Stanton (Cork East, Fine Gael)
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Maybe a compromise can be reached to extend it to three or four years.

How many employees does Ms Breathnach envisage will be impacted and benefit from this new measure per annum?

Ms Dara Breathnach:

We have assessed that to be approximately 220 people per annum.

Richard Bruton (Dublin Bay North, Fine Gael)
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I thank the witnesses for their work on this issue. I know this Bill was the cause of quite a bit of angst, with some high-profile liquidations that were not liquidations.

What are the custom and practices with respect to the sole trader provision? A lot of sole traders just cease trading and do not enter into personal insolvency arrangements. They just wind up. Is this requirement of a personal insolvency arrangement statutory? In a case in which someone winds up and does not go through all the paperwork of insolvency and so forth, can it be applied in that instance?

Ms Dara Breathnach:

There are a couple of different interlinking provisions in this regard. An employee will be able to apply to have his or her sole trader employer deemed insolvent. In that case, that employee will come under the deemed insolvent arrangements. If that same sole trader, rather than just closing the doors, actually goes into a personal insolvency arrangement, there is usually an element of debt forgiveness within that, as the Deputy will be aware. Various creditors, including employees, may vote to accept something that gives them 10 or 30 cent on the euro because it is better than nothing. In that case, where such an insolvency arrangement is entered, the employee will be able to get the balance of what is owed to them from the insolvency payment scheme. If the sole trader does nothing, the employee will go under the employer deemed insolvent application. If the employer does everything right and does the insolvency arrangement, the employee can still get the balance through that scheme.

Richard Bruton (Dublin Bay North, Fine Gael)
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That brings me to another question. Ms Breathnach said the implications of being deemed insolvent under this provision are ring-fenced from any other implication. I imagine, unless there is an aggravated end to a business, that employees of a sole trader might not want to put their hand up to say their employer should be deemed insolvent. They would fear phraseology like that, which has pretty considerable implications for the reputation of the person with whom they had been working. How does the Department intend to prevent a lot of, what they call, the chilling factor?

If this is something to be used – and it should be used in cases where people, perhaps, are missing their rights - absolute assurance needs to be given that there will be no knock-on effect in other realms. Words like "deemed insolvent" sound, in essence, quite aggressive in their presentation. Should we be using words similar to “a wind-up situation” or “applying for a recognition of a wind-up situation”? I refer to the whole issue of insolvency in the eyes of other people, although people's attitudes are changing. We are not like America where one failure deems someone fortified for the next success. We have not quite risen to that positive attitude yet. I am worried that a lot of workers will end up not receiving this payment because they will not want to rock the boat, as they see it.

Ms Dara Breathnach:

I fully appreciate that insolvency is still somewhat of a loaded term for some people. It is important to recognise, however, that no public statements about solvency or otherwise will be made. We are not going to be publishing that a specific sole trader was deemed insolvent for these purposes. It is solely to vindicate the rights of the employees under the 1984 Act. Nothing will be made public.

Richard Bruton (Dublin Bay North, Fine Gael)
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Will the employer, that is, the former sole trader who was the employer, be notified that this happened?

Ms Dara Breathnach:

He or she will be notified in the first instance by the employee who will be seeking the money owed and be asking to be paid.

If they cannot pay, or pay all of it, at that point the employee can apply to the Department of Social Protection on a form that will be specified, including what they sent to the employer, essentially as a bill for what they were owed. The Department of Social Protection will then carry out its checks.

Richard Bruton (Dublin Bay North, Fine Gael)
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Could an employer who discovers that they cannot pay, but wants to process the thing, trigger this process which would be private and only between themselves and their employee, instead of having it the other way around, where the employee has to trigger this? As Deputy O'Reilly said, there is something of a burden in that and there is probably a psychological issue for people. Could an employer who wanted to do the best by everyone have some sort of a process which would not involve them going through a personal insolvency arrangement?

Ms Dara Breathnach:

There is no provision for that. We have the existing State insolvency arrangements for individuals and, of course, bankruptcy. As we know, we are trying to move away from bankruptcy.

Richard Bruton (Dublin Bay North, Fine Gael)
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Are many of these are statutory entitlements, such as holiday pay?

Ms Dara Breathnach:

They are.

Richard Bruton (Dublin Bay North, Fine Gael)
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The Department is still requiring an application process and it is not allowing the employer to trigger this process where they recognise the statutory entitlements of their worker but are just not in a position to meet them at that moment. Would it be possible to consider that by way of amendment?

Ms Dara Breathnach:

I think it would be much more complicated and might bring certain issues of moral hazard into play. It is not something we have considered in any particular detail because in the vast majority of cases, it does not even happen with sole traders. The huge issue we have is with companies. We have few with sole traders.

Richard Bruton (Dublin Bay North, Fine Gael)
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Does Ms Breathnach mean that everything is paid up with sole traders?

Ms Dara Breathnach:

That is what it appears to us, and we are certainly not hearing of cases where there are sole traders walking away and leaving very significant debts.

Richard Bruton (Dublin Bay North, Fine Gael)
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I just thought that it would not be that unusual for an employee to be left without something, if a business had to close its doors. It would be worth it for the Department to check that out with some of the well-known stakeholders who might have knowledge of these things.

Ms Dara Breathnach:

It can certainly be considered. It is very much something that has not been raised with us and we have had some consultations but we can certainly give further thought and consideration to that.

Garret Ahearn (Fine Gael)
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The questions I was going to ask have already been put, so I would only be doubling up. I thank the Cathaoirleach.

Maurice Quinlivan (Limerick City, Sinn Fein)
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That is fine and I call Deputy Stanton.

David Stanton (Cork East, Fine Gael)
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I want to get back to the €600 cap. I have seen some stuff from SIPTU, for instance, where it talks about awards from the Workplace Relations Commission, WRC, or the Labour Court. It reckons that the reason the salary cap awards are disproportionate compared to other such awards is that when one applies for the awards, it is because it was not the intention of the Act that it would be applied to those awards. It talks about where some awards from the WRC and the Labour Court are calculated by reference to a worker's salary but many are not - for example, when an award is compensatory, as distinct from being related to wages owed. Can Ms Breathnach comment on that proposal?

Ms Dara Breathnach:

It is a little bit complicated, as these things often are. There had been a long-standing procedure whereby all payments which were made under the insolvency payment scheme, which include WRC and Labour Court awards, were then calculated by reference to the proportion of the cap to the normal weekly wage, where that normal weekly which exceeded €600 per week. There was then a specific case, the Brady case, which, because the award was not explicitly linked to the salary level, the cap was applied and the person applied to the courts. The High Court found that the cap had been incorrectly applied on the basis that it was not explicitly linked to the salary level. Some of our provision here is to restore that link, even where the award itself does not explicitly link it to the salary level, because the alternative is that there could be two people on exactly the same salary, in exactly the same circumstances, where one award explicitly makes reference to the salary and to compensation in those terms, which is subject to the cap, and the other one does not. It is purely down to the detailed wording of a particular adjudication. We believe this is very unfair and that, therefore, there should be a universality where one is looking at applying the cap.

David Stanton (Cork East, Fine Gael)
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I thank Ms Breathnach and the Cathaoirleach.

Maurice Quinlivan (Limerick City, Sinn Fein)
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Does anybody else wish to make a contribution? No. That concludes our consideration of this matter today. I thank the witnesses for assisting the committee in the consideration of this important matter. That concludes our business in public session. I propose that we go into private session to consider other business. Is that agreed? Agreed.