An analysis of the treatment of employee pension and wage claims in insolvency and under guarantee schemes in OECD countries: comparative law lessons for Detroit and the United States.

• Author: Secunda, Paul M.
• Position: Organization for Economic Cooperation and Development - Appendix 9. France, with footnotes and tables, p. 954-997

9. FRANCE (343)

   Pensions

   This is not a central topic in France, because most pensions and other "social security" benefits are provided by statutory schemes. Therefore, risks related to insolvency are marginal and concern a very limited part of the overall pensions granted. Private occupational pension plans, provided by employers, are not developed in France.

   There is no equivalent state guarantee for pension benefits as there is for wages as described below. Nevertheless, some occupation pension schemes are offered to the employees, either by the effect of collective agreements or by a unilateral contract by the employer. Except in some exceptional cases, those schemes are externalized, which means that they are managed by private insurers.

   The legal configuration is usually a triangular one: the pension scheme is set by a collective agreement or a unilateral decision of the employer that commits the employers towards his employees; the contributions and the benefits are managed under a "group insurance contract" signed between the employer and an insurance company. The French statutory law contains some provisions about the duties of the employers and of the insurers to make sure that the benefits will be paid.

   In case the employer's insolvency in these situations, French courts admit that the benefits which are due to the employees will be paid--to a certain extent--by the AGS (the compulsory system of insurance covering the wages in cases of insolvency described below). But the courts do not require the AGS to cover the contributions that have not been paid to the insurer by the employer in case of insolvency.

   Unpaid contributions to the statutory schemes have a privileged status in insolvency. By contrast, unpaid contributions to external pension funds are not privileged.

   Other Employee Benefits

   As far as how wage claims are treated during insolvency proceedings, both the French Civil Code and Labor Code have applicable provisions. Under the priority (privilege) instituted by the Civil Code, employees can apply it against the employer, even if no bankruptcy proceedings have been started. This priority covers the last six unpaid months (wages, severance pay, and damages for unfair dismissal). The Labor Code institutes a "super-priority" (superprivilege), whereby employees' wages claims are paid before even tax claims. This priority only covers the last sixty days before a bankruptcy case is opened, up to EUR 6172. This scheme under the Labor Code also includes some termination pay (notice period in case of permanent contracts; severance pay in case of fixed term contract). The scheme also covers vacation pay up to a special cap (thirty days' wages).

   The Assurance Garantie des Salaires (AGS), the French wage guarantee scheme, covers a wide range of wages claims, including termination pay, severance pay, damages for unfair dismissal and other claims that can be related to the contract of employment (for instance some benefits due to the employees under a private plan contracted by the employer), either due to the employees before the bankruptcy proceeding is opened and during the bankruptcy procedure. The AGS insures wage claims up to 74,064 EUR and it is subrogated to the employees' rights in the insolvency proceeding, and it can avail itself of both the Civil Code "privilege" and of the Labor Code "superprivilege."

10. Germany (344)

    Pensions

    Pension claims receive no priority or preferences under the German Bankruptcy Code. Germany has adopted a flattened hierarchy of creditors where they are only either secured or unsecured creditors, and there are no exceptions for special groups like employees. The Insolvency Code of 1994 abolished all preferences.

    A statutory insolvency insurance system administered by a mutual insurance association called the Pension Guarantee Fund (Pensions-Sicherungs-Verein Versicherungsverein aG-PSVaG) (PSVaG) that protects current and future beneficiaries in the event of employer insolvency. The PSVaG is financed via annual insurance premiums paid by employers who provide occupational retirement provisions. In 2006, the financing mechanism of the PSVaG was changed from a partially funded contribution model to a system of full capital coverage. The insolvency insurance covers pensions in payment and vested rights. The PSVaG is not required to pay monthly pensions in excess of EUR 7875 (figure for 2012). Certain rights (such as benefit increases granted in the two years immediately prior to insolvency) are excluded from the insolvency insurance coverage if it is considered that the aim of granting those rights was to pass the cost to the PSVaG. Insolvenzgeld (insolvency payments) are not paid by government, but by the Federal Labour Agency, financed by contributions and managed in a tripartite system of self-government.

    The PSVaG replaces all beneficiaries as creditors of the employer and becomes a major creditor. In return, any securities or funds that are linked to the protected pension obligations are transferred to the PSVaG by virtue of law.

    Occupational pension insolvency is regulated by sections 7-15 of the Gesetz zur Verbesserung der betrieblichen Altersversorgung. Occupational pensions are protected because employers are obliged to have insurance in case of insolvency.

    Other Employee Benefits

    As with pensions, there are no preferences or priorities granted for wage claims (vacation, severance, or termination pay).

    There is a wage guarantee government fund called the Insolvenz-Ausfallgeld-Fonds. The government wage guarantee fund, sourced by employer premiums, pays last three month of wages. Having paid the "insolvency money," the Federal Labour Agency is subrogated to the claims of employees, but without any preference (just like the employee claims).

11. Greece (345)

    Pensions

    Only state-run pension claims in relation to the Social Security Foundation (the largest of the public and semi-public pension funds in existence) have priority. Such claims rank sixth in priority according to Article 154 of Law 3588/2007 (the Insolvency Code). As with wages discussed below, these claims are limited to amounts arising within the two years before insolvency. All other pension claims, including those owed to occupational pension funds, are unsecured.

    Greece does not have a pension payment guarantee fund or guaranteed insurance for pension claims during insolvency.

    Other Employee Benefits

    According to Article 154 of Law 3588/2007, employee wage claims (including severance, termination, and vacation pay) are ranked third among preferred creditors in Greece. Wage claims arising in the two years prior to commencement of proceedings, including vacation, severance and termination pay, are preferred. However, claims for compensation due to termination of employment relations are not subject to any durational restriction.

    Greece has established the Fund for the Protection of Employees from Employer's Non-Reliability for the protection of wage claims. The Fund is financed by compulsory contributions made by employers (0.15% on employees' wages) and state funds, and is self-funded by proceeds from investments of Fund-owned assets. The Fund provides for a maximum benefit of three months wages payable for the six-month period before insolvency. Claims deriving from termination of the employment contract are excluded. The State is subrogated to the same claims that employees have in insolvency proceedings.

12. Hungary (346)

    Pensions

    Pension claims are not generally given priority in Hungary because there are no private pensions. There is only one common pension system, which is partly state-owned, and the pension funds are fully state guaranteed.

    At the start of the insolvency procedure, the assets belonging to the pension fund must be transferred immediately to the liquidator. These assets must be handled separately, and can be used to fulfill other liabilities only after fulfilling obligations in respect of members and survivors.

    Membership in the Hungarian Pension Guarantee Fund (GF) is mandatory for all pension funds. The GF is a statutory body financed by mandatory quarterly contributions from all pension funds in the range from 0% to 0.4% of the contributions paid by the pension fund members.

    The GF is responsible for the protection of the accumulated benefits in the case of liquidation of a pension fund. The guarantee to beneficiaries covers their total benefit amount, while the guarantee to contributing members is limited to the capital accumulated before the start of the liquidation process.

    Other Employee Benefits

    Employee wage claims have a limited priority over other insolvency claims under the law of Act LXVI of 1994 on the Wage Guarantee Fund (1994. evi LXVI. torveny a Bergarancia Alaprol). The preference, which outranks only unsecured claims, extends to wages and the severance pay of employees who have given notice by the time of liquidation. There is no restriction on the wages that can be claimed, but severance pay is limited to six months' wages. There is no priority for vacation pay, termination pay, or traveling and other expenses.

    Additionally, a government wage guarantee fund (F varos Kormanyhivatala Munkaugyi) pays unpaid wages. The fund covers 100% of wages, as well severance pay equivalent to six months' wages. Employees receive compensation out of the fund if the liquidator is unable to pay for the employees' claims by the time of liquidation. The State is subrogated to the claims of employees in insolvency with the same priority as employees. The fund is funded both by employer taxes and government contributions.

13. Iceland (347)

    Pensions

    Iceland's pension scheme is based on two laws: Act No. 129 on Mandatory Pension Insurance and the Activities of Pension Funds, 1997, and Act No. 78 on Occupational Retirement Funds, 2007. Iceland's occupational pension is mandatory with all employees having twelve percent of their wages contributed to funds run by pension...