Case C-198/13, Julián Hernández – testing the width of a state’s wide margin of appreciation with a wage guarantee fund [judgment 2014, ECLI:EU:C:2014:2055]

Where a Spanish employer becomes insolvent and a court finds that contracts of employment have been terminated in a way which the law deems null and void, can the dismissed employees bring a claim against the state’s wage guarantee fund in accordance with the EU’s employer insolvency Directive 2008/94/EC? Or is the Spanish State correct that in this area it enjoys a wide margin of appreciation, and legislation only mandates a pay-out where the termination of employment has been obviously unfair?

Facts
Victor Manuel Julián Hernández is one of the many people who are listed as claimants in this action against the Spanish State.

In essence, the action relates to unpaid wages that accrued during legal proceedings where employees contested the termination of their contracts of employment.

Under Spanish statutory law, employees of a provisionally insolvent company who contest a dismissal can ask the Spanish state for their wages to be paid. There are two conditions governing a pay-out. The first condition is that 60 working days must have elapsed from the moment a claim contesting the termination has been lodged up to the moment in time when judgment is handed down. The second, expressed in Article 57 of the Estatuto del los Trabajadores, indicates that payments are to be made in situations where the employment contract has been terminated in a way that was obviously unreasonable. If these conditions are complied with, then the employee can ask the Spanish state’s wage guarantee fund (the FOGASA) to pay a part of his unpaid wages, and another part of his unpaid wages will be paid directly by the Spanish government.

The Spanish State (in its delegated form of the subdelegación del gobierno de España en Alicante) refused to honour the claim brought by Julián Hernández and the other workers. The matter was brought before the Benidorm District Labour Court [Juzgado de lo Social 1 de Benidorm].

The Spanish State submitted that its refusal was legitimate. The law states that payments are only to be made where a contract has been terminated in an apparently unreasonable way. In this particular case, a judge had only found the dismissal to be null and void. The difference was not just a question of semantics because different remedies are offered to an employee according to each situation. That is to say, where the termination of a contract has been deemed to be null and void, the employee has the right to reinstatement and return to the workplace. However, where the termination is unfair, the state dissolves the contract of employment and compensation is paid.

The claimant employees refuted the Spanish state’s submission. In their view, there was no meaningful difference for employees of an insolvent company between a judgment for a null and void termination, and a judgment that did not establish an apparently unreasonable character because, at the end of the day, it was a court judgment that dissolved the contract of employment as if an apparently unreasonable character of the termination had been found. To decide otherwise, the workers submitted, would create discrimination between people so as to contravene the principle of equality enshrined in: Article 14(1) of the Spanish Constitution, Article 20 of the EU Charter, and recognised as a general principle in EU law.

As Judge Vegas Ronda of the Benidorm Labour Court explained, when a company closes its doors – and notwithstanding any finding of nullity made by a judge in respect of the contract’s termination – the duty on the employer to reinstate the employee is changed so that the contract of employment is dissolved. The employee can receive not only compensation but also the payment known as the ‘salarios de tramitación’. The judge also pointed out that it was common legal practice for the judgments of Spanish courts to make not only a finding of nullity but also simultaneously dissolve the contract of employment thereby saving time and without the need to wait for the judgment to be enforced.

The judge in the Benidorm Labour Court also pointed out a 2010 amendment to the Spanish legislation which was applicable in the event that, as in the present case, the employer had justified the dismissals on commercial grounds. The judge explained that before the 2010 amendment, if an employer failed to give an employee written notice or did not pay compensation to an employee, then any such dismissal would be declared null and void. The judge explained that this was no longer the case: after the 2010  amendment, any such failures of an employer to follow the correct procedure would lead to a finding that the worker’s dismissal was obviously unfair.

Besides explaining the latest Spanish legislation, the Benidorm District Labour Court attempted to explain Spanish case law. According to the Spanish Constitutional Court’s case law, it is the employer that has a claim as a creditor against the state because it is thought that the employer should not have to carry the consequences of legal delays. Equally, the employee is also viewed as a creditor where the wages accrue during legal proceedings contesting the correctness of the termination of employment but where wages are not paid because of the employer’s insolvency. The Benidorm Court indicated that (unnamed) legal commentators could not agree on whether the nature of this claim was really a type of personal subrogation of rights that could generate a claim. But that uncertainty aside, the Benidorm Court also mentioned the general approach which had been taken by the Spanish Constitutional Court. Namely, when it came to interpreting the provision which allowed the employee to claim his wages, that provision was to be interpreted narrowly and applied only in the situation that was expressly specified in the statute – in other words, only in situations where there was an obviously unfair termination of the contract. Consequently, the provision on which Mr Hernández sought to rely would not apply in situations where the termination was null and void.

Questions Referred
According to the Curia website, the Benidorm District Labour Court [Juzgado de lo Social 1 de Benidorm] has asked:

1. Do the rules contained in Article 57 of the Workers’ Statute in conjunction with Article 116(2) of the Recast Text of the Law on Employment Procedure, which provide for the practice operated by the Kingdom of Spain of paying directly to workers, in the event of the insolvency of their employer, ‘salarios de tramitación’ falling due beyond the 60th (now the 90th) working day after the date on which the action for unfair dismissal was brought before the competent court, fall within the scope of 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, in particular Articles 1(1), 2(3), 2(4), 3, 5 and 11 thereof?

2. If the reply is in the affirmative, would the practice operated by the Kingdom of Spain of paying directly to workers, in the event of the insolvency of their employer, ‘salarios de tramitación’ falling due beyond the 60th (now the 90th) working day after the date on which the action for unfair dismissal was brought, but of doing so only in the case of dismissals which have been declared by a court to be unfair and not in the case of dismissals which have been declared by a court to be null and void, be regarded as being contrary to Article 20 of the Charter of Fundamental Rights of the European Union and, in any event, the general principle of equality and non-discrimination under European Union law?

3. In connection with the foregoing question, may a court such as the referring court refrain from applying a provision which permits the Kingdom of Spain to pay directly to workers, in the event of the insolvency of their employer, ‘salarios de tramitación’ falling due beyond the 60th (now the 90th) working day after the date on which the action for unfair dismissal was brought, but only in the case of dismissals which have been declared by a court to be unfair and not in the case of dismissals which have been declared by a court to be null and void, in circumstances where there do not appear to be any objective differences between the two types of dismissal within the context at issue (‘salarios de tramitación’)?