Directive 80/987/EEC was drafted to protect the lost earnings of employees subject to the liquidation of their employers, however when a higher management employee was later made redundant through company dissolution he was subsequently denied lost earnings under Spanish law on grounds that when adopting the effects of the Directive the government had chosen to exclude domestic servants from the guarantees afforded them, and yet applied that caveat when deciding his case in the Juzgado de lo Social (Social Courts).
Having challenged the judgment in the Tribunal Superior de Justice (Superior Court of Justice) it was argued that when applying the terms of Directive 80/987/EEC the legislature had relied upon Royal Decree No.1382/85 to deliberately deny higher management the rights afforded other employees through the pay guarantee fund, as established under art.33 of Law No 8/80 (‘The Employees’ Statute’).
This left the Court unable to fully address the claim without reference to the European Court of Justice for a preliminary ruling under art.177 EC, and so three questions asked:
1. Whether the terms of Directive 80/987/EEC included all employees of the Member States?
2. Whether the failure of the Spanish government to encompass higher management staff within the annexe excluding domestic servants, provided for prevention of a claim?
3. If the answer to question 1. was yes, should the payment should come from the guarantee fund or State compensation?
With consideration of the historic debate surrounding this contentious matter the Court held that when transposing the terms of the Directive the Member States should determine what constitutes employment under the meaning of national law, and where agreed those employees were to be protected under the effects of art.1(2) of the Directive.
In relation to the exclusion of higher management it was agreed that unless expressly contained in the annexe to Directive 87/987/EEC (later amended to Directive 87/164/EEC) those occupying such roles were entitled to received compensatory payment, while with regard to the source of payment the Court clarified that in similar instances it was the role of the Member State to devolve payment to the fund created, or if no such fund existed the compensation was due from the Member State itself, before reminding the parties that:
“[I]n so far as national law classifies members of the higher management staff as employees, a Member State cannot exclude that category of employee from the scope of application of Directive 80/987/EEC, as amended by Directive 87/164/EEC, if it is not included in the Annex to that directive.”