The objective of this directive is to guarantee payment of outstanding claims to employees in the event of their employer’s insolvency. The Directive applies to employees’ claims arising from contracts of employment or work relations and existing against employers who are in a state of insolvency within the meaning of the Directive. Member States may, by way of exception, exclude claims by certain categories of employee.

Guarantee institutions shall guarantee payment of employees’ outstanding claims relating to pay for the period prior to the onset of the employer’s insolvency, the date of the notice of dismissal or the date on which the contract of employment was discontinued on account of the employer’s insolvency. Member States have the option of limiting the liability of these institutions under specified conditions. Member States shall also take the measures necessary to ensure that non-payment of compulsory contributions due from the employer, before the onset of his insolvency, to their insurance institutions does not adversely affect employees’ benefit entitlements in respect of these insurance institutions in as much as the employees’ contributions were deducted at source. The interests of employees and persons having already left the undertaking at the date of the onset of the employer’s insolvency are protected as regards rights conferring on them immediate or prospective entitlement to old-age benefits, including survivors’ benefits, under supplementary company or inter-company pension schemes outside the national statutory social security schemes.

Member States may apply or introduce measures which are more favourable to employees. They have the option of taking measures necessary to avoid abuses or to refuse or reduce the liability or the guarantee obligation if it appears that fulfilment of the obligation is unjustifiable because of the existence of special links between the employee and the employer.

In 2000 the Commission adopted the Communication concerning the Directive on employee protection in the event of employer insolvency (80/987/EEC). The Commission re-examined the directive in order to decide whether it needed to be amended. One of the difficulties the group of experts identified included cases of transnational insolvency: in the event of a transnational insolvency, the group of experts raised the question of how it would be decided which guarantee institution would be responsible for paying claims. The group agreed that these problems must be addressed at Community level.