Compensation for company closure

Vincent Mifsud writes:

I am a director of a company in the manufacturing industry that was forced to cease operations because of the inability to compete successfully with cheaper imports from the EU after Malta became a member in 2004. The operations were stopped in June 2007 and all the company's employees were laid off.

At a recent extraordinary general meeting of the company, shareholders made enquiries as to whether the EU contemplates some kind of financial compensation for the owners of companies in similar situations.

Moreover, as a director of the company, I would like to extend this query even further. Are the employees of the company entitled to some compensation?

For the record, please note that I am not an employee of this company, merely a director.

The EU does not operate compensation schemes in cases where companies cease operations because they cannot compete successfully with imports from other EU countries or, indeed, from outside the EU. There is no such compensation for the owners of such companies. Nor is there a compensation scheme for workers.

The assumption is that, in an open and free market, as is the EU single market, competitive forces prevail and investment and employment will typically shift to those sectors that are best able to compete. Indeed, if anything, EU rules promote free competition, free movement of goods and services and generally rule out the use of substantial state aid to support companies that would otherwise be uncompetitive.

We have seen this phenomenon happen in Malta over recent years as our country adapted to EU membership, with a number of companies folding up but several others opening up as investment shifted from sectors that are less viable to others that are more viable in a fast-changing economy.

This process was taking place in any case as a result of globalisation but it is fair to state that it was further accelerated as a result of EU membership, which made the need to restructure and compete inevitable.

Thankfully, in our country, this process unleashed substantial dynamism and resilience, such that, despite the closure of some companies with the consequent loss of jobs, many more jobs have been created than were lost thanks to new investment and reinvestment in other companies.

This explains why unemployment has gone down rather than up.

Although not in the form of compensation to owners or workers, there is nevertheless significant EU funding support that is paid out to help EU countries go through this process of restructuring and to help affected workers reintegrate into the labour market. Two in particular may be underscored:

The first is the EU funding that is available to help EU countries, such as Malta and Gozo, that are less economically advanced than others.

This assistance is intended to help their economies better adapt to competition. Funds are managed by national authorities and are invested in areas such as schemes to promote competitiveness, investment in infrastructure, including industrial estates, investment in education and investment in training of human resources.

The main funds are the European Regional Development Fund (ERDF) and the European Social Fund (ESF). Malta is set to obtain some €855 million from these funds until 2013.

The second is the European Globalisation Fund (EGF) which supports workers who have lost their job as a result of the forces of globalisation, especially where their company has relocated outside the EU as a result of globalisation. But this is not a direct compensation to workers as such.

In such cases, the funding is used to create tailor-made support solutions that help the affected workers retrain and reintegrate into the working world as soon as possible in similar or in better jobs.

Malta recently benefited from this fund to the tune of some €700,000 as a result of the lay-off of 675 workers from two leading textile companies in Malta. This money is being administered by our national employment agency, ETC.

Finally, specifically on employees, mention should be made of an EU law which provides certain rights to workers in cases where their employer goes into insolvency and they still have outstanding salary claims. As a result of this law, employees may claim payment of outstanding dues arising from contracts of employment or employment relationships and existing against employers who are in a state of insolvency.

Readers who would like to ask questions to be answered in this column can send an e-mail, identifying themselves, to contact@simonbusuttil.eu or through www.simonbusuttil.eu.

Dr Busuttil is a Nationalist member of the European Parliament.