The issue which arises for Matthew concerns the function of direct effect with the following application of indirect effect or state liability if necessary. Direct effect is defined as any provision of the law of the European Union that automatically forms part of the national law of the member states . The principle was created in the Van Gend en Loos case , which concerned a strain of customs duties on imported urea-formaldehyde from West Germany to the Netherlands, which was a violation of Article 30 (TFEU) , Treaty of the Function of the European Union.
Based on the facts of Matthews case it is certain that Germany should have encompassed the Directive, as Mega Bank filed for bankruptcy in September 2016, two years after the Directive had been transposed to Member States. However, it is unclear whether EU law should take preference over Germany’s bankruptcy laws. If National law is sufficient then a claim couldn’t be brought as Germany’s current bankruptcy laws forbids Matthew from claiming outstanding wages. However, if the Law of the Member State does not cover the Directive then the principle of Direct and Indirect effect should be considered.
Firstly, Van Duyn v Home Office found that a directive can have Direct effect. So long as it fulfils certain conditions. The conditions have been developed throughout case law since the original case in 1974. As far as Matthew is concerned, he must prove that “the rights are sufficiently clear” expressed by Defrenne v SABENA . Directive 2012/65 does give a clear and indefinable provision requiring Member States to create a compensation mechanism for banking industry workers in case their employer goes bankrupt. Matthew’s case satisfies condition one. The second condition is presented in Pubblico Ministero v Ratti , which stated that “the deadline for transposition of national law must have passed” . The deadline for this scenario is the 31st December 2014 and given the fact the Member States have all decided that the current legislation will suffice, it is safe to assume that the implementation date has passed and Germany should have transposed the Directive into national law, thus satisfying the second condition for Matthew. The final third condition is “the defendant must be the State or an emanation of the State” , or Directives can only have vertical direct effect. The case which clearly establishes this principle was Marshall v Southampton and South West Area Health Authority . In Matthew’s case, the third condition is up for debate. On the one hand the bank can be considered an independent body as its not controlled by the bank, thus determining that Matthew would be unable to use direct effect as all three conditions would not be fulfilled. On the other hand, the definition of ‘state’ has expanded over the years. Recently the Court of Justice for the European Union clarified the third condition further in the case of Foster v British Gas . The Foster case sets out three additional criteria, established by the Court of Justice to determine if an organisation is an emanation of the State and whether vertical direct effect is enforceable. The three criteria can be summarised as 1) providing a public service; 2) the service is under the control of the State; and 3) having special powers beyond those that are normally applicable in relations between individuals . An expansion of these conditions derives from the case of National Union of Teachers v Governing Body of St Mary’s Church of England (Aided) Junior School . The Court of Appeal suggested that there might be bodies which did not satisfy the Foster criteria but were still constituted as emanations of the State , therefore private companies such as banks, which provide a public service could potentially be considered part of the State.
In regards to the Foster case criteria, Mega Bank does provide a public service to Germany, but does not possess any special powers and although it is unclear if it is under state control, it is unlikely. Meaning Matthew will be unable to claim vertical direct effect. Also Matthew cannot claim horizontal direct effect for Directive 2012/65, as the condition from the Marshall case in 1986. The Courts of Justice restated this point further in the Faccini Dori v Recreb Srl case . However, Matthew may be able to enforce his rights under the Directive through the principle of indirect effect.
Not all provisions of EU law are directly effective in all circumstances, and sometimes directives pose problems in relation to direct effect. Indirect effect is an alternative method of making rights enforceable because the relevant provision is not sufficiently clear, precise and unconditional. In the case of Von Colson and Kamman v Land Nordrhein-Westfalen , the Court of Justice created the arbitrary distinctions between Direct and Indirect effect. The Court of Justice’s judgement in the case stated that as national courts are part of the state, they are under an obligation to interpret national law consistently with EU law. This means that an person can enforce a law from the European Union against another person in a national court. For Matthew, this allows him to bring an action against Mega Bank in a national court as the Court stated it was the Member States’ obligation to achieve a result envisioned in a directive and to take all appropriate measures to ensure the fulfilment of that obligation . During case law, indirect effect has been used in a number of cases since and has been modified through the judgement in Marleasing SA v La Comercial Internacional de Alimentación SA . Then further in Wagner Miret v Fondo de Garantia Salarial . In Miret the Member States were obliged to set up a fund to recompense employees whose employers became insolvent. The only remedy for Miret was that the State should reimburse him for his losses since its failure to transpose the Directive had caused him his loss , thus adding more substance to Matthews case. The Marleasing case held that the law, even though it predated the Directive, it must be interpreted in accordance with the Directive . In Matthew’s case this is crucial as the existing German law is unchanged from before the Directive was issued, meaning that indirect effect can help Matthew overcome the weakness his case possessed in regards to direct effect. Miret stated that national law should be interpreted alongside EU law as far as possible. This interpretation is expanded and further clarified in the Pupino case. The Court of Justice in the Pupino case used the term contra legem, meaning ‘against the law’ , and when linked to the statement that a Member States law should only be interpreted in conjunction with EU law as long as it does not go against the legislation. In regards to Matthews case, the application of contra legem is not an ambiguous topic, as there are specific details of the content of the current German legislation regarding bankruptcy and employee compensation. If the Courts interpret Matthew’s case within the boundaries of Directive 2012/65 then, Matthew would be able the principle of indirect effect and take action against Mega Bank. However, if the German law cannot be interpreted, then Matthew would have to look to make a claim on the grounds of state liability.
If Indirect effect fails, then Matthew could claim for state liability, however it would be a claim of last resort. State liability as a principle, was established by the Court of Justice to try to go around the limitations of direct and indirect effect. The Court confronted the shortcomings in Francovich . The foundation for state liability came from the obligation to apply Directives under Article 288 TFEU and Article 4 TEU . From the Francovich case, three conditions arouse to determine if a claim could be made under state liability; 1) the Directive grants rights to individuals; 2) the rights must be clear from the Directive; and 3) must have a causal link between the breach of State’s obligation and the damages suffered by the individual. As far as Matthew is concerned, the Directive’s wording is explicitly clear, thus Matthew would be successful in imposing state liability.
To conclude, Matthew is not eligible for direct effect but is eligible for indirect effect. However if the legislation cannot be interpreted than he would have rely on state liability, which he eligible for providing that wording of Directive 2012/65 is sufficiently clear to comply with the requirements of Francovich.