Background information

The legislation for the protection of employees' rights in case of employer insolvency covers workers against bankruptcies. In particular, all outstanding payments by employers to employees are safeguarded by a special fund established for this particular purpose.

The fund covers generally all workers, except of:

• employees who have special links and common interests with their employer, leading to collusion between employee and employer;

• employees who are shareholders and members of the board of directors;

• employees of the naval, military and air forces of the UK government;

• employees who do not habitually reside in Cyprus;

• employees who alone or with first generation relatives own a substantial part of the business;

• officers working for the government.

The fund is financed exclusively by employer contributions (0.2% on employees' gross salaries).

The Social Insurance Services are responsible for the application of the legislation and thus also for the administration of the Fund.

Content of measure

The Fund, over a period of 78 weeks prior to the date the employer's insolvency commenced, provides payments to affected employees against:

• all unclaimed wages due from the employer for the last 13 weeks of employment prior to the insolvency declaration;

• the equivalent of all unclaimed paid leave for the above mentioned 13 weeks (in the event that the employer possesses a certificate of exemption from payment of contributions to the central holidays fund);

• the equivalent of the thirteenth and fourteenth salary or the wages of the 53rd–54th weeks for the same period.

This instrument creates financial reserves in a period of high economic growth. The reserves of the insolvency fund were €69.2 million at the end of 2007 and increased to €205.5 million at the end of 2017.

The fund can provide income guarantees to employees who, due to insolvency of their employer, are faced with a loss of income from their wages. However, the Fund is following a restraint approval and payment policy, which might be explained by the inadequacy of the underlying legislation.

Use of measure

From 2009 to 2020, the insolvency fund has received 657 applications. However, 310 of the applications were from 2013 and 2014, and only 84 cases were approved by the end of 2020. It is noteworthy that from 2018 to 2020, the fund has only approved 2 applications. From 2008 to 2019, the fund has made payments to applicants amounting to only €318,342, while the administrative costs amounted to €569,938. It becomes obvious that the fund is following a restraint approval and payment policy. The annual surplus of the insolvency fund, from 2008 to 2019, averaged to nearly €14 million annually. The fund's reserves at the end of 2019 amounted to €237 million.

More information can be found in ERM legal database

Target groups

Workers	Businesses	Citizens
Employees in standard employment	Applies to all businesses	Does not apply to citizens

Actors and funding

Actors	Funding
Social partners jointly Social insurance	Companies

Social partners

Social partners' role in designing the measure and form of involvement:

	Trade unions	Employers' organisations
Role	Consulted	Consulted
Form	Consultation through tripartite or bipartite social dialogue bodies	Consultation through tripartite or bipartite social dialogue bodies

Social partners' role in the implementation, monitoring and assessment phase:

• No involvement
• Main level of involvement: Peak or cross-sectoral level

Involvement

The underlying legislation has been subjected to a tripartite consultation, conducted at peak national level. The measure is financed though employers' contribution, amounting to 0.2% of the employees'. The effectiveness and functionality of the measure is being regularly reviewed in tripartite consultation processes. In view of the Fund's low applications' acceptance rate, the prospect of an overhaul of the legislation is currently addressed in peak tripartite consultation.

Views and reactions

Depsite the fact that the instrument was introduced in 2006, it still remains not particularly known among employees, resulting in relatively low numbers of applications, even during the difficult years of the economic crisis with around 1,000 companies declaring insolvency. The low acceptance rate of applications as well as the low compensation payable by the Fund and lengthy procedures might be an additional reason discouraging employees to submit applications.

Trade unions are pushing for the reformation of the underlying legislation to ease acceptance and accelerate the process of applications. In this context, the Pancyprian Federation of Labour (PEO) has submitted to the Minister of Labour a comprehensive proposal for overhauling the underlying legislation. PEO’s proposal included changes as to when an employer becomes insolvent as well as expanding of the reasons for which employees may apply and receive compensation from the Fund. However, this initiative has not resulted to a significant reform of the legislation. The Ministry of Labour, Welfare and Social Insurance has prepared in 2019 a draft amendment, addressing solely some changes of the bankruptcy and company laws. This amendment is as of June 2020 still pending.

Employers, in view of the fact that the fund has built up high reserves, are periodically requesting a reduction of the rate of their contribution to the fund.

Sources

• 09 March 2001: The law for the 'Fund for the protection of employees' rights in case of employer insolvency' (in Greek). (www.cylaw.org)
• 01 January 2007: Sargant, M. (2007), Implementation Report Directive 2002/74/EC on the protection of employees in the event of employer insolvency, European Commission (ec.europa.eu)
• 01 January 2008: Eustathopoulos, Y. (2009), National background paper Republic of Cyprus, Anticipating and managing restructuring in enterprises: 27 national seminars, ARENAS Report, Brussels, European Commission. (www.eustathopoulos.gr)
• 28 February 2011: European Commission (2011), Report from the Commission to the European Parliament and the Council on the implementation and application of certain provisions of Directive 2008/94/EC on the protection of employees in the event of the insolvency. (eur-lex.europa.eu)
• 01 January 2021: Social Insurance Services - Ministry of Labour, Welfare and Social Insurance (Statistics, in Greek). (www.mlsi.gov.cy)