Current labour law judgements in company pension schemes
Legal framework in practice
In our current overview of labour law case law, we discuss we discuss the recent rulings of the German Federal Labour Court on the transfer of the pension beneficiary's subsequent liability claim under section 133 UmwG in the event of a transfer of the pension obligations to the PSV, on the acceptance of the double-sided CTA as an insolvency-proof structuring instrument for securing pension obligations and on the permissible gradation of the pension claims secured by the CTA and on the replacement of a company pension scheme by virtue of an overall commitment by an overall commitment/new uniform regulation.
1. Transfer of the pension beneficiary's subsequent liability claim under Section 133 (1) s. 1, 3 UmwG in the event of a transfer of the pension obligations to the PSV (BAG ruling of 22 September 2020, 3 AZR 304/18)
In its ruling of 22 September 2020, the German Federal Labour Court (Bundesarbeitsgericht, BAG) decided that the beneficiary's subsequent liability claim under conversion law pursuant to Section 133 (1) s. 1, 3 of the German Transformation Act (Umwandlungsgesetz, UmwG) passes to the Pensionssicherungsverein aG (PSV) in the event of a transfer of the pension commitments to a new pension debtor under conversion law in the event of the insolvency of the new pension debtor.
In the case underlying the decision, the employer had transferred a business division to the later insolvency debtor in 2007 by way of a spin-off under transformation law (Section 123 UmwG). In the conversion agreement, the employer had also assigned the pension obligations to more than 1,100 former employees to the business division to be spun off. Insolvency proceedings were opened against the insolvency debtor's assets in 2009. The PSV entered into the pension obligations and asserted a total amount of more than EUR 12 Mio. from the subsequent liability claim of the pension beneficiaries under transformation law from Section 133 (1) s. 1, 3 UmwG against the previous employer, which corresponded to the pension claims of the pension beneficiaries in the ten-year subsequent liability period pursuant to Section 133 (3) UmwG. The PSV based the asserted claim on the provisions of occupational pension law on the statutory subrogation in accordance with Section 9 (2) of the German Company Pension Act (Betriebsrentengesetz, BetrAVG), which would also cover the subsequent liability claim under Section 133 (3) UmwG. The previous employer rejected the PSV's claim on the grounds that the statutory subrogation did not include the subsequent liability claim.
The BAG affirmed the subrogation and ordered the previous employer to pay the claimed total amount to the PSV. The BAG explained that the subrogation under Section 9(2) BetrAVG included all rights that served as ancillary rights to secure the specific occupational pension commitment. These rights also include the claim for subsequent liability under Section 133 (1) s. 1, 3 UmwG, as this is exclusively intended to ensure the economic fulfilment of the transferred occupational pension commitment for the beneficiary through the temporary joint and several liability of the previous employer.
With its decision, the BAG (further) extends the scope of application of Section 9 (2) BetrAVG. The statutory subrogation under Section 9(2) BetrAVG covers all claims of the pension beneficiary that can be regarded as accessory security interests with respect to the pension beneficiary's pension claims under the occupational pension commitment. Accessoriness exists if the security interest is (so) closely linked to the secured claim that it is permanently dependent on the pension entitlement under the occupational pension commitment in its creation, scope, allocation, enforceability and extinguishment. The legal starting point for the security interests covered by subrogation under Section 9(2) BetrAVG are the general statutory provisions on subrogation under Sections 401, 412 of the German Civil Code (Bürgerliches Gesetzbuch, BGB) which, according to their wording, cover, inter alia, guarantees and liens in the context of occupational pension commitments. In the past, the BAG has extended the scope of application of Section 9 (2) BetrAVG beyond the rights listed in Section 401 BGB to include, among other things, the assumption of debt. In its ruling of 22 September 2020, the BAG expanded the canon of security rights covered by Section 9(2) BetrAVG to include the claim under conversion law for subsequent liability under Section 133(1) s. 1, 3 UmwG. The BAG was unable to decide on the scope of liability resulting from the subsequent liability under Section 133 (1) s. 1, 3 UmwG, as the PSV had limited the asserted payment claim to the ten-year subsequent liability period. From an insolvency and company pension law perspective, the overriding reasons speak in favour of limiting liability to the ten-year subsequent liability period. In practice, the BAG's decision is also relevant for employers who have transferred (part of) their pension obligations from company pension commitments to a pension company (Rentnergesellschaft) by way of a spin-off under conversion law and who, in the event of the insolvency of the legal entity of the pension company, are liable to the PSV within 10 years after the transfer under conversion law from the subsequent liability claim.
2. Double-sided CTA as an insolvency-proof structuring instrument to secure occupational pension commitments and permissible gradation of the pension claims secured by the CTA (BAG ruling of 22 September 2020, 3 AZR 303/18)
In its ruling of 22 September 2020, the BAG for the first time "officially" had the opportunity to rule on the double-sided contractual trust arrangement (CTA) as an insolvency-proof structuring instrument for securing pension claims from occupational pension commitments. In addition, the BAG ruled in the judgment that the trust agreement can effectively provide for the following in the security trust agreement: (1) a gradation of the pension claims secured by the CTA with regard to their statutory insolvency protection via the PSV, (2) the protection of pension increases only in the event of insolvency, and (3) the claim for performance of the employees benefiting from the pension against the trustee from the security trust subject to the condition precedent of insolvency.
In the case underlying the decision, the employer, as the later insolvency debtor, had granted its employees entitled to pension benefits an occupational pension commitment in the form of a direct commitment. For the partial funding and additional insolvency protection of the employees' pension claims under the occupational pension commitment, the employer implemented a two-sided CTA consisting of the administrative trust relationship between the employer and the trustee and the security trust relationship between the trustee and the individual employee benefiting from the pension. For the security trust relationship, the trust agreement provided for a gradation of the pension claims secured by the CTA, according to which the pension claims from occupational pension commitments and pension increases on the pension benefits from the occupational pension commitment that were not insolvency-protected under Section 7 BetrAVG were to be satisfied from the trust assets first and the pension claims that were insolvency-protected under Section 7 BetrAVG were to be covered by the trust assets second. In addition, the trust agreement stipulated in the provisions on the security trust that the trustee was to be liable for the pension claims against the employees benefiting from the CTA subject to a condition precedent (only) in the event of security (and here above all the insolvency of the employer). Insolvency proceedings were opened against the employer in 2012. The defendant trustee subsequently began to calculate the secured claims of the pension beneficiaries, including the pension increases determined in the trust agreement, and to prepare payouts. Specific payout schedules determined which occupational pensioner and which occupational pension beneficiary should receive which benefit. In doing so, the trustee first determined the amount of the obligations to be secured on a priority basis, then compared the total of all obligations to be secured with the security assets and thus determined the security ratio of both the obligations to be secured on a priority basis and the obligations to be secured on a subordinate basis - which were protected against insolvency under Section 7 BetrAVG.
The PSV demanded that the trustee refrain from making the payments. It did so, inter alia, on the grounds that the gradation of the pension claims secured by the CTA and the protection of pension increases only in the event of insolvency, as provided for in the trust agreement, were invalid.
The BAG dismissed the PSV's action. The gradation of the pension claims secured by the CTA as stipulated in the trust agreement could be effectively agreed. In addition to the statutory obligation to pay contributions under Section 10 BetrAVG, an employer was not subject to any statutory or other obligation to provide further contractual insolvency protection for claims arising from occupational pension commitments. The provision of a gradation in the trust agreement only reduced a compensation option for the PSV to which it had no statutory claim. For the same reason, the protection of the pension increase by the CTA in the event of insolvency had been effectively agreed.
With this ruling, the BAG has (finally) officially given the double-sided CTA the "accolade" as an insolvency-proof structuring instrument of the employer for the (out-)financing of occupational pension commitments. Since the ruling of the Sixth Senate of the German Federal Labour Court of 18 July 2013 (6 AZR 47/12) at the latest, practice has - correctly - assumed that the double-sided CTA for securing occupational pension commitments is court-proof and resistant to avoidance under insolvency law, but a supreme court ruling with regard to occupational pension commitments was still pending until the BAG ruling in this case. Very relevant for practice is the BAG's affirmation of the admissibility of the gradation of the pension claims secured by the CTA - it allows the CTA to be structured up to an exclusive securing of pension claims not protected against insolvency according to Section 7 BetrAVG. The BAG thus declares the trust models already established in practice with such a design to be permissible under occupational pension law - and thus confirms the flexible design options of using double-sided CTAs to secure pension claims from occupational pension commitments.
3. Replacing a pension commitment by virtue of an overall commitment with an overall commitment/a new uniform regulation (BAG ruling of 23 June 2020, 3 AZN 442/20)
The BAG ruling of 23 June 2020 provides an instructive example for practice showing that and why employers are not immune to deviations of the individual arbitration chamber from an established case law of the BAG in the labour court instance case law on individual issues of occupational pension schemes on the one hand, and at the same time should exercise a high degree of diligence when substantiating legal remedies against court decisions.
In the facts underlying the decision, the employer had originally granted its employees a defined-benefit final-salary occupational pension commitment (retirement pension in the amount of 0.25% of pensionable earnings for each pensionable year of service) on the basis of a Pension Scheme (VO 1978) as an overall commitment. Clause VXII of the VO 1978 provided for a unilateral reservation of the right to change and reduce the pension with the then customary groups of cases (substantial deterioration of the economic situation, substantial change of the group of persons, the contributions, the benefits or the retirement age under the statutory pension insurance, substantial change of the legal framework conditions, reduction for reasons of conduct due to serious breaches of duty by the beneficiary of the pension). No works council was elected at the employer. Insolvency proceedings were opened against the employer's assets on 1 March 2018 by way of self-administration. On 27 March 2018, the employer declared the revocation of the overall commitment with effect from 31 March 2018 (reference date), stating that (1) the pension entitlements already earned (past service) were to be frozen on the reference date and (2) no further entitlements (future service) were to be earned from 1 April 2018. The plaintiff employee, who benefited from the VO 1978, sought a declaration that the revocation was invalid. The first two courts of law upheld the action, whereas the Regional Labour Court (Landesarbeitsgericht, LAG) Rhineland-Palatinate did not allow an appeal in its ruling of 14 January 2020. The LAG Rhineland-Palatinate based its decision granting the action on the fact that (1) an occupational pension commitment made on the basis of an overall commitment could only be replaced under collective bargaining law by a works agreement, (2) a revocation of future entitlements in insolvency proceedings could not be based on economic hardship, and furthermore (3) the complete revocation of an occupational pension commitment did not involve a new regulation and therefore did not fall under the reservation of modification provided for in section XVII of the 1978 Regulation. The defendant filed an appeal with the BA against the non-admission of the appeal, basing the appeal only on the first two grounds and not including the grounds of the LAG Rhineland-Palatinate that the complete revocation did not include a new regulation.
The BAG dismissed the complaint as inadmissible because the complaint did not meet the legal requirements for the content of a complaint of non-admission by not dealing with all the main reasons for the decision. In the grounds for the decision to dismiss the appeal, the BAG confirmed its recent case law on the possible replacement of an occupational pension commitment made by an overall commitment by an overall commitment. Furthermore, the BAG indicated that it did not share the legal principle established by the LAG Rhineland-Palatinate that a revocation of future pension entitlements of an occupational pension commitment in insolvency proceedings could not be based on economic hardship.
In practice, the decision is above all relevant for employers in whose company no works council has been elected - the BAG also confirms for this case constellation its recent case law that employers can replace a pension commitment made in an overall commitment by an overall commitment and are not dependent on the conclusion of individual agreements with the individual pension beneficiary in this respect. At the same time, the decision shows in an exemplary manner that instance courts continue to deviate from an established case law of the BAG without further ado, and in these cases the employer should take appropriate care in substantiating the relevant further legal remedies (appeal, appeal against non-admission in the case of non-admission of the appeal by the second court), in order to otherwise not allow (alleged) "erroneous rulings" by instance courts to become res judicata.