Recent employment case law with respect to pensions schemes
In recent months, the courts have continued to play an active role in the further development of the company pension scheme (BAV). In the present article, we summarisze the latest developments in employment law in the area of occupational pensions.
1. Effectiveness of an age difference clause in a pension commitment with a proportional reduction of survivor benefits (BAG Urt. v. 11.12.2018, 3 AZR 400/17)
In its ruling of December 11, 2018, the Bundesarbeitsgericht (BAG, Federal Labor Court) had the opportunity to further complete the parameters for benefit-limiting regulations on survivor benefits in BAV commitments.
In the circumstances underlying the decision, the defendant employer had granted a BAV commitment with survivor benefits. For surviving dependents who were over 10 years younger than the deceased employee, the pension plan provided for a reduction of 5% on the pension benefits for each full year of age of the age difference exceeding the ten-year age difference. The employer granted the plaintiff, who was born in October 1945, survivor benefits as the widow of the employee born in November 1930 and, in accordance with the age difference clause, reduced the initial amount by 20%. The plaintiff argued that the age difference clause was invalid because it infringed the age-related prohibition of discrimination under the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz - AGG) and, in its action, claimed full survivor benefits.
The BAG dismissed the action. It argued that the plaintiff, as a surviving dependent, was generally within the scope of the AGG and that the age difference clause was by its very nature only applicable to older employees, so that the reduction in surviving dependents' benefits included age-related unequal treatment. However, the age difference clause was justified under the AGG (§ 10 sentence 1, sentence 3 no. 4 AGG). The employer has a legitimate interest in limiting the financial risks associated with survivors' pensions. This also includes the limitation of financial burdens in cases of a large age difference between the employee and the surviving dependent(s). This was objectively justified above all because the marital cohabitation of spouses with a greater age difference was shorter than that of spouses of (almost) the same age and the duration of the survivor's pension was comparatively higher. In the case of an age difference of more than ten years, the common stage of life of the spouses was designed to ensure that the survivor spends part of his or her life without the pension beneficiary. In addition, only spouses whose age difference from that of the pension beneficiary exceeded the usual distance were covered by the exclusion. Finally, the Court pointed out that the clause was also appropriately designed, since it does not exclude the provision altogether in the case of an age difference of more than ten years, but brings about a moderate gradual reduction. A complete exclusion is only given with a more than 30-year-old age difference.
With this ruling, the BAG confirms another effective parameter for the risk-controlling limitation of survivor benefits. It follows on from the judgment (3 AZR 43/17) delivered by the Federal Labor Court on February 20, 2018, in which the Federal Labor Court, with comparable considerations, considered an age difference clause with an exclusion of survivors' benefits for an age difference of more than 15 years to be effective.
2. Minimum clause for survivors' benefits (BAG judgment of 19 February 2019, 3 AZR 150/18)
On 19 February 2019 (3 AZR 150/18), the Federal Labor Court decided that the linking of a survivor's pension with a marriage term of at least ten years at the time of the death of the employee entitled to the pension unreasonably discriminates against the person directly entitled to the pension and is ineffective under Section 307 para. 1 of the German Civil Code (BGB).
Pursuant to the factual circumstances underlying the Court’s decision, the plaintiff was the widow of the employee who died in 2015 and to whom his former employer had given a promise of the company pension, which included, inter alia, a survivor's pension. According to the pension commitment, there was no entitlement to survivor benefits if the marriage had not existed for at least 10 years at the time of the death of the employee. The plaintiff's marriage had lasted almost four years at the time of the employee's death. The employer refused to grant the survivor benefits with reference to the minimum duration specified in the pension commitment.
The BAG found the minimum duration to be invalid and upheld the claim for survivor benefits. In the Court’s opinion, the 10-year minimum duration unfairly disadvantaged the employee according to the general statutory standards of the statutory general terms and conditions control because it is based on an arbitrary period of time which has no internal connection to the employment relationship or to the purpose pursued by the survivor's pension. For such a minimum marriage term clause, the employer could indeed cite his interest in assuming as few risks as possible and thus also keeping his payment obligations low as a starting point. On the other hand, however, the employee has an interest in ensuring that persons close to him are financially provided for even after his death; this financial security of the surviving dependents is also the purpose of the pension commitment, which as a contract in favor of third parties is intended to protect persons who are not contractual partners. By restricting the persons entitled to benefits, the employer creates an advantage for himself. If the restriction is justified, the clause is not necessarily ineffective. In the BAG's view, however, it was unclear for what reasons a marriage must have existed for at least 10 years in order to be covered by the pension entitlement. The concrete number cannot be derived either from the employment contract or from the purpose of the survivor's pension. There was no objective reason why a marriage that had existed for about nine years was less worthy of protection than a marriage that had existed for 10 years. In the BAG's estimation, the minimum duration of 10 years was more likely to allow a conclusion to be drawn that the employer wanted to exclude as large a group of beneficiaries as possible from the survivors' pension. Hence, the employer has improperly given priority to his own interests as opposed to the interests of the employee.
With its decision, the BAG for the first time declared a minimum marriage duration clause in a survivor pension commitment to be invalid. The fact that a certain restriction must exist can also be deduced from the conditions for entitlement to a widow's or widower's pension pursuant to § 46 para. 2 a SGB VI. Here, the statutory pension insurance wants to exclude a pension marriage and therefore requires at least one year of marriage before the death of the insured person. It therefore appears disproportionate that a minimum duration of 10 years is assumed here in order to exclude a pension marriage. In principle, a deviation from the statutory pension insurance within the framework of a company pension commitment or scheme is possible due to the contractual freedom of the employer. Such a strong deviation, however, speaks for abuse by the employer. In order to prevent allegations of abuse, it is therefore advisable that minimum marriage duration clauses in company pension schemes are brought as close as possible to the statutory minimum duration and, in the event of a deviation, sufficiently justified.
3. Compulsory social security contributions for lump-sum benefits from direct insurance (BSG Urt. v. 26.2.2019, B 12 KR 13/18 RR)
In this decision, the Bundessozialgericht (BSG, Federal Social Court) had the opportunity to revise its case-law on the social insurance treatment of benefits from BAV commitments in the implementation route of direct insurance, which the pension beneficiary had continued with own contributions after termination of the employment relationship.
In the case at issue, the employment relationship on which the BAV commitment was based ended in 1992 and was (only) amended in 2006 when the employee (the claiming party) entered the position of policyholder. In August 2013, the plaintiff received from the insurance company the capital payment granted under the BAV commitment; the defendant health insurance fund distributed the amount due for the period up to 2006 over 120 months and fixed contributions to the statutory health insurance and statutory pension insurance. By its action, the applicant sought the annulment of the contributions relating to the pension benefits payable during the period following the termination of the employment relationship. As justification it stated that the contributions paid into the insurance contract by it after the termination of the employment relationship had left the institutional framework of the company pension scheme and were no longer subject to the insurance obligation pursuant to § 229 para 1 no. 5 SGB V. The contributions were paid into the insurance contract after the termination of the employment relationship. In addition, the legislator had taken the company Riester pensions out of the contribution obligation with effect from 1 January 2018 with the Company Pension Strengthening Act (Betriebsrentenstärkungsgesetz - BRSG); in view of the constitutional principle of equal treatment (Article 3 GG), unequal treatment of its direct insurance with the company Riester pensions was not justified.
The BSG dismissed the complaint. The institutional framework of the operational old age pension provision relevant for the obligation to pay contributions according to § 229 para. 1 No. 5 SGB V will leave with a direct insurance only with a moving in of the employee into the position of the insured person. The obligation to pay contributions was also not obsolete by the exclusion of operational Riesterrenten determined in the BRSG from the obligation to pay contributions. Both types of occupational pension are essentially treated in the same way because they are each subject to the full contribution obligation only once, the Riester pensions in the accumulation phase and the other occupational pensions in the payout phase.
With this decision, the BSG continues its formalistic approach to the delimitation of the contribution obligation of benefits from a direct insurance based on the employee's own contributions after the termination of the employment relationship. If such direct insurance continues after the termination of the employment relationship, the employees concerned should work towards an immediate transfer to the position of policyholder.
4. Distribution of liability under insolvency law for BAV commitments in the event of a transfer of business in the event of insolvency (BAG Beschl. v. 16.10.2018, 3 AZR 139/17 (A))
In its decision of 16 October 2018, the BAG asked the ECJ (European Court of Justice) for a preliminary ruling on the legal question of whether the limitation of the liability of the acquirer in a transfer of an undertaking in insolvency, as determined by the BAG in its previous case law, is in line with the EU provisions on the so-called TUPE Directive (Directive 2001/23/EC).
In the event of a transfer of the employment relationship as part of a transfer of an undertaking, the transferee, as the employer taking over the business, also enters into the obligations of an existing BAV commitment in accordance with § 613a (1) of the German Civil Code (BGB) and, in the event of a pension payment, must fulfil the benefits under the BAV commitment without restriction. In the event of a transfer of business in insolvency, the BAG has so far granted the purchaser a limitation of liability in such a way that the purchaser as the new employer must provide pension benefits exclusively to the extent of the entitlements which the employee earned after the opening of the insolvency proceedings. The TUPE Directive does not provide for such a limitation of liability.
In the specific case, in 1968, the employer had given the plaintiff a BAV commitment, according to which the amount of the old-age pension for each eligible year of service was 0.5% of the gross monthly remuneration achieved by the employee on a certain cut-off date before leaving the employment relationship, but no more than 22.5% after 45 years of service. Insolvency proceedings were opened against the employer's assets in March 2009; in April 2009, the business was transferred to the defendant as part of a transfer of undertaking. Since August 2015, the plaintiff has received a company pension from the defendant and the Pensions-Sicherungs-Verein (PSV). PSV based its calculation on the gross compensation applicable at the time the insolvency proceedings were opened. For the purpose of calculating the retirement pension, the defendant took into account only the years of service with the defendant. The plaintiff demanded payment of the difference from the total pension entitlement, which is calculated on the basis of 45 eligible years of service. The plaintiff considers that the defendant is obliged to grant him a higher occupational pension, which, according to the provisions of the pension scheme, must be calculated on the basis of the salary received on the qualifying date before the pension was payable, deducting only the amount received from the PSV.
Should the European Court of Justice consider the previous case law of the Federal Labor Court on limitation of liability to be incompatible with the TUPE Directive and affirm an unlimited liability of the purchaser even in the event of a business transfer in insolvency - taking into account the insolvency-protected obligations to be assumed by the PSV - this would have serious consequences, among other things, for the calculation of the purchase price of the purchaser - and thus for the decision of the insolvency administrator on an insolvency (mass) fair continuation of the business operations of the insolvency debtor. It would also make a continuation of business is affected by insolvency even more difficult.