Company pension law – Case Law Update 1/2025

I. (No) Entitlement to pension benefits based on the principle of equal treatment under labour law in cases of (mere) implementation of collective agreements (BAG judgement of 2 July 2024, 3 AZR 244/23)

On 2 July 2024, the German Federal Labour Court (Bundesarbeitsgericht, BAG) ruled (3 AZR 244/23) that an employer's company pension obligations can, in principle, also be based on the principle of equal treatment under labour law (Sec. 1b (1) sent. 4 of the German Company Pensions Act (Betriebsrentengesetz, BetrAVG)); however, the effect of establishing a claim is ruled out if the employer does not create its own order, but merely implements collective bargaining agreements (enforcement of the norm).

Facts

In the case underlying the decision, the parties disputed whether the defendant employer was obliged to grant the plaintiff as former employee company pension benefits in corresponding application of a company collective bargaining agreement. The plaintiff was employed by the defendant as a physician between May 1984 and May 2021. Because of his mandatory membership in the medical pension fund, he was exempt from the statutory pension insurance requirement and was not insured in the Federal and State Pension Scheme (Versorgungsanstalt des Bundes und der Länder, VBL), although the defendant was generally subject to the collective bargaining agreement on the pension scheme for public sector employees (Tarifvertrag Altersvorsorge, ATV).

At the beginning of his employment, the plaintiff, who was born in the year 1955, had waived compulsory insurance with the VBL. Instead of VBL insurance, the defendant took out two capital-backed life insurance policies for the plaintiff in 1984, which ran until he reached the age of 65 in April 2020. Due to the increase in the statutory retirement age under the Pension Insurance Retirement Age Adjustment Act, a pension gap arose for the plaintiff between 1 January 2020 and the end of the employment (31 May 2021). In view of this pension gap, the plaintiff now demanded company pension benefits. In doing so, he invoked the corresponding application of a company collective bargaining agreement (‘TV Altersversorgung’), which was concluded in 2012 by the defendant – after termination of its VBL membership – with ver.di and which essentially provided for a pension scheme for employees with existing VBL entitlements for the respective period of continuation of the employment relationship after the defendant's VBL membership ended.

The Labour Court dismissed the claim. The Higher Labour Court allowed the claim in part and found that the claimant was entitled to a direct promise under the company collective agreement.

Decision of the BAG

The BAG allowed the defendant's appeal against the judgment of the court of second instance and dismissed the claim. The BAG rejected both the claim based on the pension plan and the one based on the principle of equal treatment under company pension law.

1. No claim under the company collective agreement
The plaintiff does not fall within the scope of the company pension plan because he had no (forfeitable or non-forfeitable) entitlement to benefits from the VBL and thus cannot be treated in the same way as the employee groups benefiting from it.

2. No claim under the labour law principle of equal treatment

The labour law principle of equal treatment can give rise to a claim in the company pension scheme (Section 1b (1) sent. 4 BetrAVG), for example if the employer creates its own general rules for a pension group. However, this was not the case in the underlying decision. The defendant was merely applying a collective bargaining agreement (enforcement of the norm) and did not make an independent decision on the granting of the pension. There was therefore no equal treatment obligation.

3. No unequal treatment of employee groups
The gap in the pension resulted solely from the plaintiff's voluntary waiver of VBL membership in connection with the increase in the statutory retirement age implemented by the legislature in the Pension Insurance Retirement Age Adjustment Act with effect from 1 January 2008, which the tariff parties had (or were required to have) taken into account in the company collective agreement concluded in 2012. This does not constitute an improper unequal treatment, but is based on the free organisation of the employment with regard to the claimant's waiver of the VBL membership and on the free organisation of the tariff parties in determining the personal scope of application of the collective bargaining agreement.

II. Update on the three-level theory: Requirements for the deterioration of company pension schemes in a group (BAG judgements dated 2 July 2024, 3 AZR 247/23 and 3 AZR 255/23)

In its judgements dated 2 July 2024 (3 AZR 247/23 and 3 AZR 255/23), the BAG had the opportunity to further develop its case law on the proportionality of employer intervention under company pension law, based on the so-called 3 level-principle (3-Stufen-Theorie) and to address the requirements for replacing a company pension scheme with a group works agreement (Konzernbetriebsvereinbarung).

Facts

The defendant employer had originally promised the plaintiffs, who had each been employed since the mid-1980s, a company pension based on the group works agreement ‘Pensionsordnung der H Werke AG vom 01.10.1977’ (KBV PO 77), which provided for a (final) salary- and service-dependent pension with elements of a total pension, according to which the total amount of pension benefits from the KBV PO 77 and the statutory pension benefits should not exceed a maximum of 70% of the pensionable income.

KBV PO 77 was replaced with effect from 1 January 1987 by the group wprks agreement ‘Pensionsordnung 1987’ (KBV PO 87), which provided for a defined contribution company pension commitment with a lower level of benefits. This was accompanied by further group works agreements, which regulated the relationship between the old and new pension regulations and were intended to stipulate that the entitlements earned by the plaintiffs up to 31 December 1986 under the KBV PO 77 were to be determined in accordance with Section 2 BetrAVG and that further entitlements for periods of service from 1 January 1987 were to be earned exclusively under the KBV PO 87. The plaintiffs claimed company pension benefits on the basis of the KBV PO 77 after the respective insured event occurred, arguing that the KBV PO 87 had not effectively replaced the KBV PO 77. The defendant asserted that the replacement had taken place at the time because the parties to the company pension scheme had assumed when concluding the KBV PO 77 that 80% of the employees only received company pension benefits in the amount of the minimum benefit provided for in the pension commitment (in the amount of DM 2.50 per year of service) and that the circumstances had changed due to the changes in the amount of the statutory old-age pensions made after the issuance of the KBV PO 77 on the basis of the 20th and 21st Pension Adjustment Acts in a commercial volume which, if the KBV PO 77 had been continued unchanged, would have led to an increase in pension provisions from EUR 1.5 billion to EUR 2.3 billion by 2003. The defendant would not have been able to bear this economically, even in view of the economic difficulties at the time. The Higher Labour Court dismissed the action.

Decision of the BAG

The BAG allowed the plaintiff's appeal against the second-instance judgment:

The BAG emphasised that, even where a group works agreement is used as the legal basis, changes to pension commitments must be evaluated in accordance with the 3 level principle, which includes the following steps:

• Level 1: vested benefits already earned (e.g. for past service) may only be modified with if there are compelling reasons to do so
  
• Level 2: Changes to unearned salary-based increases (e.g. salary increases) is only permissible if there are compelling reasons for doing so (e.g. structural reorganisation, serious economic burdens), and
• Level 3: Future, not yet vested, service-related increases may be interfered with if there are objectively justified reasons for doing so.
  

Factually proportionate reasons, as required at the third stage applicable in this case of the group-related approach to actual economic developments in the group as a whole, which the employer must specifically explain and substantiate with reliable figures, be based on factual economic developments in the group as a whole. In doing so, the employer must pursue an appropriate level of savings that a ‘reasonably acting group employer’ might consider necessary to stabilise the pension. They are therefore proportional if the reorganisation of the company pension scheme does not reduce future service-related increases to a greater extent than a reasonable group employer might consider necessary to save costs in the specific economic situation.

• In this context, the negative economic developments can also spread from individual group companies to the entire group.
• In addition, an already existing or predicted negative development only of the pension system due to unforeseeable external circumstances (e.g. a change in the legal framework) can constitute an objective reason.
• For both cases, the contractual employer of the beneficiary must substantiate the objective reasons by explaining the measures in detail with regard to the necessary savings volume. If the employer relies on an undesirable development of the pension system, it must explain this by means of a present-value comparison.
  

The defendant's general submission did not meet this burden of proof; in particular, it did not explain the specific economic difficulties resulting from the steel crisis, nor did it explain the reasons for the predicted increase in provisions. Since the Higher Labour Court did not determine that the defendant should present the relevant facts in this regard, the Higher Labour Court had to make a final decision on the action after the relevant facts had been clarified.

In its judgment of 20 August 2024 (3 AZR 2836/23), the BAG ruled on the interpretation of Section 19 (1) BetrAVG. Specifically, the question was whether collective bargaining agreements that were concluded before the entry into force of the German Company Pensions Strengthening Act (Betriebsrentenstärkungsgesetz, BRSG) on 1 January 2018 may also deviate from the statutory provisions on deferred compensation within the meaning of Section 1a BetrAVG.

Facts

The plaintiff has been employed by the defendant as a wood mechanic since July 1982. Under the collective bargaining agreement binding both parties, the employment relationship is subject to the collective bargaining agreement on company pensions (Tarifvertrag zur Altersvorsorge, TV AV), which has been in force since 1 January 2009 and was concluded between the Lower Saxony and Bremen regional association of the wood and plastics processing industry and the German metalworkers' union (IG Metall). This TV AV grants employees who convert remuneration an additional basic pension amounting to 25 times the skilled worker's basic wage.

Since December 2002, the plaintiff has converted EUR 300 of his remuneration every six months, and since April 2010 an additional amount of EUR 245.52.

On the basis of Section 1a (1a) BetrAVG, the plaintiff demanded that the defendant pay the statutory employer's allowance of 15 percent of the converted remuneration from 1 January 2022. The plaintiff argued that the TV AV did not constitute a deviating regulation within the meaning of Section 19 (1) BetrAVG and that the statutory claim to the employer's allowance could not therefore be excluded by a collective agreement that had already existed before Section 1a (1a) BetrAVG came into force. Since the TV AV had already come into force on 9 December 2009, it could not be included in the scope of Section 19 (1) BetrAVG. The defendant requested that the claim be dismissed on the grounds that the TV AV contains a permissible deviating regulation within the meaning of section 19 (1) BetrAVG.

Decision of the BAG

The BAG ruled that the claimant was not entitled to the statutory employer's allowance under Section 1a (1a) BetrAVG because the TV AV constitutes a regulation that deviates from Section 1a BetrAVG within the meaning of Sec. 19 (1) BetrAVG.

First of all, the BAG found that the TV AV contains a permissible regulation on deferred compensation that deviates from section 1a BetrAVG. Contrary to the plaintiff's view, the collective bargaining exemption clause of Section 19 (1) BetrAVG also applies to collective bargaining agreements concluded before 1 January 2018.

The BAG based its decision on the following arguments:

• Wording of Section 19 (1) BetrAVG: The provision entitled ‘General collective agreement exemption clause’ generally allows deviations from Section 1a BetrAVG in collective bargaining agreements, without a specific chronological order between statutory and collective agreement provisions being required. The option to deviate is not necessarily future-oriented, but applies generally. In addition, according to the BAG, the term ‘deviation’ does not include a subjective element, so that collective bargaining parties do not have to explicitly designate their regulations as deviations.
• Systematics of BetrAVG: Section 19 (1) BetrAVG allows for comprehensive deviations from Section 1a BetrAVG without distinguishing between different provisions within this regulation. This provision is comparable to the collective bargaining exemption clause in Section 17 (3) BetrAVG, which already covered collective bargaining agreements existing before 1 January 2018. The legislator could have made a separate regulation for deviations from the new employer subsidies according to Section 1a (1a) BetrAVG, but did not do so. In addition, Section 19 (1) BetrAVG provides for a reverse exception for Section 3 (2) sent. 3 BetrAVG for deviations from Section 3 BetrAVG – however, there is no such exception for Section 1a (1a) BetrAVG. This shows that the legislator did not intend to restrict ‘older’ collective bargaining agreements. Nor does Sec. 26a BetrAVG preclude this interpretation. According to this provision, Section 1a (1a) BetrAVG only applies from 1 January 2022 to deferred compensation agreements concluded before 1 January 2019. However, this transitional provision only serves to give the contracting parties time to adapt to the new law, without restricting the possibility of deviation under collective bargaining agreements. The preamble to the law emphasises that collective bargaining agreements can already deviate from section 1a BetrAVG on the basis of Section 19 (1) BetrAVG. Thus, in the opinion of the BAG, Section 26a BetrAVG does not restrict the application of Section 19 (1) BetrAVG.
• Background to the creation of section 19 (1) BetrAVG: The statement of reasons for the law makes it clear that the employer subsidy is subject to the collective agreement. Moreover, collective bargaining agreements concluded prior to the law’s entry into force and are less favourable for employees than the new statutory regulation continue to apply. The aim of the legislator was to avoid changing existing collective bargaining agreements by the new statutory claim to an employer subsidy. The parties to the collective bargaining agreement were already able to consciously deviate from Section 1a (1a) BetrAVG in order to create their own compensation for the tax and social security consequences of the conversion of earnings.
   

IV. Requirements for the causal link between a pension commitment and the beneficiary’s work for the company for qualifying it as an company pension within the meaning of Section 7 BetrAVG (Cologne Higher Regional Court, 25 February 2025 (I 14 U 4/24))

In its judgment of 25 February 2025 (I 14 U 4/24), the Higher Regional Court (Oberlandesgericht, OLG) Cologne had the opportunity to continue the case law on the necessary causal link between company service and pension entitlement between a pension commitment and the beneficiary's work for the company for the purpose of qualifying the pension commitment as a company pension commitment within the meaning of Section 7 BetrAVG for shareholder managing directors.

Facts

The plaintiff, born in 1953, had been employed by the insolvent employer since 1992, initially in a fixed-term employment with weekly working hours of 15 and a monthly salary of DM 1,150 gross and from 1993 as managing director with a monthly salary of DM 9,000 gross. When the employment commenced, the employer also granted the plaintiff a company pension entitlement that provided for a monthly retirement pension of 60% of the total remuneration in the last three years of the employment relationship. The funding of the company pension commitment was increased when he was appointed as managing director so that it amounted to at least twice the highest pay scale level of the collective bargaining agreement for the textile industry applicable in the insolvency debtor's company in Westphalia-Lippe. Before the commencement of his employment relationship, the plaintiff's family held a 35.22% share in the insolvency debtor's company, and the plaintiff himself held a 2% share, which he subsequently increased to 5%. The pension commitments of the father and brother-in-law of the plaintiff, who were also appointed as managing directors of the insolvent employer, also provided for pension commitments in the form of a company pension scheme, each with a benefit amount corresponding to at least double the highest pay scale level. The insolvent employer had not granted any company pension scheme to its other employees.

The managing director's employment of the plaintiff with the company terminated on 30 June 2013 and at that time the plaintiff received a monthly gross salary of EUR 5,594.40 from the managing director's employment contract. After reaching the age of 65, the plaintiff asserted a claim for a monthly pension of EUR 10,722.84 based on the company pension commitment, which was calculated correctly. He sought this pension from the defendant PSV after the opening of insolvency proceedings against the insolvent debtor's assets. The PSV refused to grant the pension benefits sought, justifying this by stating that the plaintiff had not been granted the pension commitments as a result of his work for the insolvent debtor, but because he was related to the company and the main shareholders. Such a company pension commitment granted as an ‘entrepreneur's salary’ is not subject to the statutory insolvency protection under Section 7 BetrAVG.

Decision of the OLG Cologne

The OLG Cologne dismissed the claim and agreed with the opinion of the PSV. A pension commitment is (only) subject to the insolvency protection under Section 7 BetrAVG if it was granted ‘on the occasion of the activity for the company’; this essentially requires a conditional and causal link between the pension commitment and the relevant managing director activity for the company, according to which a causal link exists between the pension commitment and the managing director activity. This causality is lacking in this case and the pension commitment is to be regarded as entrepreneurial remuneration in accordance with the case law of the BAG (inter alia from its judgment of 25 January 2000, 3 AZR 769/87 (to be regarded as entrepreneurial remuneration), since

(1) the pension commitment for external employees is to be assessed as unusually high,

(2) the Insolvenz employer had granted a company pension commitment exclusively to the shareholder-managing directors,

(3) the company pension commitment had been granted as a direct commitment, the immediate liquidity-related charges from the employer's point of view only arise when the pension falls due, and

(4) the company pension commitment, in view of the above-average pension budget already recorded from the time the plaintiff took up employment with the insolvent employer, does not constitute consideration for loyalty already shown or expected.

Published: March 2025