Company pension law – Case Law update 2/2024

1. Scope of a contractual reference clause to the Collective agreements of public services (TvÖD)- No obligation for VBL supplementary pension insurance with mere reference to Section 25 TvöD (BAG judgment of 12 March 2024, 3 AZR 150/23)

On 12 March 2024 (3 AZR 150/23), the German Federal Labour Court (Bundesarbeitsgericht, BAG) had to decide on an employer's obligation to provide a supplementary pension in accordance to the rules of the Versorgungsanstalt des Bundes und der Länder (VBL) on the basis of a contractual reference clause limited to the collective agreement for the public sector (Tarifvertrag des öffentlichen Dienstes, TVöD).

The plaintiff had been employed by the defendant, which is not a member of the VBL, since April 2017 on the basis of a standard employment contract. The collective agreement initially referred to had been terminated by the union, and the collective negotiations were dragging on. In 2018, the parties concluded an amendment agreement which provided for the application of the TVöD in the currently valid version to the employment relationship. There was no reference to the collective agreements supplementing or amending the TVöD. Section TVöD provides that employees have a claim to insurance with their own participation for the purpose of additional retirement pension, inter alia, in accordance with the collective agreement on the additional retirement pension of public service employees (Altersvorsorge-TV-Kommunal, ATV-K) in its respectively valid version.

In 2019, the defendant informed its employees that an additional pension scheme had been agreed (‘with the application of the TVöD in their employment relationships, we have agreed a company pension scheme with you. We will fulfil this agreement as promised’), but that it had not yet been implemented because a final regulation with the trade union ver.di was still pending.

The plaintiff then asserted in his lawsuit that the defendant was obliged under Section 25 TVöD to provide him with a supplementary pension via the VBL or, in any case, to provide him with the benefits of the VBL if the defendant was denied access to the VBL. The defendant pointed out that it had not promised the VBL supplementary pension.

In its judgment of 20 April 2023 (3 Sa 86/22 B), the Higher Labour Court (Landesarbeitsgericht, LAG) of Lower Saxony, as the court of second instance, had affirmed that the defendant had such an obligation to procure. The BAG allowed the defendant's appeal against this decision of the court of second instance and dismissed the action. According to the BAG, the employment contract does not clearly indicate any obligation on the part of the defendant to insure the plaintiff in the compulsory insurance tariff of the VBL. The interpretation of the contractual agreements comes to the conclusion that the defendant did not promise the plaintiff any pension benefits corresponding to compulsory insurance with the VBL.

The TVöD, which has become part of the employment contract by reference, does not directly grant a claim to VBL insurance, but refers via Section 25 TVöD to the collective agreement on the company pension scheme for public sector employees (Altersvorsorge-Tarifvertrag, ATV) or rather this for the municipal sector (ATV-K). According to Section 25 TVöD, employees are entitled to a company pension ‘in accordance with’ the corresponding pension collective agreements. However, this standard only grants a claim to employees who are subject to the compulsory insurance of the supplementary pension, i.e. who are subject to compulsory insurance under the ATV-K. The plaintiff does not belong to this group of people because he is not bound by a collective agreement and the reference in the employment contract does not extend to the pension collective agreements.

The reference in the employment contract to the collective bargaining provisions of the TVöD alone cannot be understood by legally knowledgeable, reasonable and honest contractual partners, weighing up the interests of the parties normally involved, to mean that the defendant has promised the plaintiff the benefit sought. The ATV-K should have required a collective agreement for an employment contract claim for the provision of a company pension or should have included such an agreement.

The management's letter from 2019 also does not constitute a legally binding promise that would entitle the plaintiff to VBL insurance. The letter was written more than a year after the amendment agreement was concluded, so it did not influence the conclusion of the agreement. In particular, the defendant lacked the legal intention to issue a pension commitment.

Implications for practitioners

The above decision clearly shows that employers should take great care when formulating reference clauses in employment contracts for employees not covered by collective agreements and ensure that the contractual references are clearly formulated in order to avoid misunderstandings or false expectations on the part of employees. In this respect, it should be clearly and unambiguously stated whether and to what extent a company pension is granted. In any case, a general reference to a collective agreement does not automatically mean that all further provisions of the collective agreement become part of the employment contract. Employers can therefore also specifically decide to make only certain collective agreement provisions part of an employment relationship without assuming the obligations under supplementary collective agreements such as the ATV.

2. No obligation to review pensions when the pension fund and employer are the same entity (LAG Düsseldorf judgment of 24 April 2024, 12 Sa 683/23)

The plaintiff was employed by the defendant, a pension fund, from 1981 to 2014. During this time, the defendant granted him a pension promise administered by the defendant itself through the pension fund. The technical business plan (Technischer Geschäftsplan, TGP) of the pension fund included a provision regarding the use of profit shares that was modelled on Section 140 of the German Insurance Supervisory Act (Versicherungsaufsichtsgesetz, VAG), according to which the defendant could use the profit shares, in addition to the general use for the company pension commitments, with the approval of BaFin, to avert an impending emergency.

The plaintiff has received a company pension since October 2016. In June 2020, the parties entered into an out-of-court settlement in which they agreed on a basic pension amount of EUR 1,326.63 gross from 1 October 2016. This amount was also to serve as the basis for future pension adjustments. In July 2022, the plaintiff asserted that his company pension should be adjusted retroactively to 1 October 2019 in accordance with Section 16 (2) no. 1 BetrAVG.

The defendant refused the requested adjustment and invoked Section 16 (3) no. 2 BetrAVG, which states the obligation to adjust (review) does not apply if the company pension is provided through a direct insurance policy within the meaning of Section 1b (2) BetrAVG or through a pension fund within the meaning of Section 1b (3) BetrAVG and from the start of the pension, all surplus dividends attributable to the pension portfolio are used to increase current benefits. The surpluses are exclusively used to increase benefits according to the defendant's regulations.

The plaintiff objected, arguing that the changes in Section 16 (3) no. 2 BetrAVG, which prescribe the capping the maximum interest rate according to the Regulation on the Principles Underlying the Calculation of the Premium Reserve, are contrary to both EU law and the German constitution. Furthermore, the plaintiff was of the opinion that Section 16 (3) no. 2 BetrAVG does not apply to employers who themselves serve as pension funds and, finally, that the TGP does not stipulate that surplus shares be used exclusively for the company pension scheme.

The LAG Düsseldorf dismissed the claim and ruled that the defendant was not obliged to adjust the plaintiff's occupational pension as of 1 October 2019 because Sec. 16 (3) no. 2 BetrAVG applied to it and the conditions set out therein were met.

The court clarified – with reference to the judgment of the BAG of 3 May 2022 (3 AZR 408/21) – that the current version of Section 16 (3) no. 2 BetrAVG does not violate EU law or constitutional law. It ruled that Section 16 (3) no. 2 BetrAVG is also applicable if the employer and the pension fund are one and the same entity. The provision does not require a separation between the employer and the pension fund, even if external pension funds are usually involved. This is evident not only from the comparison with Section 16 (3) no. 1 BetrAVG, but also, in particular, from the purpose of the provision, which is to safeguard occupational pensions and promote their dissemination. The fact that the employer and the pension fund are one and the same does not preclude the application of Section 16 (3) no. 2 BetrAVG, since the statutory purpose – securing occupational retirement provision and creating planning security for the employer – is fulfilled in this case. This objective is met because the employer can precisely calculate its obligations, including pension adjustments, from the outset.

In addition, the court found that the defendant has the necessary rules and regulations in place, which ensure that all surplus dividends are used to increase current pensions from the start of the annuity, and that the surplus distribution is allocated in line with the originator. In this respect, the defendant acts like an external pension fund. The ‘interest rate dynamic’ is an equivalent alternative to pension adjustment according to the cost of living index, so that it is unjustified not to apply Section 16 (3) no. 2, BetrAVG, in the case of an identical person of employer and pension fund. Since the legislative purpose is also achieved in such a case, no teleological reduction of the standard is required. The exceptional use of surplus funds as determined in the TGP for cases specified in Section 140 VAG does not prevent this, since the TGP regulation is identical in content to Section 140 VAG and this statutory regulation does not preclude the application of Section 16 (3) no. 2 BetrAVG. The LAG Düsseldorf deviates from the judgment of the LAG Hesse (dated 17 February 2021, 6 Sa 240/19) as it had deemed a regulation modeled on Section 140 VAG to be detrimental to the application of Section 16 (3) no. 2 BetrAVG.

Consequences for practice

The decision of the LAG Düsseldorf is convincing both in terms of the result and the reasoning. The appeal on points of law allowed by the Higher Labour Court of Düsseldorf – in view of the divergence from the aforementioned ruling of the LAG Hesse – is pending before the BAG (3 AZR 142/24); it therefore remains to be seen whether BAG – in consistent continuation of its case law on Section 16 (3) no. 2 BetrAVG – will confirm the ruling of the LAG Düsseldorf.

3. No collective agreement privilege under Section 19 (1) BetrAVG on the employer's contribution to deferred compensation under Section 1a (1a) BetrAVG in the case of an older collective agreement (LAG Hamm judgment of 10 January 2024, 4 Sa 803/23)

In its ruling of 10 January 2024 (4 Sa 803/23), the LAG Hamm ruled that the collective bargaining privilege under Section 19 (1) BetrAVG, which allows collective agreements to deviate from the employer's statutory obligation under Section 1 a (1a) BetrAVG to a subsidy for a company pension commitment based on deferred compensation, does not apply to collective agreements that took effect before 1 January 2019 prior to the Company Pensions Strengthening Act (Betriebsrentenstärkungsgesetz, BRSG) coming into force.

The plaintiff, who was born in 1968, had been employed by the defendant since 1998 and is a member of the NGG trade union. He claimed an employer subsidy under Section 1a (1a) BetrAVG for a company pension commitment implemented in 2011 based on deferred compensation under the relevant collective agreement on company pension schemes (TV BAV). The TV BAV had been concluded by the Trade Union NGG and the employers' association of the German confectionery industry (to which the defendant belonged) in 2011 and the defendant had agreed with NGG in a company collective agreement (Firmentarifvertrag) for employees employed before 30 April to provide an (increased) employer contribution to the company pension scheme in the amount of EUR 707 per calendar year, which the defendant also regularly granted to the plaintiff for his deferred compensation.

In a letter dated 10 May 2022, the plaintiff first claimed a 15% subsidy on the converted salary, which the defendant rejected. The defendant argued that the TV BAV precluded the application of Section 1a (1a) BetrAVG, since the parties to the collective agreement had already made a final arrangement on the employer's allowance when they set the annual employer's allowance at EUR 707 before the BRSG came into force. The plaintiff argued, however, that the collective bargaining parties had not addressed what should happen to the social security contributions saved on the employer side, as there was no express provision in the TV Altersvorsorge that excludes the passing on of the saved social security contributions to the pension provider.

The LAG Hamm ruled in favour of the plaintiff and found that the employer was obliged to pay a supplement under Section 1a (1a) BetrAVG because there was no collective agreement to the contrary under Section 19 (1) BetrAVG. Even though the collective agreement was concluded before the BRSG came into force, it did not contain any explicit provision regarding the employer’s obligation to pay subsidies. This is particularly the case in view of the fact that the parties to the collective agreement could not have foreseen the employer's obligation to pay subsidies, which was newly added to the BetrAVG by the BRSG of 17 August 2017 (Section 1a (1a) BetrAVG). The court emphasised that the collective bargaining parties could only deviate from the statutory regulation if they had consciously dealt with the legal standard and had deliberately made a deviating regulation in the knowledge of it. Thus, no exclusion of the statutory subsidy obligation occurred.

Furthermore, the LAG Hamm pointed out that the purpose of the BRSG, namely to motivate employees to accept deferred compensation through the employer subsidy pursuant to Section 1a (1a) BetrAVG, would be undermined if older collective agreements without explicit provisions were automatically concidered to exclude the obligation to pay subsidies.

Implications for practitioners

The reasoning behind the LAG Hamm’s decision is not convincing and deviates from the opinion of the LAG Niedersachsen, which has ruled several times in the past that a claim under Section 1a (1a) BetrAVG can also be excluded by a collective agreement concluded before the BRSG came into force if the agreement makes provisions for deferred compensation (e.g. on 16 October 2 023, 15 Sa 223/23 B) – the BAG has since endorsed this in its judgment of 20 August 2024 (3 AZR 285/23, not yet available in full) and ruled that collective agreements concluded before the BRSG came into force may nevertheless deviate from the statutory requirements if they contain provisions on deferred compensation. The BAG has thus recognised ‘older’ collective agreements as a possible exception to the subsidy requirement. A similar decision is expected from the BAG in the pending appeal proceedings (3 AZR 75/24).

4. Promise subject to the condition precedent of the promisor's death does not constitute a company pension (LAG Baden-Württemberg judgment of 20 February 2024, 11 Sa 45/22)

In its decision of 20 February 2024, the LAG Baden-Württemberg had the opportunity to add another facet to the assessment under company pension law of the characteristic of biometric risk as a core parameter of a company pension commitment pursuant to Section 1 (1) sentence 1 BetrAVG on the basis of the specific facts underlying the decision.

The plaintiff employee was employed by the defendant employer as a domestic helper with free board and lodging and a gross monthly salary of EUR 2,500 from 1 March 2008 to 31 May 2022. The 20 years younger plaintiff and the defendant had a non-marital partnership in addition to the employment relationship from 2008 to 2021. The parties' financial circumstances differ greatly.

In 2010, the defendant had applied for a life insurance policy through the insurance broker W, whereby (1) the plaintiff was selected as the insured person, (2) the defendant as the beneficiary, (3) ‘retirement provision’ and ‘survivor's pension’ were selected or entered, and (4) the right to receive benefits in the event of the policyholder's death was to pass to the plaintiff. An annual gross amount of EUR 30,000 was to be paid to receive a capital sum of EUR 300,000 at the end of the term.

In a clarifying letter dated 7 January 2011 (2011 letter), the plaintiff had been informed under the heading ‘Employment contract/rental agreement’ that a capital and/or pension insurance policy had been taken out for her which was to guarantee her a pension of EUR 2,000 after the defendant's death, based on monthly payments of EUR 450 gross by the plaintiff and EUR 450 by the defendant. The plaintiff’s continued employment with the defendant until the defendant’s death was a condition for the payout. The plaintiff also received an identical letter in 2012 (2012 letter).

The employment relationship ended due to the defendant's ordinary termination, which was not the plaintiff's fault. After the parties were unable to clarify the legal nature of the pension commitment by mutual agreement, the plaintiff filed a lawsuit for payment of a minimum monthly pension under the insurance contract.

In the plaintiff's opinion, based on the life insurance application and the letters from 2011 and 2012, there exists a company pension plan because the defendant promised the plaintiff an unconditional company pension granted on the basis of the employment relationship. The defendant's condition that the pension would only be paid out if the plaintiff continued to work for him until his death was in breach of the principle of vesting (Section 1b BetrAVG) and was therefore invalid.

The defendant is of the opinion that it cannot be a company pension plan because (1) he reserved the right to receive the benefits, (2) the insurance was taken out on the occasion of the civil partnership and (3) he has made the payment of the pension benefit subject to the condition of the continued existence of the civil partnership. It is therefore more of a promise mortis causa in accordance with Section 2301 BGB.

The LAG Baden-Württemberg dismissed the action. The court ruled that neither the defendant's application to the insurance company to take out an insurance policy nor the letters sent in 2011 and 2012 gave rise to a claim for payment of a company pension.

The conditions for the existence of a company pension scheme according to Section 1 (1) BetrAVG are not met. According to Section 1 (1) BetrAVG, the provisions of the BetrAVG apply if an employer promises an employee benefits in the event of old age, invalidity or death arising from the employment relationship. How the promised benefit is categorised depends solely on whether the conditions for a company pension, which are exhaustively listed in the BetrAVG, are met: the commitment must (1) serve a pension purpose, (2) the benefit obligation must be triggered by a biological event (age, invalidity or death) mentioned in the law, and (3) it must be an employer's commitment arising from an employment relationship.

The benefit serves as a pension if the claim to benefits is dependent on reaching a certain age, whereby it does not have to be a specific age limit. What is crucial is that an income replacement function must be ensured in the event of old age.

The insurance application does stipulate that the defendant's insurance payments into the insurance policy will end when the plaintiff reaches the age of 65 and the insurance can then be paid out. However, this cannot be recognised as a commitment under Section 1 (1) BetrAVG; firstly, a specific date had to be agreed in order to limit the defendant's payment obligations under the insurance policy. Secondly, and this is decisive, the insurance contract stipulates that the defendant is exclusively entitled to the right of subscription. Although the plaintiff was an insured person, the insurance contract did not contain any promise by the defendant that she would be granted certain pension benefits in the event of a biometric risk occurring.
While the letters from 2011 and 2012 served a pension-related purpose, they did not cover the plaintiff's biometric risk. By making the cash benefit conditional on the employee remaining in service, the defendant made it clear that the payments were only to commence on that date. It is true that this date corresponds to the day on which the plaintiff's working life would have come to an end with the content of a care activity for the defendant, and thus this is intended to represent a substitute for the remuneration paid until the defendant's death. However, the insured biometric risk was precisely not the age of the plaintiff, but the life of the defendant. The requirement that the biometric risk must pertain to the employee follows from a comparison with other legally defined biometric risks. The survivor's pension is linked to the death of the employee, the disability pension to his or her inability to work. It is also clear from the wording of Section 2 (1) sentence 1 BetrAVG that Section 1 (1) BetrAVG refers to the age of the employee.

Furthermore, the LAG Baden-Württemberg ruled that the commitment was not made in connection with the employment relationship, as there is no connection between the commitment and the employment relationship. The non-marital partnership was the primary reason for taking out the life insurance policy. This is because a monthly company pension of up to EUR 2,000 or a capital payment of over EUR 300,000 in an employment relationship with a gross income of around EUR 2,300 is out of all proportion to the monthly income. In reality, according to a true-to-life and fair interpretation, it was, on the one hand, an incentive for loyalty in the non-marital partnership and, on the other hand, a way of securing the defendant's pension.

The employer was to provide something in return for the work performed by the employee. There must therefore be a causal connection between the commitment and the employment relationship. This distinction separates company pension benefits from personal pension plans, which do not require the protection of the BetrAVG. If a female employee and partner in an extra-marital relationship is promised retirement benefits that go well beyond the usual extent, these benefits are generally promised on the basis of the extra-marital relationship, since the same benefits for another female employee who is not a partner in the extra-marital relationship would simply not be economically justifiable.

Consequences in practice

With this decision, the LAG Baden-Württemberg is continuing the case law of the BAG and specifying the conditions for classifying pension commitments as company pension commitments that arise exclusively from the BetrAVG. The decision makes it clear that commitments that arise from personal relationships, such as a non-marital partnership, are not considered to be company pensions within the meaning of the BetrAVG, even if they are made in the context of an employment relationship. Employers should clearly distinguish private pension promises from labour law obligations and ensure that conditions such as continued employment until the death of the employer do not violate the principle of vesting. In addition, pension benefits must be in reasonable proportion to monthly earnings in order to be recognised as a company pension. An excessively large company pension may indicate that the promise is not a company pension commitment under the BetrAVG.

Published October 2024