Equal Treatment in company pension schemes
Legal framework in practice
Employers have to challenge questions on equal treatment in any conception, implementation or modification of company pension schemes. This article discusses the current legal framework and pitfalls in practice.
1. Starting point: The full impact of equal treatment principle in company pension schemes
Employers have to challenge questions on equal treatment in any conception, implementation or modification of company pension schemes. In the conceptual design process, these questions are relevant, among other things, to the selection of the group of people who are to benefit from the company pension scheme ("whether") and to the determination of the specific benefit content for individual groups of people ("how"). In the implementation of company pension schemes, equal treatment becomes relevant, inter alia, in connection with company transactions, especially in the integration of companies or parts of companies acquired - by way of an asset deal that constitutes a transfer of business within the meaning of Sec. 613a of the German Civil Code - into the employer's company. In the modification of company pension schemes, questions of equal treatment arise, inter alia, in connection with the treatment of so-called pension-related employees whose employment relationship would end within a certain - short-term - period after the modification of the company pension commitment.
2. The guiding principles of Company Pension Law
According to the starting point, the guiding principles for equal treatment to be observed by the employer in the specific company pension scheme are anchored in the general legal framework: The constitutional starting point is Article 3 (1) of the German Constitution, which - as a rule-exception principle - demands the requirement of equal treatment of all persons covered by the specific life circumstances and only determines unequal treatment of individual persons/groups of persons to be permissible if there are objective reasons for this. The basic constitutional guiding principle applies directly to company pension schemes based on normative legal bases (collective bargaining agreement, works agreement). In addition, the legislator has specified the constitutional initial guiding principle for individual circumstances in further substantive legal regulations that are relevant to the company pension commitment: These regluations include the General Equal Treatment Act (Allgemeines Gleichbehandlungsgesetz, AGG), which generally considers unequal treatment for AGG-relevant criteria (including gender, age, disability) to be inadmissible and only exceptionally determines unequal treatment based on these criteria to be permissible for legally defined reasons (with regard to age, for example, the admissibility of age limits in company pension schemes as defined in Sec. 10 sentence 3 no. 4 AGG). It also applies in the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG), according to which the parties to a works agreement on a bAV commitment must comply with the requirements set out in Sec. 75 BetrVG (which determines a general inadmissibility of unequal treatment of the aforementioned AGG criteria) when concluding a works agreement on a bAV commitment.
The Federal Labour Court (Bundesarbeitsgericht, BAG) has also extended the initial guiding principle under constitutional law to all other labour law matters in which the employer makes concrete provisions for a majority of persons from the group of its employees in accordance with a recognisably generalising principle ("collective impact") which are not already covered by one of the aforementioned statutory provisions - and has established the general principle of equal treatment under labour law for this purpose. According to this general principle of equal treatment under labour law, the employer must treat its employees or groups of employees equally if they are in the same or a comparable situation and, in connection with this, differentiate between different employees/groups of employees only if it can present a factual reason for the unequal treatment. The admissible objective reason is to be assessed in the starting point according to the purpose of the benefit; admissible differentiation criteria may result above all from operational and/or social reasons.
The general principle of equal treatment under labour law applies in principle throughout the company; in individual cases, however, differences between individual companies may also objectively justify the formation of company-specific groups. The legislator has documented the general principle of equal treatment under labour law as the legal basis for a commitment to the company pension scheme in Sec. 1b (1) sentence 4 of the German Company Pension Act (Betriebsrentengesetz, BetrAVG).
3. Inadmissible differentiation between individual groups of persons according to the BAG's previous case law
Based on the guiding principles of company pension law, the BAG has considered the following differentiations between individual groups of persons to be inadmissible in its previous case law: Differentiation according to (1) gender (different company pension age; different pension benefits; different crediting of periods of employment with the company, e.g. with regard to part-time work or parental leave periods), (2) work-related status as a worker or (3) the status under family law (exclusion of an employed spouse/registered partner because the other acquires an company pension scheme commitment with a survivor's benefit, exclusion of survivor's benefits for spouses/registered partners with whom the employee enters into marriage or a registered partnership after the company pension scheme commitment has been issued and during the term of the employment relationship).
The BAG makes a differentiated assessment of the unequal treatment of individual employees/employee groups on the basis of their age. The assessment criteria for this are set out in the provisions of Sec. 10 AGG, according to which age-related unequal treatment - in company pension practice usually structured by minimum and maximum age limits or minimum periods of service as a prerequisite for a claim under the company pension commitment - is permissible if it satisfies the principle of proportionality under company pension law, i.e. if it is suitable, appropriate and proportionate for the reasonable objective pursued by the employer with the age-related unequal treatment (usually limitation of expenditure and risk). In its previous case law, the BAG has, among other things, declared inadmissible regulations that restrict access to a bAV commitment to employees with a maximum age of less than 50 years.
4. Permissible differentiations between individual groups of persons according to the previous BAG case law (in particular in connection with company transactions)
In its previous case law, the BAG has assumed a permissible differentiation between individual groups of persons above all if the employer can cite a material objective reason for the unequal treatment and has also taken into account the aforementioned parameters of the principle of proportionality under company pension law for the concrete content of the company pension schemes.
In structuring the content of the company pension schemes, the employer may, inter alia, differentiate permissibly (1) according to the status of the employee as a manager or other employee (differentiation criterion: special significance of managerial employees for the company); (2) according to the activity as a field and office worker (differentiation criterion: intended more restrictive business conditions of the field workers due to their revenue-earning status); (3) according to the status under family law if this has changed after the termination of the employment relationship (e.g. marriage after the pension case that has already occurred) or a (too) long age gap between marriages (Differentiation criterion: Expense risk for employers from the occupational pension scheme commitment), (4) Exclusion of employees close to retirement from a modification of the company pension commitment that reduces expenses and lowers the pension entitlements that can be earned in the future (future service, differentiation criterion: proportionality considerations in favour of employees close to retirement = only limited/no other arrangements for old-age provision during the periods of the reduced future service).
The employer may also differentiate between individual groups of persons in the integration of - by way of an asset deal involving a transfer of business within the meaning of Sec. 613a of the German Civil Code (Bürgerliches Gesetzbuch, BGB) - acquired businesses or parts of businesses into the employer's company with regard to the employment relationships transferred under Section 613a BGB. The BAG recognises as an admissible differentiation criterion the working conditions of the employment relationships taken over which differ from those of the employer's previous core workforce. If the employer intends to standardize the company pension schemes after the transaction has been completed, it must bear in mind that it can no longer base the objectively proportional reasons to be given for the effectiveness of the modification of the company pension commitment in the context of the principle of proportionality under company pension law in accordance with the BAG's three-step theory (insofar as the modification - as is customary in practice in most cases - relates solely to the third step) solely on its interest in standardizing the existing company pension schemes. The BAG has abandoned its earlier case law in this regard in its judgement dated 22 October 2019 (3 AZR 429/18) and in such a case of company pension plan harmonization demands more extensive factual reasons on the part of the employer, according to which, in addition, if the existing company pension plan commitments continue unchanged in each case, either (1) there must be an erroneous development of the company pension plan, or (2) an economically unfavorable development of the company must occur.
5. Legal consequences of inadmissible unequal treatment
The employee affected by inadmissible equal treatment in the specific facts of the case can claim equal treatment with the beneficiary employees and, in connection with this, a claim to the (pension) benefits which the employer grants to the beneficiary group of persons under the specific company pension commitment ("upward adjustment claim"). The employee concerned generally has a claim to the benefits withheld in the past. The employer - and in the case of collective legal bases, the collective bargaining parties (union and employer (s association), employer and works council) - is in turn free to determine for the future, within the framework of their scope for action, how they wish to ensure equal treatment of the specific group of persons in future.
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