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Requirements concerning pension adjustments

By judgment of 7 June 2016 (BAG, docket number 3 AZR 193/15), the Federal Labour Court ruled that an employer is allowed to refuse pension adjustments due to economic reasons, where the employer is not able to continue generating a sufficient equity yield rate or has a lack of equity capital.

The parties were in dispute about pension adjustments as at 1 April 2008 and 1 April 2011. The employee, who has received an occupational pension since 1999, was granted a pension promise by the former group parent company. Within the group, several restructuring measures have taken place, whereby all pension obligations have been transferred to another subsidiary company of the group. All subsidiary companies have been subject to yearly bundled pension adjustments as at 1 April, for the first time as at 1 April 2002. As at 1 April 2005, 1 April 2008 and 1 April 2011 no adjustments were made (according to the employer due to economic reasons). As a result, the employee claimed both against the successor company of the former group parent company and the successor company of the former subsidiary company which had taken over the pension obligations.

The Federal Labour Court considered the claims to be unfounded. The successor company of the former group parent company was allowed to refuse adjustments due to economic reasons. According to the Federal Labour Court the economic situation is forward-looking, describing the employer’s future capacity and providing a forecast. As a basis for assessing this forecast, the employer’s economic development in the past is significant, provided that conclusions for the employer’s economic development in the future can be drawn out of this. Where the employer is not able to continue generating a sufficient equity yield rate or has a lack of equity capital, he is allowed to refuse pension adjustments. Regarding the claim against the successor company of the former subsidiary company which had taken over the pension obligations, the relevant requirements have not been fulfilled. According to German Occupational Pension Act (Betriebsrentengesetz), an assumption of debt (with discharging effect) is only permitted under very strict requirements.

By means of this judgment, the Federal Labour Court confirmed its previous view concerning pension adjustment and assumption of debt with discharging effect. Under German law, an employer planning to transfer pension obligations must evaluate precisely whether all (compulsory) regulations of German Occupational Pension Act are fulfilled.