Employer’s subsidiary liability for occupational pension payments

By judgement of 20 September 2016 (BAG, docket number 3 AZR 302/15), the Federal Labour Court ruled that an employer is liable for occupational pension payments, where the pension payments have been granted on the basis of a collective agreement and the implementation via an external pension provider could not take place during the vesting period.

The employee had an employment relationship as of October 1988 and was granted a pension promise by the employer. On the basis of the employment contract and according to collective agreements, the employer was obliged to provide for a pension scheme in the shape of direct life insurance via a special external pension provider. As the employer had not been a member of this special external pension provider until March 1991, the employee only could build up a pension entitlement with effect from April 1991. The employee claimed for higher pension payments. The defendant employer argued that he did not want to grant a pension promise without reserve, but only where he became a member of the external pension provider.

The Federal Labour Court considered the claim to be founded. According to the German Occupational Pension Act(Betriebsrentengesetz), an employer is also liable for pension payments where the pension scheme has not been provided by the employer, but by an external pension provider. Under German law, there is a strict differentiation between the basic obligation under employment law and the form/implementation of a pension scheme. Where an employer makes use of an external pension provider, this external pension provider can only be considered as a supporting vehicle. If the pension payments cannot be made by the external pension provider, the employer is obliged to make the payments out of his assets.

The employer’s subsidiary liability for occupational pension payments is a significant principle of German occupational pension law. Currently, there is a draft of a new law aiming to strengthen the system of occupational pensions in Germany. This new law provides (inter alia) the option of a pure defined contribution promise without the employer’s subsidiary liability for the pension payments. This requires that the pure defined contribution promise is implemented on the basis of a collective agreement of the social partners according to German labour law.