Occupational Pensions: Deteriorating replacement of a works agreement in the course of a transfer of business

By judgment of 08.02.2017 (4 Sa 34/16) the Regional Labour Court Baden-Württemberg has ruled that an occupational pension scheme can be worsened by a transfer of business in accordance with § 613a of the German Civil Code (BGB) if a works agreement existing at the seller is replaced by a less favorable works agreement existing at the acquirer.

The parties were in dispute about the legal basis for the plaintiff’s occupational pension payments. The plaintiff’s employment relationship was transferred to a new employer (the defendant) in the course of a transformational merger in 2013, which at the same time constituted a transfer of a business according to § 613a BGB. Both the plaintiff’s former employer and his new employer had provided an occupational pension scheme on the basis of a works agreement. At the time of the transfer of business, the occupational pension scheme existing at the new employer was less favorable to the plaintiff than the scheme of his former employer. However, the pension scheme existing at the former employer was replaced by the new employer’s scheme, and, in order to avoid possible disadvantages for the employees, the new employer and its works council concluded a corresponding social plan. The plaintiff argued that he would continue to benefit from the old employer’s pension scheme.

The Regional Labour Court dismissed the plaintiff’s claims and pointed out that the existing pension scheme of the new employer had effectively replaced the former employer’s pension scheme. Since there is no prohibition of deterioration, only the general principles regarding replacement of a works agreement would apply. The Regional Labour Court pointed out that a prohibition of deterioration also cannot be taken from the so-called “Scattolon”-decision of the European Court (6 September 2011 -C-108/10). In this decision, the European Court ruled that if a collective bargaining agreement was replaced by a collective bargaining agreement within the course of a transfer of business, the employees in general may not be subject to any worse working conditions than those before the transfer of business. But, according to the Regional Labour Court, the statements of the European Court are to be understood to be case specific and cannot be used in the present case. When replacing a pension scheme in the course of a transfer of business, only the principles of protection of legitimate expectations and proportionality must be observed. By concluding a social plan, these principles had been observed in the present case. In particular, the harmonization of the pension schemes can be considered as a justification for the legal interventions, the Regional Court pointed out.

The decision raises a very important issue in practice, namely whether or under what conditions a deterioration of a pension scheme in the course of a transfer of business is legally justified. It remains to be seen whether the Federal Labour Court will follow the statements of the Regional Labour Court. Until then there is a certain degree of legal uncertainty remaining.