«

»

Compensation (severance pay) of director’s pension benefits

By judgment of 23.05.2017 (II ZR 6/16) the Federal Supreme Court (Bundesgerichtshof) has ruled that the prohibition against compensating for pension benefits according to Section 3 German Occupational Pension Act (Betriebsrentengesetz) may be derogated from by mutual consent and, as a result, ongoing pension benefits of a director can be paid out (severance pay).

In the present case, the admissibility of the compensation for an ongoing pension, which in principle according to Section 3 German Occupational Pension Act is inadmissible, was in dispute. However, the applicability of this provision (Section 3 German Occupational Pension Act) was excluded in the pension commitment granted to the director.

According to Section 17 para. 3 sentence 3 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 3), in principle there can be no derogation from the provisions of the German Occupational Pension Act to the detriment of employees. Section 17 para. 3 sentence 3 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 3) also applies to members of executive bodies such as directors in this context. However, according to Section 17 para. 3 sentence 1 German Occupational Pension Act (as applicable until 31. December 2017; now regulated in Section 19 para 1), deviations from certain provisions of the German Occupational Pension Act, such as Section 3 German Occupational Pension Act, are permissible, provided that this is regulated in a collective agreement.

The Federal Supreme Court has ruled that the exclusion of the applicability of Section 3 German Occupational Pension Act, according to which it is in principle inadmissible to pay out ongoing pension benefits, was allowed in the present case. Deviations from the German Occupational Pension Act may be agreed to the detriment of members of executive bodies, as far as deviations for employees can be agreed by collective agreements. Otherwise, members of executive bodies would be better protected by law than employees, although members of executive bodies are typically not inferior to the employer when negotiating their occupational pension.

By this decision the Federal Supreme Court follows the legal opinion of the Federal Labor Court in a previous ruling. Companies can therefore continue to agree to exclude the applicability of Section 3 German Occupational Pension Act with members of executive bodies.