Good news for parents? – Interpretation of social plan severance provisions

If, in a social compensation plan, the severance payment calculation is based solely on the gross monthly basic salary of a single reference month, the decisive salary of employees who work part-time in that month during their parental leave, is the gross monthly basic salary which they would have been entitled to under their employment contract if they had not been on parental leave (i.e. if they had not worked part time.
This is what the German Federal Labour Court decided in its judgment of 15 May 2918 – docket number 1 AZR 20/17.

The Court held that the system of the social compensation plan as well as the purpose of the severance payment regulation argued in favour of this interpretation. For example, the parties had expressly excluded individual remuneration components such as bonuses, special payments, premiums and variable elements, which were either dependent on the actual performance of work in the reference month or were made precisely in this month, although the remuneration was to cover work performed over a longer period of time. According to the Court the intention was to prevent the amount of the severance payment from being determined on the basis of “random” payments made in the reference month. At the same time, the Court held that the parties to the social plan agreement (employer and works council) intended to ensure that a temporary suspension of the main contractual obligations under the employment contract would not lead to a reduction in the severance payment. In the view of the Court the reason for the suspension (e.g. parental leave, (family) care time, a claim to continued payment of remuneration under the Continued Remuneration Act or unpaid special leave) was intended to be irrelevant.

An understanding of the social plan regulation to the effect that, in the case of part-time work carried out during parental leave, the reduced gross monthly basic salary in the reference month due to part-time work is relevant for the calculation of the severance payment is considered an unjustified differentiation between employees on “full-time” parental leave and those who additionally work part-time during parental leave. While the former would thus be entitled to a compensation payment based on their contractually agreed gross monthly basic salary, the calculation for the latter would only take the actually paid remuneration into account, which is reduced due to part-time work. In the eyes of the Court this was an unjustified violation of the principle of equal treatment under the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG).

With this decision the Federal Labour Court strengthens the rights of parents who work part-time while being on parental leave.