Entitlements on company pension are subject to particular protection in the event of a transfer of business according to Section 613 a German Civil Code

By judgment of 22 October 2019 (docket number: 3 AZR 429/18) the Federal Labour Court has extended its settled case law regarding the replacement of pension plans in the event of mergers and acquisitions. A replacement of a pension plan by a pension plan existing at the acquirer a must be in accordance with the principle of protection of legitimate expectation and the principle of proportionality. For occupational pensions, the Federal Labour Court has developed a special three-stage examination that reflects these principles. In the present case, the Federal Labour Court stated that these principles and requirements also apply in the event of a transfer of business according to Section 613 a German Civil Code.

The plaintiff had participated in a company pension scheme provided by his former employer. This scheme had been set up on the basis of a works agreement. In 1998, a transfer of business took place, with the acquiring company (new employer) also providing several company pension plans on the basis of works agreements. Two of these pension plans had been closed and one plan was open for new entrants.  In 2000, the new employer entered into a collective bargaining agreement, stating that the transferred employees  shall be treated such that their pension entitlements relating to their complete period of service (including the period spent at the former employer) are to be determined according to the regulations as set forth in in the two closed pension plans. Also, the collective bargaining agreement stated that further details shall be regulated in an additional works agreement.  On the basis of these new agreements, pension payments had been made to the plaintiff by the new employer. In 2014, the new employer informed the plaintiff that the pension payments had been calculated incorrectly and, as a consequence, pension payments were to be reduced. The plaintiff objected to this reduction and sued his new employer.

The Federal Labour Court followed the plaintiff’s view and held that the existing pension plan could not be replaced effectively by the pension plan existing at the new employer, since requirements  in terms of the principle of protection of legitimate expectation and the principle of proportionality are not met. Such requirements, so stated the court , also apply in in the event of a transfer of business according to Section 613 a German Civil Code. As the grounds of the court’s judgment are not yet published, it remains to be seen how the court justifies its decision and on which concrete situations the judgment will have an effect. However, the ruling is to be understood as meaning that the court further strengthens the protection of occupational pensions in the event of mergers and acquisitions.