Occupational Pensions: European Court of Justice strengthens claims of pensioners in case of insolvency

By judgment of 9 September 2020 (docket number: ECLI:EU:C:2020:682; Joined Cases C-674/18 and C-675/18) the European Court of Justice has ruled that the settled case law of the German Federal Labour Court on the limited liability of the acquirer for pension entitlements in the event of insolvency does not apply without restriction. It is only in line with European law if national law provides a certain level of protection with regard to the part for which the acquirer is not liable. Until final clarification by the German Federal Labour Court, which now has to decide the matter again, there remains at least a residual risk that the liability of acquiring companies might be extended now.

According to the established (and to date still valid) case law of the German Federal Labour Court, acquirers of insolvent companies are not liable in cases of transfers of businesses (pursuant to § 613a German Civil Code) for vested entitlements and claims to occupational pension that had been earned prior to the opening of insolvency proceedings. Instead, such entitlements and claims remain with the seller and the German Insolvency Protection Fund (PSV) stands in (provided it is a type of pension commitment which is in general subject to the protection of the PSV). However, the PSV does not secure all such entitlements and claims without restriction. For example, it does not protect entitlements that are not yet vested, nor does it protect certain developments which arise from the pension commitment after the opening of insolvency proceedings.

This means that – as a result of the case law of the German Federal Labour Court – there are situations in which neither the PSV nor the acquirer is liable for certain parts of the benefits. The German Federal Labour Court had to decide on 2 such constellations in 2018. In both cases, legal action was taken against the acquirer: The employees argued that the periods of service prior to the opening of insolvency proceedings must be taken into account when calculating their pension benefits. The German Federal Labour Court requested a decision of the European Court of Justice; The question was whether the German Federal Labour Court’s current case law (limited liability of the acquirer) is in line with European law.

The European Court of Justice has ruled that the limited liability of the acquirer regarding entitlements and claims on occupational pension is only in line with European law if national law provides a certain level of protection for the part for which the acquirer is not liable. This minimum protection is provided if it is ensured that a former employee receives in case of insolvency at least half of the old-age pension that he would have received if the insolvency had not been taken into account. In this calculation, periods of service before the entitlement becomes vested as well as changes that occurred during the period with the acquirer must also be taken into account.

The decision leaves some important questions open which now have to be clarified by the German Federal Labour Court. It must be clarified whether the difference in benefits is to be borne by the acquirer or by the PSV if the minimum protection is not reached. If, contrary to the current case law of the German Federal Labour Court, the acquirer was liable, this would in future make the acquisition of businesses from insolvency significantly more difficult. However, even if the German Federal Labour Court determines that the claim (with regard to the difference in benefits) is against the PSV and not against the acquirer, it cannot be ruled out that the costs resulting from this are (at least partially) to be borne by the acquirer. It remains to be seen how the German Federal Labour Court will follow the ruling of the European Court of Justice.