Dr. Christoph Fingerle, Fachanwalt für Arbeitsrecht

Insolvency and company pension - Liability of the company buyer

The Third Senate of the Federal Labor Court has asked the Court of Justice of the European Union (ECJ) for a preliminary ruling in two cases.

Facts

Two employees had been promised company pension benefits by their employer in accordance with a regulation applicable in the company (pension scheme). According to the pension scheme, their company pension is calculated on the basis of the number of years of service and the salary earned on a certain date before leaving the company. Insolvency proceedings were opened against the employer's assets on 1 March 2009. In April 2009, the business was transferred to the current defendant as a result of a transfer of business; the defendant entered into the rights and obligations arising from the two existing employment relationships as a business acquirer pursuant to Section 613a (1) of the German Civil Code (BGB).

Since August 2015, one of the plaintiff employees has received an occupational pension of approximately 145.00 Euros from the defendant and an old-age pension of approximately 817.00 Euros from the Pensions-Sicherungs-Verein (PSV) - the statutory institution responsible for insolvency insurance. In its calculation, the PSV - as provided for in the Company Pensions Act - used the plaintiff's salary applicable at the time the insolvency proceedings were opened as the basis. The plaintiff considers the defendant obligated to grant him a higher occupational pension; this must be calculated in such a way that the pension amount is first determined in accordance with the provisions of the pension scheme on the basis of the salary received on the cut-off date before the case of benefit, which would result without insolvency and without the Pensionssicherungsverein's obligation to assume liability. Only the amount received from the PSV may then be deducted from this amount.

When the insolvency proceedings were opened, the other plaintiff did not yet have a legally vested expectancy. Therefore, he is not entitled to a claim against the PSV in the event of a pension case under the Occupational Pensions Act. He considers the defendant to be obliged to grant him a full occupational pension in future.

Both plaintiffs are therefore of the opinion that the insolvency risk - insofar as it is not borne by the Pensionssicherungsverein - should be borne by the company purchaser and not by them.

Reasons for decision

According to the current interpretation of Section 613a para. 1 BGB by the German labor courts, the plaintiffs would not succeed with their claims. With regard to the special distribution principles of insolvency law, the German labor courts interpret Section 613a para. 1 BGB restrictively to the effect that claims which - without a transfer of business - would be insolvency claims may not be "improved and made valuable" for the employees by an acquisition from insolvency.

In its referral, the Third Senate of the Federal Labor Court asked the European Court of Justice to answer the question as to whether such a restrictive application of Section 613a para. 1 BGB in the case of a transfer of an undertaking in insolvency proceedings is in accordance with provisions of Union law, specifically Art. 3 para. 4, Art. 5 para. 2 letter a of Directive 2001/23/EC, and whether Art. 8 of Directive 2008/94/EC may be directly applicable in the present case and whether the employee may therefore also rely on it vis-à-vis the PSV.

Notes for practice

The European Court of Justice's reply will have a significant impact. If it confirms the previous case law of the German labor courts, it is clear that, in the event of insolvency of their employer and subsequent transfer of an undertaking from insolvency, employees will continue to bear the insolvency risk of their employer for expectant periods up to the opening of insolvency proceedings, provided that the Pensionssicherungsverein's obligation to assume liability is not sufficient. Apart from this privilege over compulsory insurance, employees would be treated in the same way as other creditors of the insolvency proceedings.

If the European Court of Justice should see the previous interpretation of Section 613a para. 1 BGB as an infringement of provisions of Union law, the provision should no longer be interpreted in the same way as before. Since the provisions on insolvency insurance are legally unambiguous and thus cannot be interpreted in conformity with Union law, a direct amendment of these provisions would only be considered if the European Court of Justice were to assign direct validity to the directive cited. In this case, the Pensionssicherungsverein would be subject to an extended liability in the event of insolvency; the additional costs would then have to be borne by the solidarity community of the employer paying the contributions.

If the answer to the first question were in the affirmative, the European Court of Justice held, however, that the directive cited would not be directly applicable if, subject to a legislative amendment by the German legislature, the scope of the previous insolvency insurance were to remain unchanged and the acquiring new employer would have to bear the insolvency risk of the employees transferred from the previous period of employment with the insolvent previous employer. This would make business transfers out of insolvency more expensive and more difficult as a result.

Companies facing the decision to acquire companies or parts of companies from insolvency should therefore follow the development of this case law at all costs.

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