Germany: Exclusion Of Social Plan Settlements In Cases Where A Pension Is Drawn On Grounds Of Reduced Earning Capacity (BAG Dated 7 June 2011 - 1 AZR 34/10)

By judgment dated 7 June 2011 (docket no.: 1 AZR 34/10) the BAG decided that it is possible to validly agree in a social plan that employees shall not receive a settlement if they are not employed because they draw on a temporary full pension on grounds of reduced earning capacity and where one can expect their inability to work to continue in the unforeseeable future.

In the case up for decision by the BAG the defendant had agreed in a social plan with its work council on the exclusion of benefits to employees who are not employed because they draw on a temporary full pension on grounds of reduced earning capacity and where it could be expected that the inability to work accompanying the reduced earning capacity would continue on a permanent basis or would at least not be remedied in the foreseeable future. According to the social plan, this can be assumed in case of an inability to work accompanying the drawing of the pension which has lasted more than three years or where a pension on grounds of reduced earning capacity has been granted for more than three years. The claimant had uninterruptedly been unable to work since December 2001 because of a commuting accident. Since April 2003 he had drawn a reduced earning capacity pension which had initially been limited until the end of June 2007. This was extended without interruption until 30 June 2009. Since then the claimant has been drawing an indefinite pension. The claimant's employment was terminated for operational reasons as per 31 July 2008. His claim for payment of a social plan settlement of about €220,000.00 was unsuccessful before the First Senate of the BAG.

In the opinion of the BAG, employees with reduced earning capacity are not directly detrimentally affected on grounds of their disability through the exclusion of their claim in the social plan. The regulation in the social plan actually treats them no less favourably than other persons in a comparable situation. The purpose of social plan benefits is to compensate economic disadvantages incurred by those employees who, as a result of the business change, lose their job and thus their claim to their employment remuneration. Employees who have already had a reduced earning capacity for some time and who will not regain their ability to work in the foreseeable future do not suffer any comparable disadvantages through the loss of their employment relationship, however.

With this judgement, the BAG is consistently continuing its previous case law on the meaning of the discrimination prohibition in the configuration of social plans. Accordingly, the BAG already decided by judgement dated 26 May 2009 that social plans may provide for a settlement regulation that is staggered according to years of ago or service with the company, and may even exclude from social plan benefits those employees who are entitled to a pension. In the opinion of the BAG, the ensuing different treatment on grounds of age is covered by Sec. 10 sentence 3 no. 6 German General Non-Discrimination Act (Allgemeines Gleichbehandlungsgesetz, "AGG").

The development in the BAG's case law can be welcomed. At the same time, however, this creates a conflict with ECJ case law. The ECJ deems it irreconcilable with Council Directive 2000/78/EG to exclude from a settlement employees who could claim an old-age pension when they withdraw from the employment relationship insofar as no consideration is given to whether or not the respective employee "actually" draws an old-age pension at the time or whether he is still available to the labour market. Although this ECJ judgment related to a statutory settlement claim pursuant to Danish law with a different underlying purpose, which means that the decision cannot simply be transferred to German social plan practice, we will therefore have to wait and see whether it will also be possible in future to uphold the BAG case law on the admissibility of an exclusion of employees entitled to a pension from social plan payments.

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