In a judgement of the Federal Labour Court of 23 February 2021 (Bundesarbeitsgericht – BAG; docket number 3 AZR 15/20), the grounds of which were recently published, the court has ruled that with regard to the pension adjustment decision of a non-profit association – in this case a trade union – there are several special principles that must be observed. In contrast to the pension adjustment decisions of normal companies, in the case of non-profit associations the fact that the association cannot continue to fulfil its association purpose at the level that has already been reached may already be considered a weighty reason against a pension adjustment. Trade unions, so the court further ruled, may allocate part of their income to a strike fund, which may be disregarded when assessing the economic situation of the trade union within the adjustment assessment.
Facts / Background:
The parties were in dispute about failure to make a company pension adjustment (cost-of-living adjustment (“COLA-adjustment”)). The plaintiff was a former employee of the defendant, a big German trade union.
The defendant refused to adjust an existing company pension claim, arguing that there were economic reasons against it; there had been a budget deficit for many years, certified by audit reports, the defendant stated. The plaintiff argued that the defendant was generating surpluses from the management of its assets, which were not included in the audit reports submitted by the defendant. In addition, the defendant transferred income to a strike fund, which was not taken into account in the adjustment assessment.
The Federal Labour Court (BAG) could not conclusively clarify the question whether the trade union was obliged to adjust the pension (due to a lack of sufficient clarification of the facts), and therefore referred the case back to the lower court. However, the Court has outlined some (general) fundamental principles regarding the obligation of non-profit associations to carry out pension adjustments:
As a general rule, when the question arises as to whether the employer is obliged to adjust pension benefits, the interests of the beneficiary must be weighed against the economic situation of the employer. Simply put, a pension adjustment may be refused if it would affect the substance of the company and threaten its healthy economic development.
However, for associations – i.e. also trade unions – particularities apply. They enjoy special protection under German Basic Law (Grundgesetz), which is why a review of how the association’s assets are used by the courts is only possible to a very limited extent. In the case of trade unions, this applies in particular to assets allocated to industrial action (strikes), as otherwise it would be possible to see how long the trade union could wage industrial action. This means that the assets that a trade union contributes to a strike fund may be disregarded in the assessment of the employer’s economic situation (and, thus, in the pension adjustment assessment). However, in order to take sufficient account of the interests of the pension beneficiary as well, this principle does not apply without restriction; the trade union may not allocate all its assets to the strike fund if it also (basically) uses its assets for other purposes. Assets used for other purposes are of course to be taken into account.
These principles must be observed in the case of associations/trade unions and, based on it, an appropriate balance must be found between the situation of the association and the interests of the beneficiary. If the examination leads to the conclusion that the association would no longer be able to fulfil the association’s purpose/objectives due to the pension adjustment (in terms of trade unions in particular regarding industrial action), this is a weighty reason against carrying out a pension adjustment.
The decision shows the complexity around the issue of pension adjustment. To what extent the court’s statements can be generally applied to non-profit companies that are not organized as an association remains to be seen. In any case, when it comes to the question of a pension adjustment, it must always be examined very carefully whether such weighty reasons actually exist that entitle the company to refuse. Many criteria are constantly being redefined by case law. It is often advisable to involve experts in order to avoid liability risks.