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Schultze & Braun Newsflash Distressed Transactions Germany 8 April 2016

Publicado el 4/8/2016

Schultze & Braun Newsflash Distressed Transactions Germany 8 April 2016

Newsflash Distressed Transactions
Beware of financial risks regarding company pension schemes: Widow’s pensions survive even if excluded by late marriage clauses

In a recent decision – court file no: 3 AZR 137/13 –, the German Federal Labour Court (Bundesarbeitsgericht) – Germany’s highest court for employment law cases – invalidated certain forms of the long standing so-called “late marriage clause” (Späteheklausel) regarding survivor’s benefits under company pension schemes. For employers with pension schemes including the relevant clauses, the decision has direct financial and accounting consequences.

In the context of pension commitments, employers often promise benefits to the spouse in the event of the employee’s death. A certain form of the so-called “late marriage clauses” limits such entitlements to marriages entered into before the employee has reached a certain age and thereby limits the number of potential pension beneficiaries.

In the case decided by the German Federal Labour Court, the employer had committed to paying out a widow’s pension if the marriage wad entered into before the employee reached the age of 60. In practice, late marriage clauses exist in various forms and essentially serve to limit and quantify the financial risks of survivor’s benefits and – in the extreme – to avert payment obligations for so-called “marriages for maintenance” (Versorgungsehen) – marriages entered into only to secure pension benefits for a spouse.

In its decision, the German Federal Labour Court stated that the particular late marriage clause was invalid due to Germany's General Equal Treatment Act (AGG) because the clause directly discriminates on grounds of the age of the employee. The court found no legitimate reasons to exclude the benefits on the basis of the employee’s age regardless of the end of the employment. The court noted that other late marriage clauses, e.g. requiring the marriage to be entered into during the time of employment or before the pension become due, might be assessed differently. Such clauses might remain valid as set out in other decisions of the German Federal Labour Court.

In the future, the present decision has to be considered in particular in due diligence reviews preparing M&A transactions. Whether pension liabilities appear correctly in the balance sheet will depend on whether the new German Federal Labour Court’s ruling has been taken account of. The decision is further generally expected to make it significantly more difficult to calculate pension liabilities based on actuarial reports.

Employers will also have to consult with their legal counsel whether to review and where necessary adjust existing pension schemes and its legal documentation.
The employment law experts in the S&B transaction team are gladly available to assist you.

Daniela Gunreben, Attorney at law (Germany), Certified Specialist in Labour Law
Stefanie Radina, Attorney at law (Germany), Certified Specialist in Labour Law

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