Remuneration-related company pension and part-time employment - What time period is decisive?

A company pension is a (principally voluntary) benefit provided by the employer. Its purpose is to enable employees to maintain their standard of living in old age by supplementing the statutory pension. The company pension is regulated by the German Company Pension Act (BetrAVG).

What happened in the specific case?

The ruling of the BAG is based on the decision of the Munich Regional Labor Court (LAG) of 17 March 2022 (7 Sa 588/21). It relates to an employee who had initially been working full-time since 1984 and then with the same employer reduced her working hours to 17.5 hours per week.

Subject of the dispute was primarily the employer's guidelines regarding the amount of the company pension. The pension is based on a fixed pension amount that is to be multiplied by the years of service. As a basis for calculating the fixed pension amount, the guidelines were based, among other things, on the "pensionable income", which is 1/12 of the income received by the employee in the last calendar year before the occurrence of the insured event or the early retirement.

In the case of part-time employment, one of the guidelines provides a modification of this calculation. According to this, the fixed pension amount changes in the ratio of the average working time of the employee during the last 10 years of service to his or her working time within the calendar year prior to the occurrence of the insured event or the early retirement.

The employee considered this provision to be discriminatory. In her opinion, the fixed pension amount should be calculated based on the degree of employment for the entire period of employment. A reference to the last 10 years would be disadvantageous for her, as this would give the impression that she had been working part-time throughout her entire employment. The employer defended itself against the accusation of discrimination.

Accusation of Discrimination based on Part-Time Work – Reasoning of the Lower Courts

Discrimination based on income?

The courts first addressed the question of whether discrimination can be seen in the circumstance that the amount of the company pension, based on the guidelines, depends on "pensionable income", which in turn is in with the volume of employment.

The prohibition of discrimination on the grounds of part-time employment is laid down in Sec. 4 (1) sentence 1 of the Part-Time Work and Fixed-Term Employment Act (TzBfG). According to this, a part-time employee may not be treated worse than a comparable full-time employee because of the part-time work, unless objective reasons justify a different treatment.

Regarding the payment of remuneration or other divisible benefits in kind, the law provides for the admissibility of a quantitative consideration of a reduced working time (Sec. 4 (1) sentence 2 TzBfG). This is the general principle which provides for the dependence of the amount of remuneration on the volume of employment in context of part-time employment. This pro rata temporis principle (the granting of employer benefits in accordance with the proportion of working time) permits unequal compensation for the various employment models in quantitative terms. This principle applies equally to company pensions.

This was confirmed by the LAG. It was permissible to pay the company pension on a pro-rata basis according to the volume of employment. The calculation according to the pro rata temporis principle was also in conformity with EU law. The ECJ found the consideration of the volume of employment to be an objective criterion which allowed a pro rata reduction of the pension.

With regards to the company pension, it is important to note that the level of the pension is not based on specific years of service, but on the employment relationship as a whole. This circumstance justifies reductions according to the circumstances of the employment relationship.

Therefore, the guideline does not link to part-time work in an impermissible manner. Rather, it is a proportional reduction in benefits which is in line with Sec. 4 (1) sentence 2 TzBfG. Thus, the courts considered the accusation of discrimination in this context to be unfounded.

Discrimination because of the guideline’s reference to the last 10 years of service in connection with part-time employment?

The courts also addressed the question of whether discrimination resulted from the fact that, with regards to part-time employment, the guideline stipulates that the calculation of the company pension must be based on the last 10 years of service.

The Labor Court already argued that the corrective effect of the guideline, by focusing on the last 10 years, counteracts a distorted effect of changes in working time in the last year of employment. It is a matter of determining a "representative period". Purpose of this modified calculation basis is to prevent a disadvantage for persons who switch to the part-time employment model shortly before the pensionable event.

This argumentation is supported by the LAG, which further argued that the employer is free to restrict the company pension by means of corresponding benefit conditions, provided that it is in line with higher-ranking law. Therefore, the restriction of the last 10 years of service is not discriminatory.

Discrimination because of gender?

The employee also accused the employer of discrimination on the grounds of her gender, basing her claim on the fact that predominantly women work part-time and therefore the majority of them are also affected by the modified calculation basis.

Although it cannot be denied that significantly more women than men work part-time, according to the LAG there is no discrimination. The guideline is not linked to the criterion of gender, so that there is no direct discrimination, nor are women indirectly discriminated by the guideline. Compliance with the principle of pro rata temporis precludes such an accusation.

Legal classification of the BAG decision

In previous decisions, the BAG had already confirmed that the pro rata temporis principle of Sec. 4 (1) sentence 2 TzBfG permits different compensation in context of part-time employment and transferred these principles to company pensions.

Furthermore, in 2012 the BAG (3 AZR 280/10) already dealt with a regulation which only takes into account the last 120 calendar months when calculating the average volume of employment. It came to the conclusion that the period of 10 years would allow the consolidation of a standard of living characterized by the employment income. Accordingly, it was not inappropriate to base the calculation of the company pension on such a period. The telos of the company pension is precisely to secure the standard of living which is characterized by the employment income (BAG, 17 April 2012 – 3 AZR 280/10).

The BAG upheld these previous decisions in the present case. With regards to a remuneration-related company pension commitment, it is permissible to base the pension on the last relevant income. There is no inadmissible discrimination. In that regard, the BAG states:

“In this respect, the company pension serves the legitimate purpose of maintaining the last standard of living earned during working life in retirement.”

With its ruling, which is positive from the employer’s point of view, the BAG has further consolidated its case law and remained true to its previous line regarding the company pension. It thus also confirms the decisions of the previous instances.

Employers can decide if they want to impose a restriction based on the pro rata temporis principle regarding part-time employment when granting company pension benefits. In addition, they have the possibility to determine a representative period for the calculation of the company pension in context of part-time employment to determine the degree of employment. Such a representative period is to be affirmed in any case with an extent of 10 years.

The argument in favour of such a restriction is the solidification of a certain standard of living, which is characterised by the income from work. If an employee has performed work to a certain extent over a representative period and has received corresponding remuneration before the occurrence of the insured event, the standard of living based on the remuneration has been consolidated as a result. The company pension only serves to protect this specific standard of living. A restriction thus corresponds to the telos of the company pension and is in line with the interests of the company.

Furthermore, it is important to note that the company pension is a benefit granted voluntarily by the employer. It must therefore be possible for the employer, in compliance with the applicable law, to impose certain restrictions regarding such benefits and to appreciate the circumstances of the various employment models.

Whether it is advisable for employers to make use of the legally given possibility of restrictions must be examined in each case while considering the mutual interests as well as the question of employee satisfaction.