The case was based on the liquidation of a company. It concerned the dismissal and compensation of all employees working for the company. The compensation was to be calculated according to a standard formula: period of employment x gross monthly salary x “factor”. Important was the named “factor”, which was allocated according to age and lay between the values 0.15 and 0.32. The plaintiff works council believed this factor to be too low.
A further reason for the lawsuit: employees over a certain age were completely excluded from the compensation payment. The works council found this to be age discrimination.
In its ruling dated May 7, 2019 (1 ABR 54/17) the BAG found the compensation payment to be sufficient. The compensation payment for the social compensation plan was only of a bridging nature, the BAG justified. The lower limit for the factor used in the formula for calculating the severance payment is where “a noticeable alleviation” of the economic disadvantages is achieved.
According to the BAG, there wasalso no age discrimination. The compensation under a social plan is intended to keep the employee who has become unemployed afloat until the next job starts. For employees who are facing retirement, not the next employer, but the pension payments solve the financial problem. According to the BAG, anyone who can transfer to retirement pension after receiving unemployment benefits (Arbeitslosengeld I), whether regular, paid in advance, reduced or not, can be excluded from the social plan compensation.
What is also clear from the ruling is the importance of the arbitration board (Einigungsstelle): it is given a certain amount of leeway when determining the often-discussed factor. Circumstances such as the local labor market can play a role in this.
What does this mean for employers?
The BAG’s ruling empowers employers. It has sharpened the permissible scope of organization. The upper limits thus created will relieve employers in an emergency. It is always worthwhile to start well-prepared in social plan negotiations – more than ever after this judgement. Concrete labor market data can help if they are good. If local unemployment is low, statistically speaking, laid-off employees quickly find work again. Then the factor used in the compensation payment formula is low. However, the upper limit is the full compensation of all economic disadvantages of the employees.
Jan Tibor Lelley is our contact person for labor law, social plan negotiations and works councils. For more than 20 years he has been advising companies on labour law issues and on mass lay-off procedures.