von Johannes Fiala is a lawyer (Munich), MBA Financial Services (Univ.Wales), MM (Univ.), certified financial and investment advisor (A.F.A.) and banker. Contact and more information at www.fiala.de.
Dipl.-Math. Peter A. Schramm is actuary DAV (Diethardt) and actuarial expert. Contact and further information atwww.pkv-gutachter.de
Employers and their associations are not yet sufficiently aware that they are on the front line of responsibility and liability. Some insurers play this down in order not to jeopardise the brokerage of their products. Many companies complain about existential legacy issues.
I. General duties of the employer to provide information Numerous duties of the employer to provide information and clarification to the employee in the area of occupational pension provision arise from the law, the commentary literature and the still isolated judgments. And even where there are no obligations, the employer is still liable for any voluntarily given false information and advice errors as well as for inadequate supervision of the advice by commissioned third parties – e.g. insurance intermediaries. For example, in Section 4a of the German Occupational Pensions Act (BetrAVG), the legislator has standardised a right to information in many cases, in particular about the amount of vested pension rights acquired.
The employer is not only liable for incorrect or incomplete information in the event of termination of the employment relationship (judgement of the Frankfurt Regional Labour Court of 22.08.2001, AZ 107 Ca 450/95) but also from § 1a BetrAVG in conjunction with § 242 BGB at the start of the establishment of an occupational pension scheme: Already at the introduction of an occupational pension scheme, the employer has very high liability precautionary, clarification and information obligations in favour of its employees, as shown for example by the BAG, judgement of 17.10.2000 – 3 AZU 605/99.
1) If insurers claim that “Section 1a of the German Occupational Pensions Act (BetrAVG) does not imply any obligation on the part of the employer to provide information” or “The Act does not contain any regulations or information on the scope of the employer’s obligation to provide information”, it can be stated – even if it is not directly stated in the Act: the exact opposite is true, e.g. if an occupational pension scheme already exists. The potential liability sums of the employer are – as can be calculated actuarially by experts – enormous; many tax consultants overlook this as a balance sheet item according to the German Commercial Code and/or the Insolvency Code.
The Federal Labor Court (Bundesarbeitsgericht – BAG) also sees a concrete obligation on the part of the employer to provide information on possible disadvantages for the company pension scheme when concluding a termination agreement initiated by the employer if the employer has given the impression that the employee will be protected from imprudent disadvantages under pension law or if there is a threat of very high pension losses as in the case of public pension schemes (BAG ruling dated October 17, 2000, Case No. 3 AZR 605/99). A close reading of the judgment shows that the employer is obliged to provide full and comprehensive advice to the employees and must also compensate the employees for all pension losses.
2. there is a considerable duty of care and information, particularly in the case of salary conversion. The judgement of the Hessian LAG (judgement from 22.08.2001, Az. 8 Sa 146/00 ) shows that the employer is liable for the detailed and complete information of the staff. The employer was ordered to pay damages to an employee who was shown to be considering taking out a private pension. The cause of the damage was, in particular, incorrect information about the expected company pension scheme.
It should therefore be noted that clear legal regulations, prevailing opinions in the specialist literature as well as landmark rulings see an obligation on the part of the employer to provide advice in many cases and that the possible “absence of a general” obligation to provide advice should not simply be inferred as the “general absence” of an obligation to provide advice. If a product provider claims otherwise, this must be evaluated critically. In case of doubt, it is only a non-binding expression of opinion from which he will disclaim any liability. Such statements are also often formulated very cautiously: A general duty to advise is already logically lacking if duties to advise are only given in almost all regularly occurring individual cases. Here, the insurance broker, employer and agent quickly run into liability if they trust the accuracy of the information or fail to recognize the limitations.
Again and again it is claimed – on grounds that have long since been disproved – that in the case of solutions in the form of insurance there is always automatically a conversion of remuneration of equal value. Whether the insurer itself considers this to be more than a non-binding expression of opinion and whether, in case of doubt, the intermediary or the employer is liable after all, can be easily determined: by requesting the insurer to issue a corresponding guarantee and indemnity declaration.
Selection of the pension provider The Occupational Pensions Act (BetrAVG) is ultimately an employee protection law – even if some insurers see it more in terms of their market and profit opportunities.
1. employer-financed pension The employer is free to determine the pension provider, and even more – because the employer “determines the implementation method and tariff”. If the insurer now claims “Since the employee is not entitled to a specific occupational pension, the employer cannot commit a breach of duty when selecting the pension provider” – this is obviously too short-sighted, or simply a half-truth. The only reason he does not have this claim is that the employer himself is liable and it is basically up to him in the first instance how he procures the means to fulfil his promises.
It is rather correct that the employer has to pay attention to the fulfilment of his commitments: He must therefore compare products and check whether he can present the implementation path without commission and with low costs. So the employer has to compare the rates of the insurers, choose a favourable offer – commissions (which could be avoided) could expose the employer to criminal suspicion of breach of trust.
The choice of (wrong) advisors can already set the path to liability – advisors who seem to cost nothing at first can later turn out to be the most expensive. It is therefore advisable for employers to seek independent advice. It is better to trust an independent fee-based advisor and legal counsel than the broker who, as a businessman, has to live off his commission – and to use actuarial experts to create transparency, e.g. about the cost and risk components included in the premiums. Whether special obligations arise from a collective agreement or a works agreement is another matter altogether: such obligations are additional for the employer.
2. employee-financed pension scheme Pursuant to § 1a para. 1 of the German Occupational Pensions Act (BetrAVG), the employer is obliged to enable his employees to convert their remuneration into a pension entitlement of equal value. The principle of freedom of contract does not apply to the employer here, because a conversion of remuneration that is not equal in value leads to the invalidity of both the remuneration agreement and the contract with the insurer, pension fund, U-Kasse, etc. The German Occupational Pensions Act (BetrAVG) obliges the employer not to violate the principle of equal value – statutory requirements and prohibitions cannot be circumvented by the employee’s “consent”. Although there is nothing fundamentally wrong, in purely logical terms, with the product provider’s assertion that the employer is “free to choose the external pension provider and the terms it offers”, this does not mean that it does not have to observe the statutory requirement of equality of value and the strict duty of care as an employer when making that choice. Unfortunately, such half-truths spread by insurers are particularly suitable for being misunderstood by sales staff – this may be beneficial for sales, but who is liable for it will be clarified later – it is not always the sales staff who has been misled themselves. If the insurer goes on to claim that “the employee cannot generally expect the absolute best pension solution, but only a solution of average type and quality”, this does not mean that he may choose a weaker and expensive solution instead of a particularly powerful and still inexpensive one. However, he may choose the less powerful one if this is reflected in the price and the performance is still of medium quality. The head of all labor judges in matters of pensions, has clearly shown the way in a publication: The employer has considerable duties of care and – he is liable even without fault!
III. Obligation of the employer to provide correct information
If the employer provides the employee with information on the occupational pension scheme, either requested or unsolicited, this information must also be correct. According to established case law, false information obliges the employer to pay damages. It is true that in the case of deferred compensation, the employer is in principle not obliged to inform the employee that he has a legal entitlement to deferred compensation. But if a company pension scheme already exists, then all employees must be informed about the advantages and disadvantages. Clarification is not only necessary at the beginning, but also when the legal regulations change several times a year, if necessary. After all, the employee does not have to continue to convert his or her remuneration according to the employer’s determination.
Employer liability trap for agent’s advice: If the insurer asserts “If the insurer’s agent advises employees, the agent is acting as an agent of the insurer” , the prevailing opinion of the case law would be turned on its head. For it depends in whose sphere of duties the “consultant” is active. It is the employer who is obliged to give advice, not the insurer – and therefore the employer is also guaranteed liability for any advice given to the employee by the intermediary. Acting “in an acquisitive capacity” can also only take place vis-à-vis the employer, because the employer determines the “implementation method and tariff” – he is therefore “the customer of the insurer”, not the employee. Canvassing the employee is a liability trap for the intermediary, who cannot provide liability-free advice to employees without guidance from the employer.
IV. Employer’s obligations when the employee leaves and/or when a termination agreement is concluded In principle, the employer is also obliged to provide transparent information about the occupational pension scheme and its severance payment when the employment relationship is terminated. The usual saying in a dismissal protection lawsuit that a severance payment is paid “for all claims” leaves it up to the employee to sue again at any time. Here, the statute of limitations only comes into effect after 30 years.
Particularly if the value of the claim against the insurance company (surrender value or non-contributory benefit) falls short – as is very often the case – of the far higher claims of the employee under the employment contract, the employer is liable for the difference.
V. Employer’s duty of disclosure in the case of zillmerised tariffs According to a ruling of the Stuttgart Labour Court (dated 17.01.2005, AZ. 19 Ca 315/04), it is not the duty of care irrespective of fault, but rather the far lower duty of disclosure on the part of the employer, which requires the employer to inform the employee of financial disadvantages. In addition, there is liability for disadvantages due to “cancellation deductions” and excessive administrative costs of the insurance company or another implementation channel. However, anyone who concludes from this judgement that the law is satisfied by clarification alone is not reaching far enough, because in the judgement there was no need to examine more – the lack of clarification was already sufficient for the claim for damages.
Conclusion: The employer’s duties to advise and inform are almost unlimited. In order to avoid liability risks, the employer is always very well advised to engage truly independent advisors on a transparent fee basis and to be aware that there can be no such thing as “free” advisory services – at most intransparently hidden and possibly several times higher costs, which in turn represent a liability risk. (mf)
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About the author
Dr. Johannes Fiala has been working for more than 25 years as a lawyer and attorney with his own law firm in Munich. He is intensively involved in real estate, financial law, tax and insurance law. The numerous stages of his professional career enable him to provide his clients with comprehensive advice and to act as a lawyer in the event of disputes.
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