A case from the German Federal Labor Court’s (Bundesarbeitsgericht, “BAG”) most recent rulings shows that employers, in the context of a termination for operational reasons, may take into account an employee’s near-term retirement in the consideration of social factors.
BAG decision of December 8, 2022 - 6 AZR 31/22 - previous instance: Dortmund Labor Court, decision of December 9, 2020 - 10 Ca 1380/20, Hamm Regional Labor Court, decision of December 3, 2021 - 16 Sa 152/21
A woman born in 1957 had been employed by the same company for 48 years. In 2020, however, the company where she was employed had to file for insolvency. An appointed insolvency administrator concluded a reconciliation of interests with the works council, according to which 61 of the almost 400 employees were to be terminated in March 2020, including the aforementioned woman.
As she considered the termination to be invalid, she filed a lawsuit three months later in June. However, the defendant insolvency administrator considered the woman’s dismissal for operational reasons to be lawful, as the plaintiff was the least worthy of protection for social security reasons. She was the only one who would be able to receive pension benefits for particularly long-serving employees from December 2020, i.e., in less than nine months.
After the company’s closure and counterclaim, the insolvency administrator negotiates again with works council
The insolvency administrator and works council agreed on a second reconciliation of interests. As a precautionary measure, the insolvency administrator terminated the plaintiff's employment again three months later in September. A consideration of social criteria was no longer necessary, as the termination affected all employees due to the company’s closure. However, the same plaintiff also filed an action against unfair dismissal against such termination on the grounds of non-consideration of social factors.
The second action against unfair dismissal is not very successful
The lower courts granted both claims for protection against dismissal. The appeal before the BAG was only partially successful: On the one hand, the BAG also found the first termination to be invalid, as various selection criteria had not been taken into account during the consideration of social factors required in the case of a termination for operational reasons and the consideration of social factors was therefore incorrect. These selection criteria are defined in Art. 1 (3) Sentence 1 of the German Act against Unfair Dismissal (“KSchG”) and Art. 125 (1) Sentence 1 No. 2 of the German Insolvency Code (“InsO”), respectively (for example, length of service or maintenance obligations). On the other hand, the BAG stated that the plaintiff’s near-term retirement and thus the prospect of receiving full pension benefits in a timely manner can be taken into account in the consideration of social factors.
BAG declares termination to be effective due to the near-term retirement
The consideration of social factors creates a need for social protection, which increases with increasing age due to poorer prospects of finding new employment. However, according to the BAG, this need decreases again if the employee is eligible to receive full old-age pension benefits as replacement income within two years from the date of termination. Since this was the case for the plaintiff, the BAG declared the termination to be effective.
Practical advice for entrepreneurs
The proceedings show that employers, in the context of termination for operational reasons, must exercise utmost care in the consideration of social factors, taking into account the selection criteria as defined by law. The purpose of these social factors must always be taken into account: they provide for a dismissal of such person who, taking into account the aforementioned selection criteria, is the least worthy of protection for social security reasons. Consequently, with regard to a person’s age, near-term retirement must also be taken into account as one social factor.