international employment law firm alliance L&E Global

Germany: Employer not obliged to terminate a direct insurance policy

The employee entered into a salary sacrifice agreement with the employer in order to finance a life insurance policy (so-called direct insurance) for company pension purposes.

On the basis of such agreement the employer was obliged to pay approximately EUR 1,000.00 annually into the direct insurance policy in favour of the employee. The insurance was suspended and put on a non-contributory status after 8 years.

Subsequently the employee raised a claim and asked the employer to terminate the insurance contract. He argued that he was in financial distress.

The claim was unsuccessful in all instances. The Federal Labour Court held that the employee does not have a legitimate interest in the demanded termination of the insurance contract in order to receive the repurchase value.

According to the Federal Labour Court the salary sacrifice arrangements provided for in the German Company Pensions Act have the purpose of at least partially safeguarding the employee’s standard of living in old age. It would be incompatible with this purpose if the employee could demand from the employer to terminate the direct insurance contract only in order to enable the employee to use the capital already saved for old age to settle financial debts.