Germany: Employer can be liable for any resulting damages from providing incorrect, unclear or incomplete information on a company pension scheme

In this recent case before the Federal Labour Court, an employer concluded a contract with a pension fund regarding company pension schemes as part of a collective bargaining agreement that came into force in 2003. His employees were given the opportunity to participate in these schemes through deferred compensation.

In April 2003, the employer held a staff meeting, which was also attended by the later plaintiff, an employee who retired in 2004. During this meeting, an expert advisor from the local bank informed all employees about the opportunities and possibilities of deferred compensation under the company pension scheme. Based on this information, the later plaintiff concluded an agreement on deferred compensation with his employer in September 2003. At the beginning of 2015, he had his accrued company pension paid out in a one-off payment. However, due to a change in German law at the beginning of 2004, he had to pay contributions to health and care insurance on the amount of his company pension. Although this change of the legal situation was already foreseeable in 2003, the external expert had not informed the employees about the possible obligation to pay these contributions during the aforementioned meeting.

Thus, the employee claimed compensation from his employer for the social security contributions he had to pay. In his opinion, the employer was obliged to inform him about the potential change in law and failed to do so.

The German Federal Labour Court ruled in favour of the employer, as the subject of social security contributions had not at all been a topic during the staff meeting. However, the court made it clear that although there is no general obligation of the employer to protect the financial welfare of his employees, the employer is obliged to provide correct, clear and complete information. According to the German Federal Labour Court, this even applies to information, which the employer provides without being obliged to do so and to information which is provide by third parties upon instruction by the employer, such as the external bank advisor. If the employer provides incorrect, unclear or incomplete information, he may liable for the resulting damages.

This ruling shows how important it is for employers to ensure that any information he provides to his employees either himself or through external advisors he instructs is clear, complete and correct. Employers should, therefore, pay particular attention to the extent of their information obligations under applicable law and case law. Information should generally only be provided within the scope of such obligations. Providing extensive additional information on a “voluntary basis” should be avoided or at least considered very carefully, as this creates further risks of liability. When it comes to company pension schemes, such liability can have severe financial consequences for the employer. Nevertheless, the employer is not liable to an unlimited extend, as the recent ruling of the Federal Labour Court makes particularly clear.