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Systematic change regarding severance
payment under a social compensation plan

Payment of lump sum for disabled employees is inadmissible
(Federal Labor Court, decision dated December 17, 2015 – 1 AZR 938/13)

Creating social compensation plans is difficult terrain. It sounds simple: In order to alleviate the disadvantages of change of operations, the employer and the works council agree on a social compensation plan that includes for example severance payment. But the devil is in the details: The social compensation plan that was subject to the decision by the Federal Labor Court included lump sum severance payment that was bound to the employees’ disability and in consequence, led to lower severance payment for disabled employees. These employees received a lump sum payment in the amount of € 10,000.00 gross and an additional amount of € 1,000.00 gross.

In the decided case the employer paid both the lump sum severance and the additional amount to the disabled employee after the termination of the employment relationship. Based on an individual calculation, the severance payment would have amounted to € 64,558.00 gross. The employee filed a motion and claimed the difference between the lump sum payment and the maximum severance payment.

The Federal Labor Court confirmed the decisions by the previous two instances: The company was obliged to pay an additional amount of € 30,000.00 gross to the disabled employee.

The dogmatic basis for the inadmissibility of benefits on grounds of the social compensation plan or, to be more specific, for excluding employees (in this case: disabled employees) from these benefits is the principle of equal treatment pursuant to a Sec. 75 para. 1 Works Constitution Act (German BetrVG). This means that the employer and the works council have to ensure that discrimination of employees will not take place – also not in social compensation plans. The social compensation plan that was subject to this court decision included a so-called systematic change regarding the calculation of the severance payment, meaning it differentiated between different employee groups (employees and disabled employees). This is the relevant aspect for the General Equal Treatment Act (German AGG) that prohibits discrimination in particular due to a disability (Sec. 1, 7 AGG). The first Senate qualified the regulation on lump sum severance payment to disabled employees as a prohibited discrimination in contrast to the individual calculation of the severance payment for the rest of the employees. This is because the employer based the differentiation of the severance calculation directly on the disability as relevant criteria. This regulation in the social compensation plan violates the prohibition of discrimination pursuant to Sec. 7 para. 2 AGG. In consequence, the employer is obliged to pay the additional amounts. The disabled employee can claim the complete severance payment that the social compensation plan regulated for non-disabled employees.

Practical recommendations:
When creating a social compensation plan, any cuts in severance payment or any lump sum payments must be treated with great care. One thing is for sure: It is tempting to save money in the company’s interest seeing that the financial package of social compensation plans is usually very high anyway. However, the jurisprudence of the recent years has shown that this very often backfires, and after concluding the social compensation plan the employers had to face lawsuits because of potentially too low severance payments. To avoid this, employers have to keep a current jurisprudence in mind.

Lawyer and certified<br/>specialist for labor law
Lawyer and certified
specialist for labor law
Dr. Jan Tibor Lelley LL.M.

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