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At 66 you're still far from the end

Submitted by Firm:

Employees may postpone their retirement. For this purpose, a special agreement is required. However, the devil is in the details. Gerd Kaindl explains what employers need to keep in mind.

A frequent misconception: The employment relationship is terminated automatically when employees reach the retirement age. There must be an effective fixed-term in order for the employment relationship to be terminated. Such a fixed term can be specified for instance in an employment agreement or in a collective agreement. 

In times of increasing shortages of professionals, employers intend ever more often to continue to employ their staff for a few years beyond the date of entry into retirement. This way, an initial training or finding a colleague as successor can be simplified. Often the employees also have an interest in postponing their retirement. This may be because they would like to improve their pension or to achieve a smooth transition from working life to being a pensioner. In doing so, both sides want a limited postponement of the retirement, usually for two to three years.

In practice, the question arises how such a wish can be legally implemented, since the employee has usually already been employed for many years. Consequently, there is a ban on fixed-term contracts pursuant to Sec. 14 (2) Sentence 2 German Act on Part-Time Work and Fixed-Term Employment (TzBfG), an unfounded fixed-term employment is thus excluded. -Therefore, the only option remaining is to set up a fixed-term contract with an objective reason. In many cases, however, an objective reason is not relevant. To solve this problem, it can be relied on the so-called "postponing agreement". It is regulated somewhat hidden in the law in Sec. 41 Sentence 3 Social Security Code (SGB) VI.  

A practicable structuring option

Sec. 41 Sentence 3 SGB VI has the following content: "If an agreement provides for the termination of the employment relationship when the standard retirement age is reached, the parties to the employment agreement may postpone the termination date by agreement during the employment relationship, where appropriate also several times." 

The parties to the employment agreement may therefore agree that the employee goes into retirement years later than provided for in the employment agreement. In doing so, employers can thus arrange the age limits more flexibly The prerequisite is that the employment relationship provides for a limitation of the standard retirement age. Accordingly, there must be an agreement about the fact that the employment relationship will terminate with retirement.

According to the wording, multiple postponements are allowed. The law does not provide for a time limit. However, employers should not postpone a retirement too often and too long. Since it cannot be excluded that the courts in particular carry out a control with regard to an abuse of rights. An objective reason is not required. 

When has the agreement to be made? 

The postponing agreement has to be concluded prior to the termination of the employment relationship due to retirement. If the agreement is made only thereafter, it cannot be based on Sec. 41 Sentence 3 SGB VI. There is thus a risk for the employer that an employment relationship of indefinite duration comes into being.

It might be difficult for companies to determine the exact time of retirement. The age at which the employee can retire must be determined on the basis of the table on the standard retirement age. Employers should require submission of the documents of the pension insurance by the employee.

Attention also has to be paid to the precise wording of the clause for termination of the employment relationship due to retirement: For instance, it may be specified there that the employment relationship will terminate upon expiry of the month, in which there is a pension entitlement. Hence, the expiry of the month is decisive for the timely conclusion of the postponing agreement. The date, on which the employee will reach the standard retirement age, would not be decisive.  

The postponing may also be agreed upon significantly earlier prior to the end of the employment relationship. However, it should not already be contained in the original employment agreement. Rather, an amendment agreement with a corresponding postponing agreement is required.

What has to be taken into account with regard to the agreement? 

The written form requirement is to be observed. To comply with the written form, the parties must personally sign the new agreement before the end of the employment relationship. In practice, the human resources department in many companies sends out two signed versions of the amendment agreement. In this context, the employee is asked to return one signed copy. This is common practice; the employers, however, have to ensure that the employee has already signed the amendment agreement prior to the end of the employment relationship.

The end of the fixed-term employment has to be sufficiently specified in the postponing agreement. It is therefore recommendable to agree on an exact date for the end of the fixed-term employment. In the case of projects, employers are often confronted with the problem that this point in time cannot yet be predicted accurately. Therefore, the end of the project has to be specified very precisely. 

The continued employment beyond retirement must start immediately after the employment relationship. Time interruptions may not be provided for, no matter how short they are.

Change of working conditions? 

In case law and in jurisprudence, there is controversy as to whether only an extension unchanged in terms of content is admissible or also a change of working conditions is possible in the postponing agreement.

It is conceivable, for instance, to reduce the working hours and to adjust the salary. The Baden-Württemberg Regional Labour Court (Landesarbeitsgericht, LAG) has considered this to be admissible (Decision of 30 April 2020, File No. 3 Sa 98/19). The litigation is pending as an appeal before the Federal Labour Court (Bundesarbeitsgericht, BAG). Here, the employer has a legal risk, as long as no decision has been taken by the BAG yet. In view of this risk, it is recommended to make the postponing agreement and a content change at different times, until there is claritiy about the legal situation.  

Does the works council have a say? 

In case law and in legal literature, it is also disputed whether postponing the retirement triggers the co-determination right of the works council pursuant to Sec. 99 (1) German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG). The Munich LAG had confirmed that this is the case (Decision of 29 May 2020, File No. 3 TaBV 127/19). A decision of the BAG has not yet been taken. The Baden-Württemberg Administrative Court (Verwaltungsgerichtshof, VGH) had recently dismissed a co-determination right (Decision of 03 March 2021, File No. PL 15 S 3539/20).

As long as this issue has also not been clarified by the BAG, the employers should inform the works council beforehand and obtain its consent in order to comply with the right of co-determination. If certain reasons are given, the works council may refuse its consent. The employer, however, is then entitled to have the consent replaced in court. Companies should also bear in mind that they may preliminarily postpone retirement under certain circumstances if this is urgently required.  

Author: Gerd Kaindl

Please note, this article also appeared at Legal Tribune Online here.