Social selection: how close an employee is to retirement can be considered to the employee’s detriment

Judgment of the Federal Labour Court of 8 December 2022 in Case No. 6 AZR 31/22 (Press release)

When performing the social selection to determine which employment relationships will be terminated for operational reasons, “age” can be taken into account for the reconciliation of interests to the detriment of the employee where the employee is already receiving an old-age pension or can receive one within two years of the end of the employment relationship foreseen by the letter of termination. Old-age pensions for severely disabled persons are the sole exemption.

Facts of the case

The case before the Federal Labour Court (Bundesarbeitsgericht, BAG) involved a plaintiff, who was born in 1957 and had worked for the employer since 1972. After insolvency proceedings were opened over the employer’s assets, the insolvency administrator and the works council performed the reconciliation of interests to obtain a list of 61 names, including the plaintiff’s, from a total of 396 employees. These 61 employees would be issued with notices of termination for operational reasons.

The list of names was a result of the social selection. The insolvency administrator considered the plaintiff the least worthy of protection within her peer group because she was the only employee with the option of receiving the old-age pension for those employed for an exceptionally long time, in accordance with §§ 38 and 236b of the Social Code (SGB VI), soon after the end of her employment relationship.

The plaintiff considered the termination ineffective. She claimed that the social selection was flawed because she was clearly more worthy of protection than a significantly younger colleague who was born in 1986 and had worked for the employer for a much shorter period (since 2012).

Both the Labour Court in Dortmund and the Regional Labour Court in Hamm, on appeal, followed the plaintiff’s argumentation and held in her favour.

The judgment

The BAG saw things differently: the judges in Erfurt considered the “age” selection criterion ambiguous. Increasing age generally means an increased need for social protection because older employees still typically have more difficulty finding a new position. This need for protection decreases when the employee either already receives a replacement income in the form of an old-age pension without deductions or can receive one at the latest within two years of the end of the employment relationship. The only exemption is old-age pensions for persons with a severe disability in accordance with §§ 37, 236a SGB VI.

When considering age in the reconciliation of interests, the employer and the works council have a measure of discretion which would allow a high age to be considered to the detriment of the employee in line with the stated requirements.

Consequences for practice

The decision should be welcomed. The statutory rules in § 1 (3) of the Act Against Unfair Dismissal (Kündigungsschutzgesetz, KSchG) and § 125 (1) No. 2 of the Insolvency Code (Insolvenzordnung, InsO) provide merely that employers shall take the criteria for social selection, including age, “sufficiently into account.” This does not necessarily mean that the need for social protection should be given more weight as the employer ages. In contrast, it would be difficult to see why the fact that an employee will have security in the form of an old-age pension in the foreseeable future or is already receiving such security should not result in “less” need for social protection. And lastly, it also increases the protection of younger employees, who do not (yet) have such security. Accordingly, the fact that the BAG has now settled this controversial matter of law and created certainty for practice by establishing the two-year limit for “close to retirement” should also be welcomed.

However, it should be noted that an early pension for severe disability may not be considered within the framework of the social selection as this would constitute inadmissible discrimination on the basis of severe disability under the case law of the European Court of Justice (ECJ) (Judgment of the ECJ of 6 December 2012 in Case No. C-152/11). Naturally, the remaining social selection criteria such as seniority, maintenance obligations and severe disability must be considered. Within this framework, however, it is now possible to rate an employee who is close to retirement or is already receiving an old-age pension as less needing of social protection.

Dr Michael Matthiessen