The Federal Labour Court has ruled on the fundamental issue of who will be entitled to the rights under a life insurance policy concluded by the employer in the employee’s favour in the event that an employment relationship comes to an end in the course of the employer’s insolvency proceeding. Upon appeal to the Joint Senate of the Supreme Federal Courts, it upheld the case law of the Federal Court of Justice and ruled that an insolvency administrator could not exercise the rights under the insurance contract if an employment relationship passes to another employer by way of a transfer of business.

This decision puts an end to the longstanding divergence between the case laws of the highest courts on a question that is extremely relevant in practice. The reason for this divergence was that the direct insurance policies taken out by employers in favour of employees as part of a company pension scheme frequently stipulate that the employees are irrevocable beneficiaries unless they resign from the company before the vesting prerequisites under the Act for the Improvement of Company Pension Plans have been met (revocation clause). The Federal Labour Court had to decide whether such a right to receive benefits can be revoked in the case of a “termination due to insolvency” of the employment relationship prior to vesting. The Federal Court of Justice had consistently ruled against such a revocation right in the past and granted the employees a right of separation with respect to the rights under the insurance policy in case of insolvency. The Federal Labour Court sought to depart from this case law of the Federal Court of Justice and in 2007 it referred the question for decision to the Joint Senate of the Supreme Federal Courts, which is a rare event.

In its decision the Federal Labour Court has now adopted the assessment of the Federal Court of Justice and ruled that the revocation clause is to be construed in accordance with the Act for the Improvement of Company Pension Plans. Accordingly, an employment relationship does not come to an end due to a transfer of business, which means that the prerequisites for a “resignation” of an employee are not met if he or she passes to a different employer by way of a transfer of business. In such cases, the insolvency administrator would not be able to revoke an employee’s right to receive benefits, and in particular to add the redemption value to the insolvency estate. The employees are thus entitled to the insurance policies, and the estate will not be increased by the redemption value of the policies.