11 August 2016 - Post by:Frank Doornik
Dutch works councils will shortly gain a new right of approval in relation to the adoption, cancellation or amendment of arrangements relating to a pension agreement – a potentially significant new power to block changes to a pension scheme, regardless of how it is structured (for example, with a pension fund, an insurer or a premium pension institution).
The choice of the pension provider, too, will be subject to approval (except in relation to a mandatory pension scheme, where the employer has no influence). In addition, the works council will have a right of approval in relation to adopting, cancelling or amending the administration agreement between the employer and provider to the extent it influences the pension agreement which forms part of workers’ employment conditions, and a duty to inform the works council as soon as possible about any intended change.
These changes significantly boost a works council’s rights (and negotiation position) when dealing with changes to a pension arrangement. If the works council withholds its consent, the employer’s only other route is to obtain court approval to implement the intended change. A court will only grant such approval if the works council’s position is unreasonable or if the circumstances require immediate action; and it is established case law that the employer will need to have a more reasonable position than the works council to succeed.
Previously, works council rights of approval varied depending on the funding vehicle used for the scheme:
- In relation to a pension scheme with its own fund (and where participation was non-mandatory), a works council only had a right of approval in relation to the adoption or cancellation of the scheme.
- A wider right, also covering amendments, was available in relation to schemes placed with an insurer.
- In relation to a premium pension institution the works council had a right of approval only in relation to an intended decision to place a scheme.
The forthcoming changes will align and expand works council rights of approval in relation to proposed changes and across all three structures. However, there are exceptions and some grey areas.
- Firstly, there is a general rule that the works council has no right of approval if the substance of a matter has been exhaustively dealt with in a collective bargaining agreement – this also applies to pension schemes.
- Secondly, an exception applies where a company mandatorily participates in an industry-wide pension scheme.
- Thirdly, the right of approval does not cover all changes to the administration agreement between the employer and provider; it only applies in relation to matters which influence the pension agreement which forms part of workers’ employment conditions – for example, the way the premium is set, the criteria and conditions for granting indexation, and the choice of pension provider. These matters feature in a non-exhaustive list in the new law, but Parliamentary history suggests that other issues may also be considered to have influence.
- A final, yet important, practical exception concerns changes carried through by the provider, rather than by the company. Often, pension arrangements incorporate the pension regulations issued by the provider. Changes by the provider – either at the request of the company or social partners – are not subject to a right of approval by the works council. This so-called ‘fund route’ has recently been accepted by an appellate court.
The scope of the right of approval could be open to debate in some respects – for example, whether it applies to any arrangement between the employer and the pension provider in the administration agreement that ‘may’ affect the amount of the final pension. Employers and works councils may differ over whether this test is satisfied – in our view it is advisable for employers and works councils to agree in advance which matters are subject to approval.
Frank Doornik is Counsel at Allen & Overy LLP.