What’s driving the surge in litigation?
- High inflation and several significant indexation increases by the bigger pension funds in recent years have revived interest in long-dormant indexation provisions, especially when many pensions had previously remained unchanged or were even reduced.
- Employers with ‘mandatory pension fund following’ clauses have faced unexpected, sometimes substantial cost exposure.
- Outcomes often depend on the correct way of interpreting pension regulations (known as ‘cao-norm’, focusing on objectively knowable text and context). Whether employers lawfully modified certain indexation arrangements in the past is often also a key issue.
- When the text of a pension clause is ambiguous, judges are increasingly asked to also look at the standard of good employer conduct in these types of cases, whereby the outcome is highly dependent on the specific circumstances of the case.
Good employer practices in the spotlight
Good employer conduct (Article 7:611, Dutch Civil Code) is becoming a more central argument, or in any case, is more often used as a last resort for current and former employees if no clear agreement has been violated. Reasonableness and fairness under Article 6:248 of the Dutch Civil Code may also be considered. Recent cases highlight that:
- Process matters: employers should identify all relevant stakeholder groups for the pension topic, involve them in a timely manner and record how interests were weighed in the decision-making.
- When deviating from past indexation practices, the deviations should be explained in writing. Modest, balanced adjustments are more defensible than major or abrupt changes to pension schemes.
Don’t overlook older indexation arrangements in the pension transition
For employers navigating the pension transition, it is important that indexation arrangements in older pension schemes does not become a blind spot. As part of the pension transition, many new administration agreements with pension providers will be signed. However, employers should keep in mind that it is unlikely that indexation obligations in older pension schemes just vanish after signing a new administration agreement, especially if the older pensions remain insured with the same pension provider. Employers need to have a clear overview of older pension schemes, including the correct interpretation of indexation regulations to help avoid unnecessary conflict with employees or groups of employees.