Netherlands: Termination Of Administration Agreement By Pension Fund Does Not Require The Prior Consent Of The Works Council

On 26 October 2021 (ECLI:NL:RBNHO:2021:9536), the District Court of North Holland (the Court) ruled that the decision of a pension fund to terminate the administration agreement with an employer is not subject to the prior consent of the works council within the meaning of Section 27(1) of the Works Councils Act (WCA). In this article, we discuss the Court's judgment and several situations in which an employer must take into account the works council's right of consent in pension-related matters.

The termination of the administration agreement

The case referred to above involved the following. Fluor (the entrepreneur) has a pension scheme for its employees. A defined benefit pension scheme based on final pay is in place for employees hired before 2014. This defined benefit pension scheme is administered by Stichting Pensioenfonds Fluor Nederland (SPFN). SPFN has terminated the administration agreement with Fluor on 17 December 2020, because: (i) controlled management could no longer be guaranteed, (ii) there was a vulnerable business model because of which the execution of the defined benefit pension scheme by SPFN could no longer be in the interest of the participant, and (iii) continuation of the execution of the administration agreement would be contrary to the balancing of interest's principle. In response, Fluor informed SPFN that it would inform Fluor's works council (WC) about this and that it understood SPFN's considerations that resulted in the termination.

After Fluor informed its WC, the WC invoked the nullity of the decision to terminate the administration agreement. The WC took the position that its consent to the termination should have been requested based on Section 27(1)(a) in conjunction with Section 27(7) WCA, because Fluor, implicitly or explicitly, consented to the termination by not opposing it. Thus, there would be a decision that was taken by, or should be attributed to, Fluor.

The Court's judgement

The Court held that Section 27(1)(a) WCA provides that the entrepreneur requires the consent of the works council for any intended decision to adopt, amend or revoke regulations based on the pension agreement. By virtue of Section 27(7) WCA, this also includes the adoption, amendment or revocation of rules included in an administration agreement that affect the pension agreement. The Court held that the Sections mentioned do not apply in this case because SPFN could not be considered an entrepreneur within the meaning of Section 27(1)(a) WCA. This would be different if Fluor (the entrepreneur) had terminated the administration agreement.

The Court further considered that this was not a decision of Fluor or a decision attributable to Fluor. In the opinion of the Court, there is a unilateral legal act of SPFN. Fluor's consent is not required for the termination of the administration agreement. Also, the decision is not attributable to Fluor, because there is no evidence of (indirect) involvement of Fluor in the decision made by SPFN, while there is also no evidence of a controlling relationship between SPFN and Fluor.

Comment

In our opinion, the Court's judgement that a works council has no right to consent if the pension provider/pension fund terminates the administration agreement with the employer is correct and logical. Strictly speaking it could also be argued that the right to consent does not apply if the employer decides to terminate the administration agreement and place the existing pension agreements (unchanged) with another pension provider/pension fund. However, in practice one will almost always see that the pension agreement changes as a result of the transfer, because identical pension funds and pension schemes do not exist. As a result, the transfer is still subject to the right of consent of the works council.

When does the works council have a right of consent?

There are many decisions that require the prior consent of the works council. Examples are the change of the pension scheme (for instance from a defined benefit pension scheme based on career-average pay to a defined contribution scheme), the change of a scheme that determines how the pension premiums are determined, or a change of the criteria for and conditions under which supplements are granted (Section 27(7) WOR).

An employer will therefore always need to carefully assess the impact of adopting, amending or revoking a pension scheme (or a scheme from the administration agreement) on the pension agreement as concluded with the employees. In line with this, we expect the works council's right of consent to play a major role in the implementation of the "Act future of pensions (in Dutch; Wet toekomst pensioenen) because of the changes this entails.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.