Obligation or not to participate in an industry-wide pension fund in cross-border employment

Does an obligatory participation in an industry-wide pension fund also apply to employees who work for a Dutch company but cross borders? This is a question that occupies many an internationally oriented employer.

An industry-wide pension fund is a pension fund for employees who work in a certain industry, such as the construction or transport industry. An obligatory affiliation to such an industry pension fund follows from the Act on obligatory participation in an industry pension fund 2000 (hereinafter: the Act). The ensuing Decree on Compulsory Membership subsequently contains further provisions on the scope, on the basis of which it can be determined to which employers and groups of persons the compulsory membership applies.

In recent years, the question arises whether such an obligation also applies to employees who are employed by a Dutch company, but perform cross-border work. In view of a recent judgment of the Court of Appeal, this would indeed appear to be the case. On 19 January 2021, the Arnhem-Leeuwarden Court of Appeal ruled that, under certain circumstances, employees who are employed by an undertaking established in the Netherlands, but who have German nationality, live in Germany and perform their work (largely) in Germany may fall under the obligation of the Industrial Pension Fund for Transport. The considerations of the Court of Appeal are discussed below and are also relevant for other situations of cross-border employment.

The dispute

The employer is an undertaking established in the Netherlands which is engaged in professional road transport. The employer has ninety employees, ten of whom live in Germany and have German nationality. According to the Industrial Pension Fund for Transport, these ten employees must also affiliate with the pension fund, because the compulsory affiliation is a particularly compulsory law within the meaning of Article 9 of Regulation (EC) 593/2008 (hereinafter: Rome I). In addition, the pension fund argues in support of its position that Dutch law has been chosen in the employment contracts, that the Netherlands is the country from which the German employees perform their work, that the Netherlands is the country where the defendant's office is located, and that there is no apparent closer connection with Germany. On the contrary, according to the employer, the employees carry out their work primarily in Germany, so that Germany must be designated as the country of habitual employment. The employees also already build up a second-pillar pension in Germany, as a result of which affiliation to the Industrial Pension Fund for Transport would lead to undesired accumulation and an excessive pension for tax purposes.

Liability and applicable law on the basis of the choice of law
In the employment contracts with the German employees, Dutch law was chosen. On the basis of Article 3 and Article 8 (1) Rome I, such a choice of law is valid. According to the Court of Appeal, it follows from this choice of law that the provisions of the Bpf Act and the Obligatory Insurance Decree based thereon apply to the legal relationship, since these statutory regulations are part of the Dutch legal order.

Liability and Applicable Law without a Choice of Law
If no choice of law was made in the employment contract, Article 8 paragraph 2 to paragraph 4 Rome I contains choice of law rules to determine the applicable law. On the basis of these conflict of law rules the court of appeal examines which law would apply in this case without an explicit choice of law.

The country of habitual residence
It follows from Article 8 paragraph 2 Rome I that the legal relationship between employer and employee without a choice of law is governed by the law of the country in which, or from which, the employee habitually works. The Court of Appeal used the viewpoints formulated in the Koelzsch judgment (ECLI:EU:C:2011:151) to assess from which country the German employees habitually perform (most of) their work. Relevant points of view include the place from which the employee performs his work, where he receives instructions, where the work instruments are located, where the main transport takes place, and to which place the employee returns after his assignments.

For each employee, the Court establishes where they carry out their work in percentage terms. According to the Court, five of the German employees (for convenience, employees 1, 2, 3, 4 and 5) usually perform their work in the Netherlands. This is because they carry out a relevant part of their assignments in the Netherlands, the trucks have Dutch plates, and four of these five employees also have their pick-up points in the Netherlands. The situation is different for the other five German employees (employees 6, 7, 8, 9 and 10). They receive their instructions in Germany, carry out their assignments from Germany, and their transport is also mainly in Germany. If the parties had waived the choice of law in the employment contract, German law would have been applicable to employees 6-10.

Place of business of the employer
What if the applicable law cannot be determined according to paragraph 2? Then, according to paragraph 3, the contract is governed by the country in which the registered office of the employer is situated.
The employer's place of business is therefore no longer relevant in this case, as the country from which they habitually carry out their work can be determined for all German employees. If the country of habitual employment could not be determined, the employment contract is governed by the law of the country in which the place of business that hired the employee is located.

Then the court comes to paragraph 4 of article 8 Rome I. If there is a closer connection with another country, the law of that country applies despite the above (paragraph 2 or 3). Points of view have also been formulated in case law for assessing the closer connection (Schlecker judgment, ECLI:EU:C:2013:551). For example, the country in which the employee pays taxes and duties on his or her income, the country in which the employee is affiliated with the social security system, and the criteria for determining salary and working conditions must be taken into account. According to the pension fund, there is a closer connection with the Netherlands because of the payment of taxes, according to the employer with Germany because of the pension provision in Germany.

The court of appeal considered in this respect that being insured for social security in another country is insufficient to deviate from the rules of reference of Article 8 (2) Rome I. In addition, tax is paid in both countries, as a result of which the points of view do not clearly point in one direction. For employees 1-5 Dutch law remains applicable, and for employees 6-10 German law.

So no compulsory participation for employees 6-10 because of Germany as the country of habitual employment?
No, this conclusion cannot be drawn immediately. According to the Court of Appeal, even if Germany is the country of habitual employment, the Pension Fund for Transport has an obligation to participate in the fund if the following two conditions are met:

    1. The scope rule (territorial scope) of the Act and Decree also extends to employees in the service of an undertaking established in the Netherlands, whose country of habitual employment is outside the Netherlands; and
    2. The provisions of the Act and the Decree are of special compulsory law, Article 9 Rome I.

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The scope rule of the Bpf Act
For the determination of the scope, the Court deems decisive that in the text of the Bpf Act and the Obligatory Insurance Decree, no restriction can be read to employees whose habitual country of work is the Netherlands. In addition, the objective of the Bpf Act and the Obligatory Obligation Decree is to protect employees against not accruing a pension, which is also to the advantage of foreign employees who have a Dutch employer. Therefore, the Bpf Act also extends to employees whose habitual country of employment is outside the Netherlands. Condition 1 is therefore fulfilled.

Are the provisions of the Bpf Act particularly imperative?
Through the scope rule, however, no compulsory participation has yet arisen, in situations where no choice of law was made for the Netherlands and the Netherlands is also not the habitual country of employment. After all, these are cumulative conditions, so it must also be demonstrated that this is a case of special mandatory law. According to Article 9 of Rome I, overriding mandatory provisions are provisions the observance of which is regarded as of such importance by a country that the provisions must be applied to any case falling within their scope, irrespective of which law is applicable to the contract in accordance with Rome I.

Without substantiating this further, the Court of Appeal ruled that the objectives of the Bpf Act and the Obligation Decree are insufficiently weighty to qualify as special mandatory rules. Condition 2 is therefore not met.

Conclusion

There are several situations in which compulsory participation in an industry-wide pension fund may be at issue. The obligation may arise, for instance, as a result of a choice of law for Dutch law, but in international situations, compulsory participation may also arise through the Netherlands as the country of employment. Should you wish to receive more information on this topic or do you have any other questions on (cross-border) employment law issues, please contact SPEE advocaten & mediation.

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