Compulsory old-age pension insurance for in-house lawyers

The Federal Social Court (BSG) has decided that company lawyers cannot, as a fundamental rule, be exempt from compulsory contributions under the statutory old-age pension insurance scheme.

On 3 April 2014, the 5th Senate of the Federal Social Court decided in three appeal proceedings whether lawyers in dependent employment (so-called “in-house lawyers”) should be exempt from compulsory insurance under the statutory old-age pension scheme. As of today, the only information available on these judgments is the media information and the (more extensive) report on the hearing by the BSG; the full reasons for the decision have not yet been published.

DRV Bund: Four-criteria theory

In the past, the Deutsche Rentenversicherung Bund (DRV Bund) (German Federal Pension Fund) has exempted in-house lawyers from compulsory contributions under the statutory old-age pension insurance scheme if they were involved in legal advising, legal decisions, legal constitutive work and legal brokering (so called “Four-criteria theory”) in a company or association.

Federal Social Court: Double-profession theory

In its judgments dated 3 April 2014, the BSG has now overruled the previous practice of the DRV Bund and fundamentally rejected a right of exemption for in-house lawyers. The pivotal element of the decisions is the question of whether the work as employed in-house lawyer constitutes a function as “lawyer” creating an entitlement to exemption. In the opinion of the BSG, the four criteria, set out by the DRV Bund for checking the work of lawyers in companies, are of no relevance. According to the BSG, persons performing a role in which they are bound by instructions cannot be lawyers. The in-house lawyer is only an independent justice-administration organ - and thus lawyer – in his freelance, insurance-exempt work outside of the employment relationship (so-called “double-profession theory”).

Protection of confidence only with current exemption notification

As shown by the available report on the hearing, holders of a beneficial exemption ruling - based on the respective occupation for which exemption has been granted - enjoy protection of status. Provided there is no change of employer or substantial change in work, they remain exempt from compulsory insurance under the statutory old-age pension scheme. Nevertheless, persons who are not in possession of an exemption notification for their current work can no longer obtain exemption in future.

Consequences for in-house lawyers affected

For in-house lawyers, the new legal position means that they are doubly liable to contributions. Based on their dependent employment in the company, they are obliged to pay contributions under the statutory old-age pension insurance scheme. At the same time, their admission to practice as a lawyer means that they are compulsory members of both the respective bar association as well as of the respective professional pension scheme. Future changes of work or employer need to be well thought out in view of their social-law consequences.

Consequences for employers

On the employer side, the question arises as to whether they are now required to pay old-age pension insurance contributions for their in-house lawyers and, in return, can discontinue their subsidies towards the contribution to the professional pension scheme. It may also be necessary to pay retrospective contributions to the DRV Bund, possibly with late-payment penalties. This is because the debtor of the overall social insurance contribution is the employer, with the result that he alone will be held liable for back payments. The claims to contributions do not become statute barred until four years after the end of the calendar year in which they became due. As such, the overall financial risk per employee can be well in excess of EUR 50,000. The question also arises as to the extent to which employers can reverse process their subsidies towards contributions to the professional pension scheme, paid under the false assumption of effective exemption of the in-house lawyer. However, only the employee is likely to be entitled to reclaim against the professional pension scheme. The employer will have to contact his employee regarding the reimbursement.

Summary

A constitutional complaint has been advised against the much-noticed fundamental decision of the BSG. The professional description of the lawyer, on which the decision is based, is frequently criticized and calls made for statutory clarification for in-house lawyers in the Federal Lawyers‘ Act. The corresponding E-Petition no. 52222, submitted to the German parliament concerning exemption from compulsory contributions to the old-age pension insurance scheme for in-house lawyers, failed due to the lack of the required 50,000 signatures. The decision of the BSG has far-reaching economic consequences for in-house lawyers and companies. It hinders a change of work by lawyers and results in discontinuity of pension biographies. It is to be hoped that the judgments will be added to the records and published soon, in particular in order to remove the legal uncertainty concerning the protection of confidence to be granted.