Insolvency Law Rank of a Severance Payment Claim pursuant to Sec. 9, 10 German Protection Against Dismissal Act (KSchG)

BAG, judgment of Mar. 14, 2019 – 6 AZR 4/18

A severance payment awarded by dissolution proceedings may either be an insolvency claim or insolvency asset liability. The time the dissolution petition was made is decisive.

Facts of the case

The employer (later insolvency debtor) terminated the employment of the plaintiff before the opening of insolvency proceedings. During the first-instance dismissal protection proceedings,  the employer announced the auxiliary request to terminate the employment relationship pursuant to Sec. 9 KSchG (German Protection Against Unfair Dismissal Act – Kündigungsschutzgesetz ) against payment of a severance payment. However, the auxiliary request was not served to the plaintiff. The insolvency administrator only submitted the dissolution petition pursuant to Sec. 9 KSchG at the hearing after the opening of insolvency proceedings. 

The labor court granted the unfair dismissal claim, terminated the employment relationship by judgment, and awarded the former employee a severance payment, which was to be "determined in the insolvency schedule".

As a result, the two parties disputed the classification under insolvency law of the severance payment awarded in the dissolution judgment.

Decision

In this specific case, the German federal labor court (BAG) decided that the severance claim is an insolvency asset liability, even if the termination was declared before the insolvency proceedings were opened.

According to the BAG, the decisive factor for the classification under insolvency law of the severance payment awarded by dissolution judgment is the point in time at which the basis for the severance payment claim was created. The basis for the severance payment claim is the claim for dissolution of the employment relationship against payment of a severance payment, which must be collected in a procedurally effective way. However, the mere pronouncement of a termination does not constitute grounds for a lawsuit. In the specific case, the application for dissolution was introduced into the proceedings for the first time during the oral hearing and thus after the opening of insolvency proceedings in the process, and is therefore an insolvency asset liability.

Conclusion

If the necessary classification complaint is pending before the opening of insolvency proceedings, the severance payment determined in the dissolution judgment is an insolvency claim which must be declared in the insolvency schedule.

If, on the other hand, the classification complaint is only filed by the insolvency administrator after the opening of insolvency proceedings, the insolvency administrator will establish an insolvency asset liability via this new business which must be satisfied in advance from the insolvency estate, according to Sec. 53 InsO (German Insolvency Act – Insolvenzordnung).