Request for Review

– Against the freeze of remuneration with effect of 1 January 2022
(implementation by CA/D 14/21 of the new remuneration adjustment method introduced by CA/D 4/20 and CA/D 9/20) –

Please fill in your personal details and date this request for review on the first page, sign this document on the last page, preferably add the payslip January 2022 as an annex and send both documents by e-mail to:

European Patent Office

The Ombuds Office

Bob-van-Benthem-Platz 1

80469 München

By email to managementreview@epo.org

This Request for Review is filed by:

-the Requestor-

Dear Madam or Sir,

1. 1This request for management review according to Art. 109 of the Service Regulations is directed against the freeze of remuneration decided with CA/D 14/21 and implemented with the payslip of January 2022.  

2. 2With Administrative Council decision CA/D 4/20 a revised remuneration adjustment procedure was introduced. While CA/D 4/20 took effect from 1 July 2020, according to its Art. 16 the revised procedure would first apply with effect from 1 January 2021 instead of 1 July 2020 as under the former method. The Requestor’s remuneration was thus frozen, in a first step, for six months.  

3. 3On 16 December 2020 the Administrative Council adopted decision CA/D 9/20 with which salary scales and allowances have been adjusted from January 2021 according to the system introduced with decision CA/D 4/20. In application of the so-called sustainability clause (Art. 12 CA/D 4/20), the calculated positive salary adjustments which were to be applied with effect of 1 January 2021 were cut by 86,76%. 

4. 4With CA/D 14/21 it was now decided with effect of 1 January 2022, first, to cut again the calculated positive salary adjustments in application of the so-called sustainability clause by 37,9% and, second, not to pay the resulting, already reduced positive salary adjustments in application of the so-called exception clause. This results in the Requestor’s remuneration remaining unchanged, frozen again for an unforeseeable period of time.  

5. 5The Requestor’s remuneration has thus been negatively affected by the new salary adjustment procedure for the third consecutive period notwithstanding the complete lack of any valid reasons. 

Summary of Arguments

1. 6The decision to freeze my remuneration with effect of 1 January 2022 cannot stand for multiple reasons:  

2. 7The decision must be set aside because the adoption of the exception clause with Art. 14 CA/D 4/20 within the new remuneration method, but also its initial introduction with Art. 12 CA/D 3/14, and its application with CA/D 14/21, as well as the parallel application of the so-called sustainability clause, as implemented in the Requestor’s January 2022 payslip, are procedurally and materially flawed and unlawful. 

3. 8The decision must be set aside because the introduction and application of the whole new remuneration adjustment procedure is procedurally and materially flawed and unlawful. Insofar the Requestor refers to the arguments brought forward in the internal appeal procedures RI/2021/054, especially in case no. RI/2021/054-0000, which is pending before the Appeals Committee. 

4. 9Briefly summarized, the Requestor objects to the new salary adjustment method for the following reasons: 

5. 10Employees of the EPO have a right to periodic salary review and adjustment according to Art. 64(6) of the Service Regulations. The new salary adjustment procedure, however, cannot be considered to be validly introduced. Administrative Council decision CA/D 4/20 was procedurally and materially flawed and must, as a result, be set aside, as well as all decisions based on CA/D 4/20. The previous remuneration adjustment procedure shall hence continue to take effect retroactively, according to Art. 10(2) ImplR for Art. 64 ServRegs as amended by CA/D 3/14. The adjustment of the Requestor’s remuneration shall therefore be calculated in application of the former rules in place (ILOAT Judgment 4482, cons. 15), i.e. of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 3/14, and the Requestor’s remuneration shall be increased accordingly. The exception clause introduced with Art. 12 CA/D 3/14 cannot be applied since it was unlawful from the beginnning and, in any case, no decision was taken to apply it in its former version. 

6. 11The new salary adjustment method constitutes a fundamental change. Since the beginning of the EPO, more than 40 years ago, the salary adjustment of EPO staff has followed the so called "principle of parallelism" applied by most (if not all) international organisations (inter alia the EU and the Co-ordinated Organisations): the purchasing power of staff members is adjusted in line (‘in parallel’) with the purchasing power of national civil servants. When these national salaries stagnate (decided by national parliaments e.g., due to fiscal necessities), so do EPO salaries, but when national salaries improve, EPO staff benefit in the same proportion from this improvement. The new salary adjustment procedure introduced artificial caps to salary adjustments, the new so called “sustainability clause” and the “exception clause”, introducing inter alia another indicator, the Eurozone inflation index. These clauses apply when the application of the normal rules for salary adjustment in Art. 2 to 4 ImplR would lead to more favourable results, but not if the reverse is the case. This results in a steadily increasing divergence between actual salary scales and what the “principle of parallelism” would have warranted. While the EPO has some discretion as to the method of salary adjustment, it is bound by its own rules and general principles of law, inter alia the principles of parallelism, equality in purchasing power and stability, foreseeability and clarity of salary adjustment methods. In introducing and consecutively applying the new salary adjustment method to the detriment of staff, the EPO has disregarded its own rules and breached general principles of law in multiple ways: 

• According to the Tribunal’s case-law, the implementation of a new salary adjustment method cannot stand if it is adopted on a mistaken factual basis and/or ignores essential facts. The EPO has, however, purposively opted for an overly cautious assessment of its financial assets, deliberately ignoring several billions of future fees and the value of EPO buildings, thus artificially and arbitrarily creating a fictitious financial gap that will be bridged to the detriment of staff through the imposition of the impugned salary adjustment method. Although the overly pessimistic assumptions proved to be incorrect, the accounts of the EPO showing surpluses in the billions, the EPO applied cuts of the remuneration twice, with effect of 1 January 2021 and now again with effect of 1 January 2022. Beyond that the EPO even decided that the reduced positive adjustments, after having applied the cuts according to the so-called sustainability clause, will not be paid. All this based on indicators which are completely disconnected from the budget and the financial situation of the organisation. 

• The new system and particularly the combined application of the sustainability and exception clause with effect of 1 January 2022 is in breach of the principles of stability, foreseeability and clarity of salary adjustment methods because it cannot be determined when and on which basis future adjustments will be applied. The right reserved by the EPO to decide on the application of the remuneration adjustment procedure every year anew adds to this obscurity. Moreover, the salary freeze with effect of 1 January 2022 which adds (1) to the salary freeze for half a year (July-December 2020), replaced in fine by an inadequate lump-sum, and (2) to the application of cuts due to the “sustainability clause” both in 2021 and 2022 lacks any justification and explanation which shows the mere desire to save money on the back of staff despite the lack of any real financial need for such savings on the part of the EPO.  

• In departing from the purchasing power parity coefficients for each duty station, the EPO does not guarantee the purchasing power parity between duty stations. The Eurozone inflation index triggering the “sustainability clause” and the gross domestic product of all the Contracting States triggering the “exception clause” are also completely unrelated to local cost of living, and therefore act to distort arbitrarily the equality of purchasing power. The EPO also failed to explain or justify this departure as required by ILOAT Judgment N°. 1663. Contrary to mechanisms adopted by other international organisations, neither the application of the so-called “sustainability clause” nor of the “exception clause” as adopted by the EPO are linked to the financial situation of the Organization. Rather, they are tied to indicators that do not have any significance for the financial situation of the EPO, such as the Harmonization Index of Consumer Prozes (HICP) and the Gross Domestic Product (GDP) of EPO member states. Moreover, in applying the cuts to the salary increases instead of to the salary tables, even the calculation method chosen alters the purchasing power parity again. This is even more so in application of the “exception clause”. Hence additional savings are made, amounting to an illegal unjust enrichment of the EPO at the expense of staff. 

• In addition, the EPO did not comply with its own rules for the review of the method, laid down in Art. 64 of the Service Regulations (ServRegs) and the respective Implementing Rule (ImplR). Instead, the EPO started the review prematurely, ignored recommendations of the Co-ordinating Committee referenced by Art. 64 ServRegs and paid no attention nor adhered to the criteria for review laid down in the Implementing Rule. 

• The EPO did not consult staff representatives at all prior to the most essential decisions, especially which financial assumptions and scenario should be taken as a basis for the review of the salary adjustment method as decided with CA/D 4/20. In addition, the EPO did not provide all required information to the GCC prior to adopting CA/D 14/21. 

• Finally, in addition to a non-adjustment of the remuneration for six months in 2020, the new method led to considerable losses for all employees in the form of much lower salary adjustments for 2021, and, as has become clear with the salary slips for January 2022, no salary adjustment at all for 2022. This alone leads to considerable losses in purchasing power, in violation of staff’s acquired rights and also the principle of parallelism. 

1. 12For further details regarding the procedural and material flaws of the new salary adjustment method the Requestor refers to the submissions in the pending internal appeal proceedings, especially in the appeal brief, under the file number beginning with RI/2021/054, especially in case no. RI/2021/054-0000, and make it subject of this Request for Review. It is also made reference to the general bundle of annexes submitted to the Appeals Committee; these annexes are referred to as Annex C1-C46. 

Requests

1. 13Based on the considerations summarized above and explained in more detail below the Requestor claims that: 

1. 1.the January 2022 payslip and all payslips implementing CA/D 14/21 as well as Art. 1, 2 and 3 CA/D 14/21 and, incidentally, CA/D 4/20 as a whole, subsidiarily at least Art. 12 and 14 CA/D 4/20, and CA/D 9/20 and Art. 12 CA/D 3/14 be set aside with all legal effects flowing therefrom;  

2. 2.the Requestor’s remuneration be adjusted in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 3/14, or, subsidiarily, in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 4/20; 

3. 3.the Office provides the Requestor with new revised payslips as from the January 2022 payslip and pays the difference between the remuneration actually paid to the Requestor since January 2022 and the remuneration that would have been paid according to request 2. with interest at the rate of 5 per cent per annum from due dates until the date of final payment; 

4. 4.merely precautionary and subsidiarily to 2. and 3.: that the full amount of the positive salary adjustments calculated in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 4/20, prior to and without the application of Art. 9 ImplR, be taken into account as basis for the calculation of future adjustments according to Art. 11(2) ImplR for Art. 64 ServRegs; 

5. 5.again subsidiarily to 4.: that the positive salary adjustments withheld with effect of 1 January 2022 in application of Art. 11(1) ImplR for Art. 64 ServRegs as amended by CA/D 4/20 be paid to the Requestor with interest at the rate of 5 per cent per annum from due dates until the date of final payment; 

6. 6.again subsidiarily to 5.: that the positive salary adjustments withheld with effect of 1 January 2022 in application of Art. 11(1) ImplR for Art. 64 ServRegs as amended by CA/D 4/20 be included in the pool for periodical settlement according to Art. 10(1) ImplR for Art. 64 ServRegs, in addition to being taken into account according to Art. 11(2) for future salary adjustments; 

7. 7.moral damages to the amount of 30.000 EUR with interest at the rate of 5 per cent per annum from due date until the date of final payment. 

1. 14To avoid any ambiguity or misunderstanding it is clarified that this model Request for Review may be used by any person receiving remuneration and/or allowances under any of the applicable salary scales. For ease of reading, these persons are referred to as “employees” who stand exemplary, respectively, for all active and inactive employees. The term “remuneration” encompasses all salaries and allowances. Consequently whenever the term “payslip” is used it refers to all notices or statements regarding the payment of remuneration. Consequently, nothing in this Request for Review shall be construed as limiting the requests contained therein. 

2. 15The Requestor seeks legal redress under all conceivable aspects and requests that neither the “sustainability clause” nor the “exception clause” be applied to the salary adjustment with effect of 1 January 2022 and all sums withheld be paid. Merely precautionary and subsidiarily in case that only one of the clauses would be found null and void, the Requestor claims that the full ficticious adjustments be taken as a basis for future adjustments (request no. 4.; if the “sustainability clause” was found null and void, but not the “exception clause”) or, again subsidiarily, that the reduced adjustments be effectively paid (request no. 5; if the “exception clause” was found null and void, but not the “sustainability clause”). On a very subsidiary basis, in the unlikely case that both clauses would be in principle upheld, the Requestor claims that the sums withheld in application of the “exception clause” be not only taken into account for future salary adjustments but also be credited to the redistribution pool (request no. 6).  

Table of Contents

Summary of Arguments        2

Requests        6

Considerations:        9

A.        Summary of Facts        9

I.        Adoption and First Implementation of the New Salary Adjustment Procedure with         CA/D 4/20 and CA/D 9/20        9

II.        Financial Situation of the EPO 2020 and 2021        11

III.        Decision CA/D 14/21: No Adjustment of Remuneration with Effect of                 1 January 2022        13

1.        Adoption Process        13

2.        Content of the Decision        16

B.        Reasons for Management Review        18

I.        Receivability        18

1.        Directly and Indirectly Impugned Decisions        18

2.        Adverse Effects        19

3.        Standing to Criticize the Flawed Consultation        20

II.        Merits        20

1.        The Implementation of the New Salary Adjustment Procedure with CA/D 14/21                 is based on Mistaken Financial Assumptions        21

a)        Unjustified Neglection of Values in the Financial Study        22

b)        Financial Situation 2021: 5.8 BN EUR Better than Forecast – Alleged Gap                 Over 20 Years Already Closed        23

c)        Impact on the Rest of the Forecasts until 2038        24

d)        Conclusion and Consequences for CA/D 14/21        25

2.        Breach of the Principle of Stability, Foreseeability and Clarity of Salary                 Adjustment        26

a)        The New System is Neither Stable, nor Clearly Predictable nor Clearly                Understandable        27

b)        The Application of the “Sustainability Clause” Leads to Increasing Divergence         Between Applied Salary Scales        28

c)        “Exception Clause”: Double Cap, Intransparency, Unforeseeability and                 Obscurity        31

3.        Breach of the Principle of Equal Treatment        34

a)        The New Method Violates the Principle of Purchasing Power Parity        34

b)        The Method Used to Calculate Cuts in itself Violates Purchasing Power Parity                and Results in Further Savings Solely in the Detriment to Staff        36

4.        Non-Respect for the EPO’s Own Rules for the Review of the Adjustment                 Procedure        38

5.        Insufficient and Flawed Consultation of Staff Representatives        38

a)        No Consultation at All Prior to Most Essential Decisions (CA/D 4/20 and 9/20)        40

b)        Flawed Consultation prior to CA/D 14/21        40

6.        Breach of the Principle of Parallelism and Acquired Rights        42

a)        Breach of the Principle of Parallelism and Equal Pay for Work of Equal Value        42

b)        Acquired Rights        45

C.        Conclusion        45

Considerations:

1. A.Summary of Facts 

1. I.Adoption and First Implementation of the New Salary Adjustment Procedure with CA/D 4/20 and CA/D 9/20 

1. 16The course of events leading to the adoption of Administrative Council decisions CA/D 4/20 and CA/D 9/20 was presented in depth in the internal appeals against the implementation of the new salary adjustment procedure filed in August 2021 and registered und file numbers beginning with RI/2021/054. The Requestor refers especially to the line of reasoning brought forward in case RI/2021/054-0000 and makes it subject of this Request for Review to avoid repetition. 

2. 17It shall only briefly be recalled that until 30 June 2020, the remuneration adjustment for permanent employees of the EPO was governed by the Implementing Rules for Art. 64 of the Service Regulations as amended by Administrative Council decision CA/D 3/14 of 26 June 2014. Said remuneration adjustment system entered into force on 1 July 2014. With its introduction, it was established that it would have to be fully revised after six years and further requirements were established for the review procedure. 

3. 18Yet, the Office started long before that date to work on a new salary adjustment procedure without consulting or informing staff representatives. This led to the Office submitting, with the President’s proposal of 8 May 2020, a report on the implementation of the previous salary adjustment method “for the period 2014–2019” to the Council and not, as it should have, for the period 1 July 2014 to 30 June 2020. Proposals and concerns of staff representatives were not taken into account. 

4. 19On 6 May 2020 the General Consultative Committee (GCC) was consulted regarding the establishment of the new salary adjustment procedure. Some essential documents were distributed to the GCC members less than one hour before the GCC meeting was scheduled to start and thus in breach of Art. 6 (1) of the Rules of Procedure of the General Consultative Committee. 

5. 20All GCC members of the Central Staff Committee criticized the insufficient information and flawed consultation in their joint unanimous opinion contesting the new remuneration adjustment procedure submitted to the President on 8 May 2020. However, the President on the same day nevertheless submitted his proposal for the adoption of the salary adjustment method to the Administrative Council (document CA/19/20) – nearly two months before the six-year period ended and without taking any time to consider the proposals and concerns of staff representatives.   

6. 21Furthermore, the Office did not conduct any consultation on the planned non-adjustment of pensions, neither with the GCC nor with the Pensioners’ Association and in any case not in a manner required by the Agreement between the Office and the Pensioners’ Association before submitting proposal CA/19/20.  

7. 22On 30 June 2020, the last day of the six year period, the Administrative Council adopted decision CA/D 4/20 introducing a revised salary adjustment method. While CA/D 4/20 took effect from 1 July 2020, according to its Art. 16 the revised procedure was first to be applied with effect from 1 January 2021. The previous Implementing Rule for Art. 64 of the Service Regulations, however, foresaw an adjustment of salaries with effect from 1 July and was in force until 30 June 2020. The date for adjusting salaries was hence shifted ultra vires with a gap of 6 months in between.     

8. 23The adjustment proposed to the Administrative Council by the President resulted in a cut of the calculated positive adjustments by 86,76% due to the application of a “sustainability clause”. CA/66/20 clearly states at paragraphs 16 and 17 that the purchasing power parity increased and that the combined application of the indicators and coefficients would normally have resulted to the following yearly adjustments before application of the sustainability clause: +3.8% for Germany, +3.8% for the Netherlands and +2.7% for Austria (rounded figures): 

16. The purchasing power parity increased by +1.9% for Germany, by +2.0% for the Netherlands and by 0.9% for Austria.

17. The combined application of the Belgium HICP, the Specific Indicator and the purchasing power parity coefficient relating to the country concerned would have resulted to the following yearly adjustments before application of the sustainability clause: +3.8% for Germany, +3.8% for the Netherlands and +2.7% for Austria.

1. 24However, nevertheless due to the application of the newly introduced “sustainability clause”, the President proposed to the Administrative Council salary adjustments amounting to only +0.2% in the basic salary scales for Belgium, +0.5% in the scales applicable in Germany, +0.5% in the scales applicable in the Netherlands and +0.4% for those applicable in Austria (again rounded figures). 

2. 25This means losses amounting to approximately 3,3% for Germany and the Netherlands and 2,3% for Austria, thus losses of 86,76% compared to the positive adjustments that would have occurred without a “sustainability clause”. 

3. 26CA/66/20 contains an opinion dated 5 November 2020 from the Advisory Group on Remuneration which states at paragraph 52: 

52. The Group notes that the current economic situation, due to the COVID-19 pandemic, will be reflected in the salary adjustment calculations for 2021 as the GDP of the EPC contracting states used in the calculation is that of the previous year, according to the provisions of Article 11. The GDP for 2020 may well be negative (the latest figures projected by the European Commission suggest the EU GDP for 2020 will be around -7.4%) and therefore the Group considers it probable that the exception clause contained in Article 11 will be triggered in 2021.

1. 27It follows from the above that the new method led from the beginning to considerable losses for all employees, including the Requestor, in the form of much lower salary adjustments with effect of 1 January 2021. On top of that, the compensation in lieu of adjustment for the six months period from July to December 2020 was calculated on the basis of the new method under which positive salary adjustments were also cut by 86,76% due to the sustainability clause, as explained above. 

1. II.Financial Situation of the EPO 2020 and 2021 

1. 28In scenario B2 of the Mercer & Wyman study (CA/46/19, Annex C1, page 101, Table 17), which was taken as the reference by the EPO for justifying the new salary adjustment procedure the forecasts for the two main assets funds (RFPSS and EPOTIF) of the EPO were the following: 

• The forecast for the RFPSS value in 2020 was 6.83 BN EUR 

• The forecast for the EPOTIF value in 2020 was 2.21 BN EUR 

1. 29However, in 2020 the financial situation of the EPO continuously improved. The forecasts for both funds were thus exceeded: 

• For the RFPSS the latest reported value for 2020 is of 10.34 BN EUR (+51% compared to the forecast of the Financial Study)  

• For the EPOTIF the latest reported value for 2020 is 3.14 BN EUR (+42% compared to the forecast of the Financial Study) 

1. 30This is an excess of 4.44 BN EUR in 2020 in the two main funds of the EPO alone, in comparison to the forecasts of the Financial Study. 

2. 31In 2021 both, the RFPSS and the EPOTIF, also performed much better than forecasted by the Mercer & Wyman Financial Study in scenario B2 (CA/83/19, Annex C6, p. 92): 

• The forecast for the RFPSS value in 2021 was 7.3 BN EUR 

• The forecast for the EPOTIF value in 2021 was 2.4 BN EUR 

1. 32In fact the reported value of both funds exceeded the forecasts to an even higher percentage than in 2020: 

• For the RFPSS, the reported value for Q4/2021 is 11.868 BN EUR (document RFPSS/SB 62/21, page 1, figure 1; +63% compared to the forecast of the Financial Study)  

• For the EPOTIF the reported value for Q4/2021 is 3.621 BN EUR (document CA/F 3/22, page 12; +51% compared to the forecast of the Financial Study) 

1. 33In absolute figures, this results in an excess of 5.789 BN EUR in 2021 in the two main funds of the EPO alone, compared to forecasts in the Financial Study by Mercer & Wyman.  

2. 34The alleged financing gap over 20 years, which the President assumed based on the Financial Study, was estimated to 5.8 BN EUR. It follows that the gap, if it had existed at all, had already been filled by the end of the first year of the implementation of the new salary adjustment procedure. 

3. 35This evolution was already clear from the 3rd-quarter-reports available prior to the adoption of CA/D 14/21.  

4. 36In addition, the Accounts for 2021 show a positive result, an excess of 310 m EUR. In addition, they also show that the EPO had budgeted a salary adjustment of 2,5% and the new revised method only brought 0,5% resulting in huge savings on salaries and pensions (CA/10/21, Annex C42, pages 25, 36, 52, 53). Further savings were made in 2020 especially in relation to staff due to the Covid-19 pandemic and the salary adjustment method (Publication of the CSC dated 17 May 2021, sc21058cp, Annex C43). 

5. 37The budget of the EPO for 2022 was thus increased by 304 m EUR (CA/50/21), reflecting the Organization’s excellent financial situation and illustrating that there is no need for savings. As the budget increase also shows, savings were apparently also not deemed necessary by the EPO management – with the sole exception of staff and pensioner remuneration. 

1. III.Decision CA/D 14/21: No Adjustment of Remuneration with Effect of 1 January 2022 

1. 1.Adoption Process 

1. 38It is foreseen in Art. 1(1) and (2) of CA/D 4/20 that basic salaries and allowances are adjusted each year, with effect from 1 January, in accordance with the new salary adjustment procedure introduced with CA/D 4/20 and on the basis of a proposal drawn up by the President of the Office after consulting the General Consultative Committee. The adjustment proposal shall then be submitted to the Administrative Council for approval at its meeting in December of the year preceding the application. 

2. 39The adjustment of salaries and other elements of the remuneration of permanent employees of the EPO and of pensions paid by the Office was content of GCC/DOC 17/21 prepared by the EPO President. Said document was submitted to the members of the GCC on 8 November 2021 and made an item for consultation on the Agenda of the GCC meeting on 23 November 2021. 

3. 40GCC/DOC 17/21 contained the draft proposal of the President, document CA/71/21, for the adjustment of remuneration with effect from 1 January 2022 with the draft decision of the Administrative Council including tables for Belgium, Germany, The Netherlands and Austria. Tables for other countries were not submitted for consultation.  

In Art. 2(1) and 3(1) of the draft decision it is stated:

Where applicable, the monthly salary scales for other countries, drawn up in accordance with Article 2 of CA/D 9/20, will also continue to apply.

Draft document CA/71/21 states inter alia the following:

15. Following the recommendation of the Advisory Group on Remuneration in their report of April 2014, the Administrative Council approved the use of the Harmonised Index of Consumer Prices (HICP) for Belgium in place of the Brussels International Index as a measure of inflation (cf. CA/D 3/14). This year, the HICP for Belgium is 102.6 (see Annex 1).

16. The application of the Belgium HICP combined with the Specific Indicator would have resulted in a yearly adjustment of +1.7% for Belgium, before application of the sustainability clause.

[…]

19. The purchasing power parity increased by +1.0% for Munich and by +2.1% for Vienna. The purchasing power parity decreased by -1.6% for The Hague.

20. The combined application of the Belgium HICP, the Specific Indicator and the purchasing power parity coefficient relating to the country concerned would have resulted to the following yearly adjustments before application of the sustainability clause: +4.5% for Germany, +1.7% for the Netherlands and +4.6% for Austria.

[…]

24. According to the Article 9 of the procedure, the overall growth in the basic salary mass resulting from the salary adjustment procedure described under Chapter II shall be limited to that indexed to annual Eurozone inflation +0.2% as at 1 July of the calculation year. To that end, the growth in the basic salary mass is calculated by reference to the increase by site, weighted to reflect distribution of employees per site as at 1 July of the calculation year. If the weighted increase exceeds this limit, the salary adjustment percentage of all basic salary scales and allowances (scales referred to in Article 4 and the scale for Belgium) are to be reduced in the same proportion.

25. For the year up to 1 July 2021, the Eurozone HICP inflation was observed to be +1.9%, and therefore the cap is at +2.1% (1.9%+0.2%) for the purpose of the sustainability clause. The weighted average salary adjustment based on the active employees distribution at 1 July 2021 amounts to +3.4%. When compared to the cap of +2.1%, the percentage difference between the two is 37.9%. This means that a reduction in the adjustment percentage for each salary scale of 37.9% must be applied. Application of the sustainability reduction factor to the yearly adjustments reflected in A and B results in yearly salary adjustments as follows: +2.8% for Germany, +1.1% for the Netherlands, +2.9% for Austria and +1.0% for Belgium (these are rounded figures to one decimal place, please refer to paragraph 10). The reduction factor is also applied to the salary adjustment percentages for all other salary scales and allowances applicable in EPC member states.

[…]

27. The excess adjustments not applied as a result of this year’s adjustment calculations are +1.6% for Germany, +0.6% for the Netherlands, +1.7% for Austria and +0.6% for Belgium (these are rounded figures to one decimal place, please refer to paragraph 10). This remaining balance is carried forward to the redistribution pool created last year and which may be used in next year's adjustment and for potential one-off pay-out after 3 years of application of the salary adjustment methodology.

[…]

29. Article 11 of the procedure (the exception clause) requires consideration of the annual evolution of the Gross Domestic Product (GDP) of all EPC contracting states, measured to the end of the previous calendar year. If there was a decrease in the real gross domestic product of the Contracting States the previous year and the result of the adjustment according to Articles 2 to 4 and Article 9 is positive, the adjustment shall be delayed. The delayed adjustment shall not be taken into account for the purpose of the sustainability clause above. […]

30. For 2020, the collective evolution over 34 of all 38 EPC contracting states was calculated to be -5.9% (in real terms) on 18 October 2021, using data made publicly available by Eurostat and, for the UK, by the Office of National Statistics. Therefore, as anticipated in last year’s report (CA/66/20), the exception clause will apply on the salary adjustment with effect from 1 January 2022. As the GDP growth is below the threshold of -3% shown in paragraph 29 above, all EPO salary scales will be adjusted by 0%, with effect from 1 January 2022.

31. According to Article 11(2) of the procedure, the results of the calculations described in section G below will form the basis of future adjustments once the GDP has recovered its 2019 level. This means that the effect of the adjustment result is delayed and the calculated values will form part of a future year’s salary adjustment.

In Section “G. RESULTS FOR 1 JANUARY 2022” the President proposed:

33. In accordance with Article 4 of the procedure, combining the effects of the specific indicator, the HICP for Belgium and the purchasing power parity coefficients before application of the sustainability clause results in calculated adjustments of +4.5% for Germany, +1.7% for the Netherlands and +4.6% for Austria. In accordance with Article 9 of the procedure, and after application of the sustainability clause, the applicable salary adjustments will be +2.8% for Germany, +1.1% for the Netherlands, +2.9% for Austria and +1.0% for Belgium. The above figures are shown rounded to one decimal place but do not reflect the full calculation detail. For reasons connected with the structure of the scales and the rounding operation, the exact adjustment for each grade and step may vary slightly around these percentages.

34. Article 11 of the salary adjustment procedure (the exception clause) states that the adjustment shall be delayed if there was a decrease in the real gross domestic product of the Contracting States the previous year and the result of the adjustment according to Articles 2 to 4 and Article 9 is positive. The combined GDP of the contracting states decreased by -5.9% between 2019 and 2020. Therefore, the salary scales and allowances for each country with effect from 1 January 2022 remain unchanged (i.e. 0% increase) and are presented below Tables 1 to 5.

35. However, in accordance with Article 11(2) of the salary adjustment procedure, the monthly salary scales, and related allowances, calculated in accordance with Articles 4 to 10 of the procedure, will form the basis of the calculation of future adjustments, once the cumulative increase of gross domestic product in the Contracting States becomes positive. The corresponding increases in salaries and allowances, to be applied once the GDP has recovered, are shown in Tables 7-11. […]

36. The Administrative Council is requested to approve the proposed adjustments by adopting the draft decision in Part II below.

1. 41The CSC members requested, again in the GCC meeting on 23 November 2021, that all salary scales should be provided to the GCC. However, they were not. The CSC members of the GCC then unanimously objected to the non-adjustment proposed by the President. In their joint opinion on GCC/DOC 17/2021 they criticized inter alia that monthly salary scales for other countries than Belgium, Germany, The Netherlands and Austria were not contained in/annexed to the document itself. Nor did the GCC members receive them at all before decision CA/D 14/21 had been taken, whether in the GCC meeting on 23 November 2021 or any other time even though the CSC members of the GCC requested their submission. 

2. 42After the GCC meeting on 23 November 2021 the President on 26 November 2021 submitted his proposal as document CA/71/21 without any changes or amendments for decision to the Administrative Council. 

3. 43On the day the meeting of the Administrative Council was held, the CSC member of the GCC Mr Michael Sampels held a speech before the Administrative Council highlighting the defects of the application of the new salary adjustment method with effect of 1 January 2022 and, again, criticized the insufficient consultation. The reaction was silence. In full awareness of the material and procedural flaws and without even trying to remedy them, on 15 December 2021 the Administrative Council approved of the President’s proposal as contained in CA/71/21 merely pointing out that it had been submitted to the Council after consulting the General Consultative Committee. 

4. 44Said decision is the impugned general decision, Administrative Council decision CA/D 14/21. 

1. 2.Content of the Decision 

1. 45It is explicitly regulated in CA/D 14/21 that the exception clause, contained in Art. 11 of the new salary adjustment method as decided with Administrative Council decision CA/D 4/20, shall take effect for the yearly adjustment as of 1 January 2022. 

2. 46As set out in Art. 2 (1) and Art. 3 (1) of CA/D 14/21 pursuant to Art. 11(1) of the new salary adjustment procedure, the monthly salary scales applicable with effect from 1 January 2022 thus show the same amounts as in 2021. The same applies for the dependent’s allowance, the birth grant and the language allowance. This results in the Requestor’s remuneration remaining unchanged, frozen again for an unforeseeable period of time.  

3. 47However, CA/D 14/21 contains several other decisions which are only apparent after careful examination and in connection with the preparatory documents. 

4. 48In Art. 1 of CA/D 14/21 it is stated that the President’s report on the adjustment of the remuneration of permanent and other employees of the Office – CA/71/21 – is noted “and the proposals contained therein are approved”. 

5. 49It may be inferred from this in conjunction with Art. 2(2) and 3(2) CA/D 14/21, Tables 7-10 and the President’s proposals in document CA/71/21 that the Administrative Council also decided to apply the new sustainability clause introduced with CA/D 4/20 and since then contained in Art. 9 ImplR for Art. 64 ServRegs.  

6. 50While the application of the sustainability clause, Art. 9 ImplR for Art. 64 ServRegs, is not expressly mentioned in CA/D 14/21, the EPO President explicitly mentions its application in CA/71/21 (see paras. 23 ff. and 33, cited above). Since the proposals contained in CA/71/21 are formally approved with Art. 1 of CA/D 14/21, so implicitly is the application of the sustainability clause.  

7. 51This leads to the first implicit decision of the Administrative Council to cut (again) the calculated salary adjustments in application of the “sustainability clause” by 37,9%. This results in the fictitious, reduced adjustments stated in Tables 7-10 annexed to CA/D 14/21.  

8. 52The second, explicit decision of the Administrative Council, stated in Art. 2(1) and 3(1) CA/D 14/21, is not to pay even the reduced positive salary adjustments, after application of the “sustainability clause”, but to freeze the salaries and allowances at the level of 1 January 2021 in application of the so-called exception clause. This leads to a situation in which the amounts mentioned in Tables 7-10 annexed to CA/D 14/21 will not be paid out to employees but merely serve as calculative basis for salary adjustment once the gross domestic product of the contracting states has recovered its 2019 level (i.e. the cumulative increase is positive) (para. 35 of CA/71/21). It is unknown when and if at all this will occur.  

9. 53Apart from that, the amounts mentioned in Tables 7-10 will not be transferred to the redistribution pool and will not be part of the pay-out of the non-pensionable lump sum if carried forward after three annual salary adjustments (paras. 26f. of CA/71/21). Only the difference between the positive adjustments calculated in application of Art. 2 to 4 ImplR and the reduced positive adjustments after application of the so-called sustainability clause, the so-called “excess adjustments not applied” with effect of 1 January 2022, as proposed in para. 27 of CA/71/21 (+1.6% for Germany, +0.6% for the Netherlands, +1.7% for Austria and +0.6% for Belgium) and approved with Art. 1 CA/D 14/21 were transferred to the redistribution pool. 

10. 54As becomes clear from the above, the actual salary adjustment for the year 2022 contains several decisional layers which are not clearly regulated in Administrative Council decision CA/D 14/21 itself. They may only be rudimentarily understood after careful examination of the decision itself in connection with the President’s proposal CA/71/21 as well as the tables annexed to it.  

1. B.Reasons for Management Review 

1. 55The decision to freeze the Requestor’s remuneration as of 1 January 2022 must not be upheld. The Requestor is adversely affected by the decision to implement Administrative Council decision CA/D 14/21 leading to the remuneration visible on the January 2022 payslip. 

1. I.Receivability 

1. 1.Directly and Indirectly Impugned Decisions 

1. 56This Request for Review is directed against the freeze of remuneration decided with CA/D 14/21 and individually implemented with the payslip of January 2022. Even if the salary tables are the same as in 2021, they are the result of a new decision by the Administrative Council. 

2. 57The ILOAT recently held in Judgment 4138, cons. 6:  

“The legal foundation for the complaints is the individual decision, reflected in a payslip, to reduce the salary of each complainant. In such circumstances the complainant can challenge the general decision on which the individual decision is based.”

1. 58The Requestor challenges the individual implementation reflected in the payslip of January 2022 and the general decision CA/D 14/21 on which the implementation is based directly. However, since CA/D 14/21 constitutes a decision to apply the new salary adjustment procedure introduced with CA/D 4/20 and especially the so-called sustainability clause (Art. 12 CA/D 4/20) and the so-called exception clause (Art. 14 CA/D 4/20), the implementation visible in the Januar 2022 payslip also rests on these general decisions. Moreover, Art. 2 and 3 CA/D 14/21 expressly maintains tables and refers to tables drawn up in application of CA/D 9/20. Insofar the individual implementing decision also rests on CA/D 9/20. All these underlying general decisions are impugned as well. In Art. 2 and 3 CA/D 14/21 it is stated that Art. 11 of the Implementing Rule for Art. 64 ServRegs be applied. The exception clause was thus expressly applied in the amended version as adopted with Art. 14 CA/D 4/20. Precautionary, the Requestor however also impugns Art. 12 CA/D 3/14 initially introducing the exception clause.  

2. 59It must be recalled that the adoption of the new salary adjustment procedure with CA/D 4/20, the salary freeze July-December 2020 and the implementation with CA/D 9/20, resulting in high cuts of the calculated positive salary adjustments are subject of separate litigation. Precautionary, it shall be pointed out that the present Request for Review in no way invalidates ongoing litigation. 

3. 60Independently from any litigation against the previous decisions, the Requestor impugns all and any general decisions on which rests the individual implementation of the remuneration freeze with effect of 1 January 2022. 

4. 61Insofar it was to be considered that this Request for Review would partly depend from the outcome of any previous litigation, it shall be pointed out that the EPO has expressly guaranteed to apply the final outcome of the proceedings against the new salary adjustment procedure, inter alia those pending under the file numbers beginning with RI/2021/054 before the Internal Appeals Committee, to all staff. The Requestor thus expects that independently from having filed an own request for review and/or internal appeal against previous decisions, her/his rights will be safeguarded.   

1. 3.Adverse Effects 

1. 62As already pointed out above, the payslip for January 2022 implements Administrative Council decision CA/D 14/21 and further general decisions in the Requestor’s individual case. As already indicated above under A.III.2 (paras. 45ff.), said decision has several detrimental effects on the Requestor’s remuneration. The multiple layers of financial damage shall be summarized as follows:   

• The remuneration is not adjusted at all with effect of 1 January 2022 but remains at the same level as of 1 January 2021, although inflation is rising and the positive adjustments were already cut by 86,76% with effect of 1 January 2021 (CA/D 9/20). 

• The fictitious positive adjustments indicated in Tables 7-10 annexed to CA/D 14/21 have been determined after application of cuts of 37,9% to the normally calculated positive adjustments. The Requestor is thus subject to a double-cap of his/her remuneration. 

• It is unclear, if and when fictitious positive adjustments will be applied in the future. This results in loss of pensionable remuneration for all the years fictitious positive adjustments are not applied. This causes long-term financial damage on the Requestor’s pension. 

• The decision to apply a cap of 37,9% to the (fictitious) positive adjustments results in the complete loss of pensionable remuneration with regard to this part of the normal positive adjustments.  

1. 4.Standing to Criticize the Flawed Consultation 

1. 63As a staff member, the Requestor has standing to challenge the general decision CA/D 14/21 and any further general decisions on which CA/D 14/21 is based, especially CA/D 4/20, for the Office’s failure to properly consult the GCC.  

2. 64Any staff member who is affected by an individual decision taken on the basis of a regulation adopted in breach of procedure is entitled to raise an “exception d’illégalité”. Indeed, according to ILOAT Judgment N°. 3291, cons. 7, each employee needs to timely appeal individually against the implementation of general decisions and criticize any failures to properly consult staff representatives. The Tribunal is to follow in its determination that “if an individual decision is set aside because of the unlawfulness of the underlying decision, the latter must also be set aside.” (Judgment N°. 3146, cons. 10). The decision to implement the Administrative Council’s decisions with the Requestor’s January 2022 payslip is the one challenged with the current Request for Review. Inter alia, the Requestor asserts that the GCC consultation prior to CA/D 4/20 and the consultation prior to CA/D 14/21 was flawed – and that therefore as well the individual decision resulting therefrom does not have a proper base in law and must be quashed with all legal effects flowing therefrom.  

3. 65Decision CA/D 14/21 of the Administrative Council must hence not be applied to adjust the Requestor's remuneration as of January 2022. Instead, according to Art. 10(2) ImplR for Art. 64 ServRegs as amended by CA/D 3/14, the Requestor's remuneration shall be adjusted in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 3/14. Merely precautionary and subsidiarily, it is requested to adjust the remuneration in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 4/20. 

1. IV.Merits 

1. 66The Request for Review is well founded. The decision to freeze the Requestor’s remuneration with effect of 1 January 2022, with all further adverse effects described above and as implemented in the payslip, cannot stand for multiple reasons:  

2. 67The decision must be set aside because the adoption of the exception clause with Art. 14 CA/D 4/20 within the new remuneration method – precautionary also its initial introduction with Art. 12 CA/D 3/14 – and its application with CA/D 14/21, as well as the parallel application of the so-called sustainability clause resulting in a double-cap of the Requestor’s remuneration, as implemented in the payslip, are procedurally and materially flawed and unlawful. 

3. 68The decision must also be set aside because the introduction and application of the whole new remuneration adjustment procedure with CA/D 4/20 and CA/D 9/20 is procedurally and materially flawed and unlawful, which will be briefly summarized below. For further details reference is made to the arguments brought forward in the internal appeal procedure, especially in the appeal brief, with the case no. RI/2021/054-0000 which is pending before the Appeals Committee.  

In detail:

1. 1.The Implementation of the New Salary Adjustment Procedure with CA/D 14/21 is based on Mistaken Financial Assumptions  

1. 69It has been held by the Tribunal that it may review an international organization’s decision to implement a new salary adjustment method should it be taken on a mistaken factual basis and/or ignore essential facts (Judgments N°. 1841, cons. 9; 2571, cons. 9). 

2. 70It has become apparent from the discussion of the President’s proposal and the analysis of the new remuneration procedure in the appeal brief in case no. RI/2021/054-0000 that the aim of the new remuneration procedure is primarily, if not exclusively, to make savings at the expense of staff. This has been justified in the President’s proposal with reference to a study, which had allegedly shown a structural deficit and assumed a significant benefit-funding gap.  

3. 71In this regard it has to be recalled that the ILOAT has in Judgment N°. 3324, cons. 16 held as follows: 

While the necessity of saving money may be one valid factor to be considered in adjusting salaries provided the method adopted is objective, stable and foreseeable (Judgment 1329 [...] in 21), the mere desire to save money at the staff’s expense is not by itself a valid reason for departing from an established standard of reference: Judgments 1682 in 7 and 990 [...] in 6.” (See Judgment 1912, under 13.)

1. 72In its Judgment N°. 1713, cons. 8, the Tribunal was even more adamant:    

"…As was held in Judgment 1265, the [ICSC] must be allowed some discretion over method, even though the Tribunal will still review the exercise of it. The decision impugned may not stand if, say, it overlooks or misconstrues some particular factor, or if some method is applied for the wilful contrivance of lower figures of local pay, or if corners are cut for the sake of saving time, but to the detriment of staff interests" (emphasis added).

1. 73As further detailed immediately below, it is clear that the methodology implemented by the Office was sculptured primarily to result in a lower salary adjustment to the detriment of the staff interests, even though such imposed savings appear based on a factually incorrect, or otherwise, a far too cautious projected analysis of the Office’s future financial condition, which analysis was further tainted by the failure to take account of the value of the Office’s real estate assets. Such method also completely ignored the Office’s right (Art. 37 (b) EPC, Art. 39 (1) EPC) to receive a part of the national renewal fees after 2038, as well as its ability to increase its future revenues by augmenting its user fees in what is essentially a monopolistic/oligopolistic market for the granting of patents and trademarks. No other organisation can grant patents which are effective over the whole of Europe and even beyond.    

1. a)Unjustified Neglection of Values in the Financial Study 

1. 74The findings of the Financial Study – commissioned by the Office in 2018 and executed by Mercer & Wyman – are not convincing. The Staff Union of the European Patent Office has commissioned an analysis of the Mercer & Wyman study with the renowned accounting firm Ernst & Young. The Ernst & Young analysis has been submitted to the President and the Administrative Council. This analysis identifies a series of excessively conservative assumptions made when compared to assumptions usually being applied by the EPO. Furthermore, the Ernst & Young analysis identifies technical mistakes (contradiction with general principles as stipulated by IDW [Institut der Wirtschaftsprüfer] for discounting financial positions) and considerations in determining and interpreting the outcome of the 2019 Financial Study. The Ernst & Young analysis found that the Financial Study by Mercer & Wyman applied three layers of caution including overly conservative assumptions, and neglected ongoing operations after 2038 as well as hidden reserves.  

2. 75It has to be highlighted that the Financial Study neglects much more than 2 BN EUR of the value of the buildings of three billion euros the Office expects to achieve by 2033 (CA/69/19, Annex C25, Table 3: 2,929 m EUR vs. CA/83/19, Financial Study Phase II, Annex C6, page 92: 842.5 m EUR). The investment of 767 m EUR to achieve that value was, however, included in the Financial Study and generously increased so as to exceed 1 BN EUR (CA/83/19, Financial Study Phase II, Annex C6, page 72). The value of real estate counts as an asset in all accounting methods. It is striking that, at the same time – both CA/69/19 and CA/83/19 bear the same date, 4 October 2019 (!) – the EPO uses different figures for the value of its buildings, “underestimating” the expected value of the buildings in the Financial Study by at least 2 BN EUR while including an (excessive) expenditure of over 1 BN EUR to achieve that expected value. This illustrates that the Office deliberately but disingenuously represented itself as poor. This is not an analysis upon which salary cuts may be legally based.    

3. 76In addition, the revenue from patents granted before 2038 but due after 2038 have been entirely excluded from the Office's analysis of future revenue from granted patents after 2038, the value of which is currently estimated to 5.6 BN EUR (CA/60/21, Annex C21, page 33), which are expected to be higher by 2038, because of an increased number of granted patents. This is also inconsistent with the approach for the period before 2038, as there, the income from the national renewal fees was included in the simulation (see CA/83/19, Financial Study Phase II, Annex C6, page 85: they are projected to increase from 568.3 m EUR in 2019 to 1,142.7 m EUR in 2038, which shows that the above mentioned present value figure of 5.6 BN EUR likely substantially underestimates the figure applicable in 2038). 

4. 77Yet, the Office without sound reason excluded these values. The neglected value of the buildings and the value of the national renewal fees due after 2038 alone add up to at least 7.6 BN EUR, which is about the double of the alleged funding gap of 3.8 BN EUR stated in the Financial Study and about 131% of the alleged funding gap of 5.8 BN EUR assumed by the President after having added an arbitrary buffer of 2 BN EUR. This can only be viewed as excessively overcautious and intentional. It demonstrates the clear intention of the EPO to find a financial gap where there is not any, for the sole irregular purpose of reducing staff benefits for the sake of reduction itself, in clear contradiction of the Tribunal’s holdings in said Judgments N°. 1713 and 3324. The obvious intention on the part of the Office to make savings at staff’s expense is further illustrated by the following overview about the actual development of the Office’s financial situation: 

1. b)Financial Situation 2021: 5.8 BN EUR Better than Forecast – Alleged Gap Over 20 Years Already Closed 

1. 78A massive deviation could be already observed between the revenue forecast for the year 2020 contained in scenario B21 of the Mercer & Wyman study, which has been taken as the reference by the EPO for justifying the new salary adjustment procedure, and the reported values of 2020. As set out above (paras. 28ff.), the confirmed deviation between the forecast of the Financial Study and the reported values in the assets of the two principal funds (RFPSS and EPOTIF) amounted to 4.44 BN EUR in 2020. This already demonstrates that overcautious, unjustified assumptions have been made in the Financial Study.  

2. 79In 2021 both, the RFPSS and the EPOTIF, again performed much better than forecasted by the Mercer & Wyman Financial Study in scenario B2 (CA/83/19, Annex C6, p. 92). It shall be recalled again that the forecasts were as follows:  

• The forecast for the RFPSS value in 2021 was 7.3 BN EUR 

• The forecast for the EPOTIF value in 2021 was 2.4 BN EUR 

1. 80In fact and as already stated above, the value of both funds exceeded the forecasts to an even higher percentage than in 2020: 

• For the RFPSS, the reported value for Q4/2021 is 11.868 BN EUR (document RFPSS/SB 62/21, page 1, figure 1; +63% compared to the forecast of the Financial Study)  

• For the EPOTIF the reported value for Q4/2021 is 3.621 BN EUR (document CA/F 3/22, page 12; +51% compared to the forecast of the Financial Study) 

1. 81In absolute figures, this results in an excess of 5.789 BN EUR in 2021 in the two main funds of the EPO alone compared to forecasts in the Financial Study by Mercer & Wyman.  

2. 82That means that the alleged budget gap of 5.8 BN EUR over 20 years, which the President assumed based on the Financial Study, would have been filled as soon as December 2021, at the end of the first year of implementation of the new salary adjustment procedure.  

3. 83This evolution was already clear from the 3rd-quarter-reports available prior to the adoption of CA/D 14/21.  

4. 84These developments in two consecutive years clearly demonstrate that overcautious, unjustified assumptions are at the basis of the impugned decision which appears to violate the holding of ILOAT Judgment N°. 4277, cons. 20 (emphasis added): 

As the Tribunal recalled in Judgment 3538 (under 15), the power clearly vested in the competent authority to alter the pension scheme can be exercised lawfully if it represents a bona fide attempt to secure the pension scheme into the future and is based on what appears to be properly reasoned actuarial advice’ In the present case, no such reasoned actuarial advice has been provided as demonstrated above.

1. c)Impact on the Rest of the Forecasts until 2038 

1. 85Moreover, this deviation observed in 2020 and 2021 has a tremendous impact on the rest of the forecasts for the years 2021–2038. Indeed, because assets bring in financial revenues, it follows that a yearly income has been underestimated for the period 2021–2038. This underestimation can be forecasted as follows. 

2. 86The RFPSS brings in average over 6% of financial return per year (see document RFPSS/SB 65/20, Annex C44) in the last 5 years and also in the last 10 years. Underestimating 10.34 – 6.83 = 3.51 BN EUR on RFPSS alone in 2020 implies underestimating a flow of 3.51 * 6% > 210 Million EUR / year of financial revenue, without even taking into account the compound interest. This adds up to at least an extra 3.8 BN EUR over 18 years (2021–2038), which have not been taken into account in the Financial Study. 

3. 87A similar reasoning applies to the underestimated assets in the EPOTIF. 

1. d)Conclusion and Consequences for CA/D 14/21 

1. 88In conclusion, the foregoing simple examples show that overcautious, unjustified assumptions were made in the Financial Study by Mercer & Wyman for the period 2019–2038.  While the ILO Administrative Tribunal will not substitute its own judgment for that of an expert actuary opinion (see Judgments N°. 3360, cons. 4 and 5, 3538, cons. 11 to 15, and 4134, cons. 26), the power vested in the Office to alter the salary adjustment/pension scheme must be based on a bona fide attempt to secure the pension scheme in the future, and “what appears to be properly reasoned actuarial advice” (Judgment N°. 4277, cons. 20).  As detailed above, the advice relied upon by the Office from Mercer & Wyman, as confirmed by the Ernst and Young review commissioned by SUEPO, was not properly reasoned, and was further tainted by gaping factual omissions. 

2. 89As recalled in ILOAT Judgment N°. 4134, cons. 28, an organisation has a duty to check the adequacy of action by other bodies it delegates duties to, and correct any mistakes. The Tribunal also recalled that a decision on pay cannot stand if it “overlooks or misconstrues some particular factor, or if some method is applied for the wilful contrivance of lower figures of local pay”. According to this principle, the mistakes and overly cautious approach in the Mercer & Wyman study, which is the only basis for the adopted and implemented new remuneration procedure, render already CA/D 4/20 and CA/D 9/20 and their implementation unlawful, entitling the Requestors to the award of all their requested redress. 

3. 90In addition to that, it must be underlined that the implementation of the new salary adjustment method and especially the double-cap application of the “sustainability clause” and of the “exception clause” with effect of 1 January 2022 was decided on 15 December 2021 (CA/D 14/21). The draft President’s proposal, which has been adopted without amendment, was submitted for consultation on 6 November 2021. At this point in time, the financial developments outlined above under b) and A.II. (paras. 29ff. and 78ff.) were perfectly known. The President of the Office and the Administrative Council were aware of the fact that the financial development was far better than in the forecast on which the adoption of the new salary adjustment method was based. They were also aware of the financial damages caused to the staff and pensioners. All this has been constantly recalled by staff representatives and in litigation against the new salary adjustment method, for example but not exclusively in the internal appeal proceedings RI/2021/054. Nonetheless, in perfect awareness of the lack of valid reasons, of the lack of any need to make savings and of the damages caused, the President of the Office proposed not only to cut the calculated positive salary adjustments but also not to pay out the fictitious, reduced positive adjustments. The Administrative Council followed this flawed proposal and decided to freeze the remuneration of all staff including the Requestor. This characterizes the application of a method for the wilful contrivance of lower figures of local pay, prohibited by ILOAT Judgment N°. 4134, cons. 28.  

4. 91Due to this repetitive, wilful damage to staff, culminating in the January 2022 payslip, the Requestor claims moral damages in the amount of 30.000 EUR. 

1. 5.Breach of the Principle of Stability, Foreseeability and Clarity of Salary Adjustment 

1. 92The new salary adjustment method must furthermore not be applied because it is in breach of the principle of stability, foreseeability and clarity of salary adjustment methods. 

2. 93The Office claimed in the proceedings leading to RI/2021/054, that the Council would have been guided by “the principles of affordability, transparency, proportionality, fairness, shared effort and reversibility, as well as the stability of the new method.” However, the Office did not only fail to explain the legal basis of these “principles”, but also how these had allegedly been taken into account in the adoption and implementation of the impugned new method. Concerning the transitional measures (July-December 2020), until February 2022, shortly before the filing of this Request for Review – more than one year and a half after applying the first, six-month-salary freeze – the Office did not reply at all to the arguments brought forward by the Requestors, especially with regard to the general legal principal of stability, foreseeability and clarity of salary adjustment methods.  

3. 94Instead, the Office proposed and applied the next salary freeze for an unforeseeable period of time. Decision CA/D 14/21 – beginning with its wording, the double-cap flowing from the sustainability and exception clauses up to its consequences – perfectly illustrate und prove the complete intransparency, unforeseeability and obscurity of the method and its application. 

4. 95It is a general principle of international civil service law and well established in the jurisprudence of the ILOAT that salary adjustment methods of international organisations like the EPO must be stable, foreseeable and clearly understood (ILOAT Judgment N°. 1821, cons. 7). This requires that an objective methodology has to be put in place to adjust salaries and pensions of international civil servants. While an international organisation may revise its salary adjustment method and may choose another methodology than the one adhered to before, it always has to ensure that the general principles of international civil service law are respected. Among them foremost is the principle of stability, foreseeability and a clear understanding or transparency of the results of a salary adjustment method (ILOAT Judgments N°. 1821, cons. 7; 2095, cons. 13; 3324, cons. 16; 4143, cons. 26).  

5. 96While the EPO thus cannot be criticized in principle that it has undertaken a review of the salary adjustment system in place since 1 July 2014, the salary adjustment system established with Administrative Council decision CA/D 4/20 of 30 June 2020 and CA/D 9/20 of 16 December 2020 and implemented again with CA/D 14/21 of 15 December 2021 does not adhere to these cited standards. 

1. a)The New System is Neither Stable, nor Clearly Predictable nor Clearly Understandable 

1. 97On the one hand, the Implementing Rule for Art. 64 of the Service Regulations (as amended by CA/D 4/20) contains complicated provisions in eleven Articles on the timetable, the calculation of adjustments with several indicators, scales, indices and coefficients, the provisional adjustment and data corrections, a nominal guarantee clause, a sustainability clause with periodical settlement and an exception clause. One would reasonably infer from Art. 12 para. 1 ImplR (review after six years, criteria to be taken into account) and Art. 10 ImplR (positive adjustments carried forward after three adjustments) that the system would apply for at least six years. 

2. 98With regard to this, it is quite surprising, on the other hand, to read in Art. 13 ImplR (former Art. 11) that the Administrative Council shall decide on the implementation of the adjustment methodology every year, without any concrete guidance or guarantee that the procedure will continue to apply. Rather, Art. 13(1) says in most general terms that it depends on whether the “prevailing circumstances” allow the procedure to apply. Overall, it is thus unclear and unpredictable if the system will at all apply for more than one or two years and if, for example, the provisions concerning periodical settlement in Art. 10 ImplR will have any effect.  

3. 99Moreover, the results are neither clearly predictable, nor clearly understandable because a combination of different rules on reductions, postponement and crediting of reductions and postponement of positive salary adjustments shall be used. In addition, these rules depend on different indices. Also on this basis, it is unclear whether there will effectively be any salary adjustments in the next years, which is all the more the case when read in combination with Art. 13(1) ImplR. The expertise of the Advisory Group contained in CA/66/20 (contained in Annex C39) already showed that no adjustments were to be expected at all for 2022. It thus appears that the adoption of such a method, during the pandemic, was in fact geared towards primarily reducing the purchasing power of employees in the long term simply for the sake of such reduction alone, and for no other valid reason, in clear violation of ILOAT Judgment N°. 1713 under 8 cited above. 

4. 100First, the nominal guarantee clause does not only not guarantee that salaries and allowances shall be maintained at their level but it also states that negative adjustments shall be set-off against future adjustments, without any limitation. This makes it unforeseeable if and when adjustments will take place again. 

5. 101Second, with the new sustainability clause, a new parameter, the Eurozone inflation +0.2% as of 1 July of the calculation year, has been introduced in order to limit the overall growth of the basic salary mass, which may lead to so-called “proportional” reductions of the salary adjustment percentage. With regard to the current very low Eurozone inflation rate, this clause already limited in two consecutive periods (2021 and 2022) any remuneration adjustment in most of the countries. This parameter (Eurozone inflation index) is completely unrelated to (1) the financial situation of the Office and (2) the local cost of living and therefore acts to distort arbitrarily, in a completely unforeseeably direction and magnitude, the equality of purchasing power. For a salary adjustment procedure, whose goals were described by the ILOAT in Judgment N°. 1663 (under A) and have not changed since (parallelism of evolution with reference to civil services and equality of purchasing power amongst different countries) this parameter is arbitrary in the meaning of Judgment N°. 1000 (cons. 18) and therefore an irrelevant factor in the meaning of the case-law. 

6. 102Third, the exception clause states that even if the adjustment under the normal adjustment procedure and after applying the sustainability clause would be positive, it is “delayed” – for an unforeseeable period of time – if there was a decrease in the real gross domestic product of the Contracting States in the previous year. This is exactly what was decided with CA/D 14/21, as described in more detail above under A.III.2 (paras. 45ff.). However, this parameter (real gross domestic product of the Contracting States) as well is completely unrelated to (1) the financial situation of the Office and (2) the local cost of living and therefore also acts to distort arbitrarily, in a completely unforeseeably direction and magnitude, the equality of purchasing power. The introduction of the exception clause was therefore unlawful from the beginning. 

7. 103The application of different indicators referring moreover to different years (calculation year and previous year) makes it entirely unpredictable if and when the salaries will be adjusted. Furthermore, it hampers the transparency and clear understanding of the method.  

1. e)The Application of the “Sustainability Clause” Leads to Increasing Divergence Between Applied Salary Scales 

1. 104As explained above (paras. 47ff.), it follows from Art. 1, 2(2) and 3(2) CA/D 14/21 read in connection with paras. 24f., 33 of CA/71/21 that the sustainability clause, Art. 9 ImplR for Art. 64 ServRegs (Art. 12 CA/D 4/20) has been applied to the positive salary adjustments calculated in application of Art. 2 to 4 ImplR. Insofar, the only predictable effect of the new method is that it leads to a steadily increasing divergence between the new salary scales and those which would have been obtained according to the old method. This is because the periodic compensation for the sustainability clause is paid as a one-off lump sum, instead of being incorporated into the salary scales. Hence, the sustainability clause is not just a temporary cap on salaries (as is the case in other international organisations), but it propagates itself further into all future salary scales. The compensation is temporary and partial at best, and is in any case paid to active staff only, at the exclusion of pensioners. 

2. 105This is illustrated in Table 1 and Figure 1 for a putative example, which aims only at clarifying the principle at work. As shown in the left-hand part of Table 1, if over a given period of time (1, 2 or 3) the new method leads to a lower salary adjustment than under the old method, the difference is paid as a one-off compensation. The right-hand part of Table 1 shows the cumulated adjustment over several periods of the salary scales according to the new method (with a capped adjustment) and to the old method. The difference between both scales steadily increases, and since the compensation is only paid for a single period, it can only reduce this divergence after period 1, but cannot not cancel it. 

Table 1: Comparison between new and old salary method (putative example for illustration purposes only).

1. 106This becomes even clearer in the graphical illustration of Figure 1, where the value of the vertical axis corresponds to the cumulative adjustment over periods 1 to 3 of the salary scales according to the old and to the new method. The area in pink represents the cumulative loss due to the difference between old and the new method. The hashed part of the pink area corresponds to the one-off compensation, which after period 1 only partially compensates the cumulative loss. Although the one-off compensation does not constitute an adjustment and is not pensionable, it is included for illustrative purposes in the figure below. The real damages are of course higher than shown by Figure 1.  

Figure 1: Cumulative divergence between the salary scale according to the new method and that according to the old method.

1. 107The total damage and inadequateness of the one-off payment then clearly results from the comparison of the one-off compensation to be paid after three years to the cumulated loss of pensionable remuneration in only one year (difference between the part in blue and in pink in Figure 1 above) over a period of 20 years.  

Figure 2: One-off compensation to be paid after three years compared to the cumulated loss of pensionable remuneration in only one year over a period of 20 years.

1. 108In addition, the proportional reduction according to the sustainability clause will impair the parity between the salary scales. It is also not sound that pensions are not included in the periodical settlement clause, in breach of Art. 33(2)(c) of the European Patent Convention, which gives competence to the Administrative Council to adopt appropriate positive adjustments in existing pensions “to correspond to” increases in salaries. 

1. f)“Exception Clause”: Double Cap, Intransparency, Unforeseeability and Obscurity 

1. 109The aforementioned Figure 1 shows the growing disparity resulting from the sole application of the so-called “sustainability clause”. The cumulative application of the “exception clause” results in the difference between the effective adjustments (blue area) between period 1 and 2 being taken away. This is illustrated by Figure 3. The “delayed” portion is not paid in the adjustment year nor in any further years until the conditions of Art. 11(2) ImplR for Art. 64 ServRegs (Art. 14 CA/D 4/20) be fulfilled, deepening and accelerating the disparity between the applied salary scales and the scales that would respect the principle of parallelism even more.  

Figure 3: Effect of combined application of “sustainability” and “exception” clauses.

1. 110If one considers that an organisation has a discretionary power to amend its salary adjustment method, the organisation must, however, exercise its discretion and must be able to explain its choice in order to allow for effective judicial review.  

2. 111This has not taken place at all with regard to the adoption of Art. 14 CA/D 14/21, amending and maintaining the exception clause in Art. 11 ImplR for Art. 64 ServRegs. Insofar, CA/D 14/21 suffers from an irreparable complete lack of reasoning. Indeed, the President’s proposal CA/19/20, on which is based CA/D 4/20 does not give any reason for amending and maintaining the exception clause. At para. 35 it is said:  

35. The exception clause was introduced in 2014 to create a stronger link to the economic environment in Europe. It requires that the adjustment be delayed if the total gross domestic product (GDP) of the EPO's member states has shrunk by more than -1% during the previous year. This has not occurred during the course of this salary adjustment cycle (2014 – 2019); hence the exception clause has not been applied.

The proposal thus refers to the initial reasoning for introducing the clause. This is, however, not sufficient since (1) it is acknowledged that the clause has not been applied in the past thus raising the question of the need for maintaining it and (2) the structure of new adjustment procedure was changed by introducing the “sustainability clause”. It would therefore have been necessary to explain why the exception clause should be maintained, in addition to the newly introduced “sustainability clause”. This has not happened. This again demonstrates that the aim of the EPO was to make savings at the expense of staff and pensioners, for whatever pretext.

1. 112The need for a specific explanation is even greater since both clauses are triggered by different indicators. While Art. 11 ImplR refers to the total gross domestic product (GDP) of the EPO's member states, Art. 9 refers to the annual Eurozone inflation. Moreover, Art. 11 refers to the previous year and Art. 9 to the inflation at 1 July of the calculation year. The periods used to trigger a reduction or freeze of the Requestor’s remuneration are thus not consistent. The EPO did not give any explanation nor justification for this disparity either. 

2. 113What is worse, the indicators used both in the sustainability and the exception clause are by design not suited for achieving the objective pursued. The objective pursued by the EPO – based on mistaken financial assumptions as demonstrated above (paras. 69ff.) – was to avoid a (fictitious) financing gap in its budget. Both the Eurozone inflation and the Member States’ GDP are, however, completely unrelated to the EPO’s budget and financial situation. This made the introduction of both clauses with CA/D 4/20 and already the first introduction of the exception clause with CA/D 3/14 unlawful from the beginning. The operation of the “exception clause” indepently from the financial situation of the Office is perfectly illustrated by the salary adjustment 2022. While the financial situation of the EPO is excellent and the values of the funds are not only far better than forecasted but even improve from one year to the other (4.4 BN EUR better in 2020, 5.8 BN EUR better in 2021 – resulting in the alledged gap being already filled, if it had existed at all – see above at paras. 74ff. ), the adjustment of the remuneration was first considerably cut (2021) and now (2022) frozen for an unforeseeable period of time, which is in sharp contradiction to the development of the financial situation. The conclusion is that the impugned decision is arbitrary and unlawful. 

3. 114In addition, the application of the exception clause leads to intransparency, unforeseeability and obscurity with regard to future salary adjustments. It is, first of all, unforeseeable if and when the (reduced, ficticious) positive adjustments shown in Tables 7-10 annexed to CA/D 14/21 will be applied, if they are applied at all. Moreover, the wording of Art. 11(2) ImplR for Art. 64 ServRegs (Art. 14 CA/D 4/20) and Art. 2(2) and Art. 3(2) of CA/D 14/21 give rise to several questions:  

• How can and will it be measured that the “cumulative increase of gross domestic product in the Contracting States … becomes positive”?   

• What does “measured from the year where paragraph (1) was applied” concretely mean? 

• How is the legal consequence foreseen in Art. 11(2) ImplR – “shall form the basis of the calculation of a future adjustment” – to be interpreted?  

In this regard it must be highlighted that Art. 2(2) and 3(2) of CA/D 14/21, although based on this provision, use a different wording saying that the “salary increases shown in Tables 7-10 or drawn up (…) will be applied…” while the heading of tables 7-10 says that these contain the “Basis of calculation with effect from 01.01.2022 for a future adjustment according to Article 11(2) of the salary adjustment procedure”.

• Tables 7-10 annexed to CA/D 14/21 contain amounts which shall be the “Basis of calculation with effect from 01.01.2022 for a future adjustment” as indicated by the heading. On the one hand, Art. 11(1) ImplR states that the delayed adjustment shall not be taken into account for the purpose of Art. 9. This seems to be meant to apply to the calculation year, referred to in Art. 9. It is, however, unclear how Art. 11(2) can or will interact with future adjustments, especially since the Administrative Council has expressly adopted tables which shall have an effect from 01.01.2022. For example, assumed that the EPO in 2022 again decides to apply the sustainability clause and a positive cumulative increase of gross domestic product will be determined in 2023, triggering the application of tables 7-10 for the year 2024 “with effect from 01.01.2022”, will the amounts of positive salary adjustments for 2023 be recalculated?  

1. 115The more time elapses between the application of the exception clause and the determination of a “positive cumulative increase of gross domestic product”, the more the consequences on the Requestor’s remuneration are unclear and obscure. This is quite the contrary of a stable, clear and foreseeable adjustment procedure.  

2. 116The conclusion is that the impugned individual and underlying general decisions must be set aside because they are in breach of the principle of stability, foreseeability and clarity of salary adjustment. 

1. 6.Breach of the Principle of Equal Treatment  

1. 117According to the ILOAT’s case law, the principle of equal treatment requires, on the one hand, that officials in identical or similar situations be subject to the same rules and, on the other, that officials in dissimilar situations be governed by different rules defined so as to take account of this dissimilarity (see, recently, Judgment N°. 4277, cons. 21 with further references). The Requestor submits that the revised remuneration adjustment procedure introduced by CA/D 4/20 and 9/20 and impugned herein violate the principle of equal treatment as set out below. 

1. a)The New Method Violates the Principle of Purchasing Power Parity 

1. 118Regarding the principle of purchasing power parity and the respective methods of calculating salary adjustments in this regard, the ILOAT has made clear in Judgment N°. 1420, cons. 12, that the refusal of an international organisation to maintain or restore parity in purchasing power between staff of different duty stations amounts to unlawful discrimination. According to the Tribunal this alone is enough reason to deem a method for calculation of salary adjustments invalid.  

2. 119Indeed, in arguing the review proceedings leading to internal appeal RI/2021/054 that “all sites are impacted in the same way” the Office has admitted that it intended to apply cuts to all duty stations, which are not proportional to the cost of living evolution of each station. It must be added that the reference to a “parallelism” between EPO sites is completely mistaken in this respect. The principle of parallelism refers to a parallelism between national civil service and international civil service, not between duty stations of one organisation. Instead of respecting “parallelism”, the so-called “sustainability clause” rather vitiates the principle of “parallelism” set out in Judgment N°. 1912 at 18, by negating the intended effect of the specific indicator, as expanded further below:  “…The Tribunal recalls ‘the recognised right of the staff of international organisations to receive – In the interest of international civil service itself – a level of remuneration equal to that in countries where, for comparable qualifications, the salaries are the highest’”. The correct reference in order to guarantee parallelism is the specific indicator, which is based on the remuneration paid to national civil servants in the central government services of eight countries.  

3. 120In departing from the ultimate salary adjustment that should have resulted had the EPO properly applied the evolution of the local cost of living, the calculation results in an undue erosion of purchasing power of active employees and pensioners. Due to the application of the so-called “sustainability clause” which was introduced for the first time with the new salary adjustment system with CA/D 4/20, a loss of the calculated positive salary adjustment by 86,76% took place with effect of 1 January 2021. This adverse effect is maintained by CA/D 14/21 since the salary scales decided with CA/D 9/20 are maintained. The implemented monthly salary scales adjustments with effect of 1 January 2021 amounted to +0,5% in the basic scales applicable in Germany, +0,5% in the basic scales applicable in the Netherlands and +0,36% for those applicable in Austria. The trend of the Harmonised Indices of Consumer Prices from June 2019 to June 2020, however, was +0,8% in Germany, +1,7% in the Netherlands and +1,1% in Austria. The purchasing power parity coefficients with respect to Brussels rose by +1,9% for Germany, by +2,0% in the Netherlands and by +0,9% for Austria. This means that all employees in Germany, the Netherlands and Austria, including the Requestor, lost purchasing power in 2021 with the adopted scales, be it in terms of the Harmonised Indices of Consumer Prices or in terms of the purchasing power parity coefficients with respect to Brussels, due to the application of the “sustainability clause”. 

4. 121Due to the application of the “exception clause”, with CA/D 14/21, the new method again leads to results that violate the principle of purchasing power parity between the places of employment with effect from 1 January 2022. In maintaining the amounts applied with effect of 1 January 2021, the shift away from purchasing power parity begun in 2021 is aggravated. The new monthly salary scales show the following basic salaries for (e.g.) grade 7, step 1: Belgium: 5.381,47, Germany: 5.991,89, The Netherlands: 5.921,26, Austria: 5.676,87. These are the same amounts as in 2021. The coefficients of purchasing power parities, however, have changed. The coefficients on 1 July 2021 were: Belgium: 1, Germany: 1,1278, The Netherlands: 1,1008, Austria: 1,0855. When comparing the basic salaries to each other, they do not reflect the corresponding ratio of the coefficients of purchasing power parities as supplied by the International Service for Remunerations and Pensions. The relations of salaries 5.381,47 : 5.991,89 : 5.921,26 : 5.676,87 (EUR) result in the following different coefficients 1 : 1,1134 (instead of 1,1287) : 1,1003 (instead of 1,1008) : 1,0549 (instead of 1,0855). Maintaining the purchasing power parity between the places of employment would have had to result in different salary tables. A net (basic) salary for grade 7, step 1 in Belgium of 5.381,47 EUR has the same purchasing power as 1,1287 x 5.381,47 = 6.074,07 EUR in Germany, 1,1008 x 5.381,47 = 5.923,92 EUR in the Netherlands, 1,0855 x 5.381,47 = 5.841,59 EUR in Austria. For example, an employee in Austria is harmed because the salary for grade 7, step 1 is only 5.676,87 EUR. This is 164,72 EUR less than 5.841,59 EUR being the amount with an equivalent purchasing power as the salary of a colleague working in the same grade and step in Belgium. The same applies mutatis mutandis to staff working in Germany or the Netherlands and as well to other grades and steps and to all persons remunerated according to other salary scales. 

5. 122Furthermore, it must be underlined that maintaining in 2022 the salary tables applied in 2021 constitues an own and separate violation of the principle of purchasing power parity. Exemplary, reference is made to the 2022 tables for France and Luxemburg. It results from the tables that a higher salary is paid in France than in Luxemburg. The basic salary for grade 7, step 1 for France is indicated with 6.261,93 EUR. For Luxemburg, the table for grade 7, step 1 shows a basic salary of 5.497,01 EUR, more than 700 EUR less than in France. However, the trend of Harmonised Indices of Consumer Prices was higher in Luxemburg (103,4) than in France (101,9). That means that, normally, the salary paid in Luxemburg should be higher than in France. The tables applied by the Office have the contrary effect, resulting in distortion of purchasing power parity and unequal treatment. 

6. 123The salary freeze implemented in 2022 thus completely spoils purchasing power parity – whether or not the purchasing power parity coefficents had been correct in the previous year or not. This alone demonstrates that the exception clause – used for the first time for the salary (non-)adjustment in 2022 –  is unfit and must not be applied because it violates the principles of equal treatment. 

1. g)The Method Used to Calculate Cuts in itself Violates Purchasing Power Parity and Results in Further Savings Solely in the Detriment to Staff  

1. 124According to the new Art. 9 ImplR to Art. 64 ServRegs (Art. 12 CA/D 4/20), paragraph 3, the reduction was applied to the salary adjustment percentage of all basic salary scales and allowances and not to the tables themselves. In applying the cuts to the percentages and not to the tables, the new method used to calculate adjustments  

a) inevitably, as a mathematical principle, leads to results that violate the principle of purchasing power parity between the places of employment and

b) results again in savings made solely to the detriment to staff.

1. 125For illustrative purposes, the consequences of the calculation method are demonstrated in Table 2. Since the last salary adjustments effectively applied were those with effect of 1 January 2021, the calculations are based on the figures of that year. The same negative effect due to the calculation method only also applies, mutatis mutandis, to the ficticious adjustements stated in Tables 7-10 annexed to CA/D 14/21 and in any other tables. In addition, the continued application of the spoiled tables for 2021 carries the calculation errors of the new salary adjustment method over in 2022 and leads to a continuing aggravation.  

2. 126As visible below, Table 2 shows in the second column the PPP (purchasing power parity) coefficients for 2021 that had to govern the ratio between salary scales of the different sites. The effective ratio in the third column is the result of the basic salary for Germany, the Netherlands or Austria divided through the basic salary for the same grade and step according to the table for Belgium. This effective ratio differs from the PPP coefficient although it should not. The difference in absolute figures and in percentages is expressed in columns four and five. It shows that the impact of the cuts are quite different for the duty stations and do not respect the PPP coefficient for each duty station. In absolute figures, the monthly difference, i.e., the monthly savings made by the EPO – through the application of this calculation method only and only in 2021 – result in the amounts displayed in the last column on the right. 

Table 2: Consequences of reduction being applied to the salary adjustment percentage

1. 127Analogous differences arise mutatis mutandis for all other ratios between different places of employment and for all other grades and steps. Furthermore, such differences of purchasing power apply to the scales used for the calculation of pensions under the contested new adjustment methodology. 

2. 128Just to illustrate the impact of these monthly differences: If one assumes an average monthly difference, i.e. monthly savings of e.g. 120 EUR multiplied with approximately 6.500 employees, this results in total monthly savings of roughly 780.000 EUR per month or 9,4 million EUR per year.  

3. 129The above calculation is a conservative estimate of the total damage caused by the violation of the principle of purchasing power parity due to the calculation method only, with regard to the basic salary of employees and without taking account of other statutory allowances, pensions and further effects of the adjustment method.  

4. 130It still falls short of the actual savings. The total expenditure for salaries in the 2021 Budget (see Annex C46) was put at 771,4 m EUR (page 143), for allowances at 264,3 m EUR (page 57), and for pension payments at 248,0 m EUR (page 34). This makes a total amount of 1.3 BN EUR. With an average total capping effect for salary adjustments of 3.2%, one can assume a total volume of savings of 41,6 million EUR in only one year (2021). These are very significant sums which are arbitrarily deducted from staff, without any explanation or justification. 

1. 7.Non-Respect for the EPO’s Own Rules for the Review of the Adjustment Procedure 

1. 131In addition to the breach of general legal principles, as demonstrated above, when adopting and consecutively implementing the new salary adjustment procedure, the EPO did not respect its own rules laid down in Art. 64(6) of the Service Regulations and the Implementing Rules when adopting the new salary adjustment system.  

2. 132In order to avoid repetition, the Requestor refers in this respect to the submissions in the pending internal appeal proceedings, especially in the appeal brief, under the file number beginning with RI/2021/054, especially in case no. RI/2021/054-0000, and makes it subject of this Request for Review.  

3. 133It follows that the new method must not be applied because the organisation did not comply with the rules it had set itself for the review of the method, and the Requestor awarded all requested redress. 

1. 8.Insufficient and Flawed Consultation of Staff Representatives 

1. 134In addition to the flawed consultation leading to the adoption and implementation of the new salary adjustment method with CA/D 4/20 and CA/D 9/20, the Office did not consult with the representation of staff in good faith and not at all with pensioners before adopting CA/D 14/21.  

2. 135Contrary to what the Administrative Council believes according to the pre-emptive clauses of CA/D 14/21, the GCC was not properly consulted before the President submitted his proposal to the Council. This decision thus cannot be considered to have come about in a lawful manner. 

3. 136The right to consultation and the rules governing such consultation require an honest co-operation between staff and management. For a consultation process to work, a real exchange of views has to be facilitated and both sides have to show good faith (ILOAT Judgment N°. 1200, cons. 2). This entails that management as the decision-making authority has to show openness regarding the comments and proposals presented in the consultation process (ILOAT Judgment N°. 380, cons. 21). Decisions of an international organisation are unlawful if procedural obligations to consult with staff representatives have not been scrupulously respected (see e.g. ILOAT Judgment N°. 4009, cons. 8). 

4. 137It must be stressed in this regard that it is the obligation of the Organization to approach staff representatives and to actively initiate a consultative process whenever a decision is envisaged that falls within the scope of Art. 37 and 38 ServRegs. It is not necessary that staff representatives express the wish to be consulted – which here they even have done – and the Organization may not make its consultation obligations dependent on an express demand of staff representatives to initiate a consultative process (ILOAT Judgment N°. 1062, cons. 5). 

5. 138In this regard attention shall also be drawn to cons. 6–7 of ILOAT Judgment N°. 380. Here the Tribunal states the following (emphasis added): 

The qualifications referred to in paragraph 2 above can be understood only in the light of a description of their background. It is not disputed that under their contracts of employment officials in the General Service category (created in 1951) of the Geneva organisations are entitled to be paid on a scale fixed by their executive heads in their discretion to conform with the best prevailing local practices in Geneva. This is a very simple idea but it has proved in practice very difficult to give effect to. The executive head would naturally employ experts to ascertain the best prevailing local practices and to construct therefrom a salary scale appropriate to his organisation. The experts conducted surveys and devised methodologies, but were not always in agreement either about the correct methodology or about the figures to be derived from it; the effect on the organisation's wage scale could vary by as much as 30 per cent.

In these circumstances it would be natural for an executive head to contact his staff association in order to ascertain their views and, if necessary, negotiate with them to reach an agreed figure. This is something which a prudent executive head might do even if contact was not prescribed by the staff regulations. (…)  

1. 139For good measure, it must be recalled again that the Tribunal has stated in Judgment N°. 3291, cons. 7 that each employee needs to appeal individually against the implementation of general decisions and in this context also to object to any failures to properly consult staff representatives. 

1. a)No Consultation at All Prior to Most Essential Decisions (CA/D 4/20 and 9/20) 

1. 140As has already been laid out, staff representatives had not been consulted in good faith – and not at all prior to the most essential decisions – prior to the adoption of Administrative Council decisions CA/D 4/20 and CA/D 9/20, making their adoption and thus the introduction and implementation of the new salary adjustment system unlawful. Regarding the details, the Requestor refers to the submissions in the pending internal appeal proceedings, especially in the appeal brief, under the file number beginning with RI/2021/054, especially in case no. RI/2021/054-0000, and make it subject of this Request for Review. 

2. 141For reminder, the new salary adjustment method was brought up by the Office in the GCC only once, merely weeks before Administrative Council decision CA/D 4/20 was taken. This was much too late. At this point in time, meaningful consultation could not take place anymore. Even though the final decision on the adoption of the new salary adjustment method had formally not been taken yet by the Administrative Council, all relevant decisions had long been made without staff representation involvement, in particular the selection of the Base 2 scenario which locked in the range of possible salary adjustments to be adopted, irrespective of subsequent consultations with staff.   

1. h)Flawed Consultation prior to CA/D 14/21 

1. 142Although staff representatives have steadily highlighted and criticized the flaws of the consultation regarding CA/D 4/20 and CA/D 9/20, the consultation that took place before the adoption of Administrative Council decision CA/D 14/21 implementing the salary adjustment for the year 2022 was flawed once more. 

2. 143The only GCC meeting the salary adjustment for the year 2022 was dealt with took place on 23 November 2021. 

3. 144As already mentioned, the President’s proposal to not adjust salaries and pensions was contained in Document GCC/DOC 17/21. Said document was submitted to the members of the GCC on 8 November 2021.  

4. 145However, once again the GCC members did not receive all information necessary for a meaningful consultation prior to the GCC meeting on 23 November 2021 – neither did they receive it at all despite their request. This was in breach of Art. 6(1) of the Rules of Procedure of the General Consultative Committee (GCC RoP) which requires that documents relating to agenda items for consultation be distributed to the GCC members at least 14 calendar days before the meeting. 

5. 146The EPO President’s proposal regarding the non-adjustment of salaries for the year 2022 contained in GCC/DOC/17/2021 and subsequently in document CA/71/21 submitted by the President to the Administrative Council for decision in Art. 2(1) and 3(1) explicitly refers to the monthly salary scales for other countries, drawn up in accordance with Art. 2 CA/D 9/20. According to the President’s proposal as well as the subsequent Administrative Council decision these continue to apply in 2022.  

6. 147However, as the CSC members of the GCC pointed out in their opinion on GCC/DOC 17/2021 neither were the monthly salary scales contained/annexed to the document itself, nor did the GCC as such receive them at all before decision CA/D 14/21 had been taken, whether in the GCC meeting on 23 November 2021 or any other time even though they requested their submission. 

7. 148Without the tables it was not possible for staff representatives to retrace and check whether the amounts in these tables were properly calculated. As can be followed e.g. from the table for France which has been made public on the EPO intranet after decision CA/D 14/21 had been taken it is not possible to just take the amount from the table for Belgium and to multiply it with the coefficient of purchasing power parity contained in Tables 6. This leads to a different amount than the one contained in the table for France. The same applies e.g. to the table for Luxemburg. Yet, the CSC members of the GCC did not have an opportunity to clarify this in the context of the GCC consultation before Administrative Council decision CA/D 14/21 was adopted. 

8. 149In this regard it shall be recalled that the right to consultation and the rules governing such consultation require an honest co-operation between staff and management. For a consultation process to work, a real exchange of views has to be facilitated and both sides have to show good faith (ILOAT Judgment N°. 1200, cons. 2). This entails that management as the decision-making authority has to show openness regarding the comments and proposals presented in the consultation process (ILOAT Judgment N°. 380, cons. 21). Decisions of an international organisation are unlawful if procedural obligations to consult with staff representatives have not been scrupulously respected (see e.g. ILOAT Judgment N°. 4009, cons. 8).  

9. 150The availability of all necessary information is a precondition for a consultative body as the GCC to be able to form a reasoned opinion. It is the aim of procedural rules foreseeing and governing a consultation process to make sure the decision-making authority will be informed as objectively and fully as possible about staff interests worthy of protection which its decision may harm; this should make it easier to gain the support of those concerned by the decision and should ultimately contribute to its smooth implementation. Advisory bodies can naturally play their role only if they have access to all the relevant information necessary for the formulation of their opinion (ILOAT Judgment N°. 2615, cons. 5). Not giving the GCC members access to all documentation constitutes a breach of Art. 6 of the Rules of Procedure of the GCC and the general principles of international civil service law on proper consultation of advisory bodies (ILOAT Judgment N°. 1062, cons. 5).  

10. 151Meaningful consultation can only take place if all necessary information is available to both sides. Since this was not the case here, the right to consultation was breached. The CSC members of the GCC were expected by EPO management to comment on salary scales not known by them and them thus being unable to review and form a reasoned opinion regarding their contents.  

1. 9.Breach of the Principle of Parallelism and Acquired Rights 

1. a)Breach of the Principle of Parallelism and Equal Pay for Work of Equal Value 

1. 152As highlighted above, in addition to (1) the non-adjustment of the remuneration for six months (July-December 2020) and (2) considerable losses for all employees and pensioners in form of much lower positive salary adjustments for 2021, the new salary adjustment method as implemented with CA/D 14/21 led to (3) another freeze of remuneration in 2022, maintaining the remuneration at the 2021 level. The latter decision alone already leads to considerable losses in purchasing power but even more so in combination with the previous decisions, in violation of the Requestor's acquired rights and the principle of parallelism, expressly set out in the implementing regulations – Art. 10 ImplR for Art. 64 of the Service Regulations, as amended by CA/D 3/14, referencing taking account of the recommendations of the Co-ordinating Committee on Remuneration (CCR). Additionally, in its transmittal documentation presenting the new salary adjustment method to the GCC for consideration (GCC/DOC 05/2020 with draft document CA/19/20, Annex C32), the Office expressly acknowledged that the new system is bound and must abide by the principles of parallelism and purchasing power parity2 – see Annex C32, paragraphs 18 and 51.   
2. 153However, the 86,76% cut in the calculated positive salary adjustments for 2021 as well as the 37,9% cut in the calculated positive salary adjustments for 2022, before application of the exception clause, which should not have resulted from the application of the referenced specific indicator (which specific indicator is based on the same verified and binding data on salary adjustments of national civil servants provided by the ISRP to EPO and to the Co-ordinating Committee on Remuneration, which did not recommend such cuts) on its face must be deemed to have violated the parallelism in pay between the EPO and national civil services that is required and confirmed in Judgment N°. 1663 at cons. 9. Moreover, by imposing the sustainability clause3, which effectively vitiated the 'specific indicator' representing the positive salary adjustments of the national civil servants, without giving reasons for such imposition, the EPO, as in Judgment N° 1663, had no proper grounds for effectively departing from the ISRP data on salary adjustments of national civil servants accepted and adopted by the Co-ordinating Committee on Remuneration, and its application of the sustainability clause put both current EPO staff and pensioners in the situation of not getting the salary adjustment that they would have otherwise been entitled to applying the specific indicator. This is concretely demonstrated in Argument 2 above. 

3. 154In combination inter alia with the new career system, especially the abolition of automatic step advancement, introduced by the Administrative Council decision CA/D 10/14 with effect from 1 January 2015, the losses in purchasing power are even more substantial.  It represents an erosion of the purchasing power of the active staff and pensioners of EPO, not only in the first year of application of the new methodology, but also and even more so in the second year of application, as has been demonstrated above. This erosion, as argued throughout this brief, is so extreme that it jeopardizes the contractual balance between EPO and its staff and pensioners as contemplated in ILOAT Judgment N°. 1912 at cons. 19. 

4. 155The substantial erosion of purchasing power caused by the impugned new salary adjustment system, evidenced throughout this pleading, for active staff members and pensioners, is even worse for active staff members (and those pensioners) who are subscribed to the new pension system which came into effect at EPO in 2009, which is a defined contribution system which now offers no minimum guaranteed benefit as was the case under the prior pension system. The erosion in the purchasing power of those staff and pensioners will be even more catastrophic than for staff members and pensioners subscribing to the prior pension system. 

5. 156The specific indicator which is calculated on the basis of the salary adjustments of the national civil servants, is an averaged salary adjustment of the national civil servants, above the local inflation. A positive specific indicator expresses thus that the national civil servants did receive a salary increase above the local inflation. A negative specific indicator expresses that the national civil servants did receive a salary adjustment below the local inflation.
   For the year ending 31 December 2020, the specific indicator was positive. Nevertheless, as already shown above, the salary scales were adjusted, effective 1 January 2021, below the applicable local inflation as calculated by the Belgium inflation and the Purchasing Power Parity with respect to Brussels and also with respect to national inflation. The adjustment corresponded thus to a negative specific indicator. The salary adjustment was thus done neither in parallel to the national civil servants, nor did it evolve in the same general direction but it rather evolved in the counter direction. For that reason the principle of parallelism was violated in 2021. This violation was maintained and deepened in 2022.   

6. 157Such a reduction of the purchasing power, which vitiates the 'specific indicator' of the implementing procedure, is grossly incompatible with the parallelism principle adopted by Art. 10 ImplR for Art. 64 of the Service Regulations, as amended by CA/D 3/14 (analogous to the Noblemaire Principle as defined by the ILO Administrative Tribunal: “The Noblemaire principle [...] embodies two rules. One is that, to keep the international civil service as one, its employees shall get equal pay for work of equal value, whatever their nationality or the salaries earned in their own country. This rule has been violated before and after the application of the exception clause. As demonstrated above, the purchasing power parity has not been guaranteed neither in 2021 nor in 2022. The other rule is that in recruiting staff from their full membership international organisations shall offer pay that will draw and keep citizens of countries where salaries are highest.” (Judgment N°. 831, cons. 1). The Noblemaire Principle also applies to pension benefits (Judgment N°. 986, cons. 7).  

7. 158It is prudent to add that while the Noblemaire principle dates back to the League of Nations and was firstly taken over by the organizations in the United Nations system (Judgment N°. 825, cons. 1), it has nowadays to be considered as a general principle of international civil service law (Judgment N°. 1912, cons. 18; confirmed recently by Judgment N°. 4138, cons. 11) and is hence also applicable to the EPO. So far this has not been contested by the Office (see Judgment N°. 3426, under C; Judgment N°. 3427, under C; Judgment N°. 3435, under E). See also Judgment N°. 1912 at cons. 19 involving the European Molecular Bio Laboratory, which like EPO, is not a UN common system member from which the Noblemaire principle originally emanated: “The Tribunal recalls ‘the recognised right of the staff of international organisations to receive - in the interest of international civil service itself - a level of remuneration equal to that in countries where, for comparable qualifications, the salaries are the highest.’” 

8. 159Finally, the impugned new adjustment method under Art. 10 ImplR (providing for a lumpsum payment only after three [3] years, and also only to be paid to active staff members, irrespective of the of the evolution of  the cost of living or PPP, but not pensioners [in violation of the principle of equal treatment and Art. 33(2)(c) of the European Patent Convention as well as Art. 36 of the Pension Scheme Regulations which provides that positive salary adjustments applied to active staff must also be applied to EPO pensioners] violates the principles of parallelism and PPP as such principles are assessed only after three [3] years, not continuously. 

9. 160For all of the foregoing reasons, the Requestor respectfully submits that the request for redress be recommended in full. 

1. i)Acquired Rights 

1. 161In addition, a creeping transition to a remuneration system without positive adjustements of salaries and pensions would also amount to a breach of the Requestor's acquired rights as this amounts to a unilateral alteration of the fundamental conditions of the Requestor's employment on which the Requestor based his decision in part to join the EPO. While international civil servants do not generally have an acquired right to an automatic indexing of salaries, when an organisation establishes a mechanism for the periodic adjustment of salaries as the EPO has done in the present case, the procedures must not violate the principles of international civil service law, and their application must not bring about an erosion of salary that could be regarded as substantially jeopardising the contractual balance between those organisations and their staff members. In the present case, as detailed above, the impugned decision is not only procedurally and substantially irregular, but it significantly erodes the salary of the Requestor  to such an extent that is has jeopardized the contractual balance between the Requestor and EPO, in clear violation of his acquired rights (see ILOAT Judgment N°. 1912 at cons. 19). 

2. 162In this regard, the Requestor considers it justified to submit that the implementation of the new system as a whole will inevitably lead to a breach of the principle of acquired rights, entitling the Requestor to all requested redress. 

1. C.Conclusion  

1. 163For the reasons set out above, the Requestor’s January 2022 payslip and all payslips implementing CA/D 14/21 as well as Art. 1, 2 and 3 CA/D 14/21 and, incidentally, CA/D 4/20 as a whole, subsidiarily at least Art. 12 and 14 CA/D 4/20, and CA/D 9/20 and Art. 12 CA/D 3/14 shall be set aside with all legal effects flowing therefrom. Decision CA/D 14/21 of the Administrative Council must hence not be applied to adjust the Requestor’s remuneration as of January 2022. Instead, according to Art. 10(2) ImplR for Art. 64 ServRegs as amended by CA/D 3/14, the Requestor’s remuneration shall be adjusted in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 3/14, or, subsidiarily, in application of Art. 2 to 4 ImplR for Art. 64 ServRegs as amended by CA/D 4/20. 

2. 164As the Office has acted in breach of its own rules, fundamental principles of international civil service law and has neglected the interest of staff and thus also the Requestor’s interests as an employee when reviewing the remuneration adjustment procedure, adopting the new procedure and now implementing cuts of adjustments and freezes for the third consecutive period notwithstanding the complete lack of any valid reasons, the Requestor furthermore deems fit to claim moral damages to the amount of 30.000 EUR and reserves the right to claim reimbursement of any legal costs.  

Respectfully submitted by

(Signature of the Requestor)

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(Name of the Requestor)

1 Which scenario was chosen by the Office without proper consultation of the staff, already rendering the impugned decision null and void as argued further below. By presenting the staff with the B2 scenario without proper consultation as a fait accompli (as the sole operative scenario), the Office ensured that the subsequent consultation with the staff would likely still result in the Office’s desired savings as set out in scenario B2 – no suggestions on the chosen scenario B2 from the staff during subsequent consultations would likely have changed the parameters of scenario B2 at either extreme, ensuring that the resulting salary increase settled on by the Office was based directly on scenario B2.

2 Which two principles are also codified in Article 10 of the Implementing Rule for Article 64 of the Service Regulation (as amended by CA/D 3/14).

3 It should also be recalled that while other salary adjustment mechanisms adopted by other international organisations often include a so-called ‘sustainability clause’, such clauses are intended only to apply in the face of an extreme or unexpected economic event. The sustainability clause promulgated by the EPO applies immediately, without or without some adverse economic downtown, exposing once again the clear intention of the impugned system – cost savings at the expense of EPO active staff and pensioners for the sole sake of savings without the predicate economic justification for such savings (amounting to a bald illegal unjust enrichment of the EPO at the expense of active staff and pensioners), vitiating the validity of same under the above cited ILOAT jurisprudence. Notably, the counter-proposal presented by the CSC to the Office also contained a sustainability clause which applies only in the event of adverse economic events.