More legal certainty in works council remuneration?

Federal government presents draft law on the revision of Works Council remuneration. What employers need to know

Legal uncertainty has prevailed with regard to the for co-determination in companies, Federal Minister Hubertus Heil initially appointed a three-person expert commission to develop proposals for amending the BetrVG. Taking up the commission's proposals, the federal government has now presented a draft amendment to the BetrVG, which is intended to provide more legal certainty when determining Works Council remuneration.

Remuneration of exempted Works Council members - Neither favouritism nor disadvantage

Members of the Works Council perform their duties free of charge as an honorary office (Section 37 (1) BetrVG). To maintain their independence, they may neither be favoured nor disadvantaged because of their Works Council activities (Section 78 sentence 2 BetrVG). This also applies to their professional development, including remuneration.

According to Section 37 (4) BetrVG, the remuneration of members of the Works Council may not be set lower than the remuneration of comparable employees with customary professional development. The regulation therefore guarantees Works Council members a minimum remuneration that may not fall below the remuneration of comparable employees. However, Works Council members do not have to be limited to this minimum remuneration.

A Works Council member who has not been promoted to a position with higher remuneration solely because of taking up the position can make a direct claim against the employer pursuant to Section 611a German Civil Code (Bürgerliches Gesetzbuch, “BGB”) in conjunction with Section 78 sentence 2 BetrVG to claim direct payment of the higher remuneration. Such a claim may arise if the promotion to a higher-paid position would not have occurred due to the Works Council activity.

BGH: Overpayment of Works Council remuneration can give rise to criminal liability for breach of trust

In practice, considerable uncertainties have arisen in the measurement of Works Council remuneration in accordance with Sections 37 (4), 78 sentence 2 BetrVG as a result of the abovementioned BGH decision.

In its ruling, the BGH decided that excessive Works Council remuneration could not only be a violation of the BetrVG but could also be a criminal offence under Section 266 StGB.

The BGH overturned the acquittals at first instance of several HR managers at Volkswagen AG who had approved pay rises and voluntary bonus payments to members of the Works Council over several years.

The BGH justified its decision with a violation of the prohibition on favouritism. The comparative employees used to determine the (excessive) remuneration had not been selected in accordance with the requirements of BetrVG due to a lack of comparable activities and qualifications.

Although the BGH referred to the German Labour Court (“BAG”) in its grounds for judgment, the imprecise wording did not make clear all the aspects that must be taken into account when determining Works Council remuneration according to BAG case law. As a result, companies preventively reduced Works Council remuneration to avoid liability risks. The Federal Government intends to counter the legal uncertainty that has arisen with the draft legislation presented.

Federal Government draft law: forewarned is forearmed?

How exactly the Works Council remuneration is to be measured is only partially regulated in the BetrVG. The BAG has concretised the statutory regulations in numerous decisions. The principles developed in the case law are now to be partially incorporated into the legal text.

Amendment to Section 37 (4) BetrVG

According to the draft law, the following sentences 3 to 5 are to be added to Section 37 (4) BetrVG:

"The determination of comparable employees pursuant to sentence 1 shall be based on the date on which the Works Council office is assumed, unless there is an objective reason for a later redetermination. The employer and Works Council may regulate a procedure for determining comparable employees in a written Works Agreement. The specification of comparability in such a written Works Agreement can only be reviewed for major defects; the same applies to the determination of comparable persons, insofar as it is mutually agreed between the employer and the Works Council and documented in text form."

With sentence 3 of the proposed new regulation, the draft reflects the established case law of the BAG that the decisive point in time for determining the peer group is not the date of the exemption of the Works Council member, but the (first-time) assumption of the Works Council office.

According to the case law of the BAG, the composition of the peer group may change retrospectively, in particular in the event of a professional promotion of the Works Council member who fulfils the requirements of a higher-paid position. According to the draft, this aspect should also be included in the legal text.

The planned new regulation in sentence 4 implements the current case law of the BAG, which already allows the parties to the Works Council to make specific written Works Agreements on Section 37 (4) BetrVG. The limitation of verifiability to major defects provided for in sentence 5 is intended to incentivize the parties to the written Works Agreement to transparently determine the comparability of employees in advance. In view of the diversity of company job requirements and evaluations, no concrete criteria for determining the respective comparability requirements are to be provided to the parties to the company beyond the case law of the BAG, according to the explanatory memorandum to the draft law.

Amendment to Section 78 BetrVG

According to the draft law, the following sentence 3 is to be added to Section 78 BetrVG:

“There shall be no favouritism or disadvantage with regard to the remuneration paid if the member of the representation referred to in sentence 1 fulfils in his person the operational requirements and criteria necessary for the granting of the remuneration and the determination is not based on an error of judgement.“

The draft law is intended to address the so-called "hypothetical career development" or "fictitious promotion claim". According to this, a Works Council member may, under certain circumstances, demand higher remuneration than comparable employees pursuant to Section 37 (4) BetrVG. This is recognised in the established case law of the BAG, but is subject to strict conditions. The Works Council member must claim that without taking up, exercising, or continuing his office or without his exemption he would have been promoted or that his application for a higher-paid position was unsuccessful precisely because of his office/exemption.

The planned amendment to Section 78 BetrVG reflects the current case law of the BAG, according to which there is neither favouritism nor disadvantage with regard to the remuneration paid if the respective Works Council member personally fulfils the operational requirements and criteria necessary for the granting of the remuneration in relation to specific jobs available in the company and the determination is not based on an error of judgement.

According to the explanatory memorandum to the draft law, it may be justified to also consider the knowledge, skills and qualifications acquired through and during the term of the office, insofar as they are also relevant to the career and remuneration of the respective position in the company outside of the Works Council office.

Conclusion

The draft does not provide any significant innovations. Rather, the draft law codifies the existing case law of the BAG on Works Council remuneration and provides clarification in this respect.

However, the draft law does not release employers from the often laborious and still uncertain task of forming peer groups. The definition of said peer group in a written Works Agreement, which is now explicitly provided for in the law, only helps to a limited extent. The restriction of judicial review to "major errors" does not eliminate the risk of criminal liability for breach of trust under Section 266 StGB.

The extensive explanatory memorandum, in particular on the fictitious promotion claim of Works Council members on the basis of the prohibition of disadvantage and favouritism in Section 78 sentence 2 BetrVG, is indeed informative. However, uncertainty remains as to which knowledge, skills and qualifications acquired during the term of office are to be considered and to what extent.

Recommended actions for employers

Regardless of the planned changes in the law, the recommendations to employers remain the
same:

• Timely formation of peer groups
  
  Employers should determine the comparable employees or the peer group in agreement with the Works Council when the employee takes on the Works Council office and at least record this in text form.
  
  The early determination facilitates the overview of the customary development of the peer group and provides transparency for the affected Works Council members. With the help of an agreement between the parties, arrangements can be made in advance to avoid (costintensive) legal disputes at a later date.
  
  
• Establishment and review of a transparent remuneration system
  
  A regularly reviewed and adjusted remuneration system provides transparent documentation of the remuneration and benefits of Works Council members and comparable employees. Particularly in the event of internal changes to the remuneration structure (changes to collective agreements, introduction, or cancellation of special salary components) or restructuring, additional and unplanned remuneration adjustments must be made to comply with the statutory requirements and the case law of the BAG on Works Council remuneration.
  
  
• Caution with (non-)promotion of Works Council Members
  
  When considering the (non-)promotion of a (exempted) Works Council member, employers should carefully examine whether the Works Council member actually has the necessary skills, knowledge and qualifications for the position in question and whether or to what extent such skills, knowledge and qualifications acquired by the Works Council member through and during the term of office should be taken into account before making a decision.

Further information

Principles of Works Council remuneration:
Wypych/Boberg, Dauerbrenner Betriebsratsvergütung, Der Betrieb 2022, S. 1576

Discussion of the judgement of the BGH of 10 January 2023 - 6 StR 133/22:
Wypych/Boberg, Die rechtskonforme Vergütung von Betriebsratsmitgliedern – ein Balanceakt am Rande der Strafbarkeit, Der Betrieb 2023, S. 1224