Works council remuneration and compliance - current and future legal situation

On June 28, 2024, the Bundestag passed the legal clarification on works council remuneration by amending the Works Constitution Act. Although the new regulations will not yet come into force, this is a good opportunity to take another look at the correct procedure for calculating works council remuneration.

The amendment to the BetrVG was prompted by the ruling of the Federal Court of Justice on January 10, 2023 (6 StR 133 / 22). In this ruling, the BGH decided that the granting of excessive remuneration to a works council member can constitute a criminal offense of breach of trust (Section 266 StGB). In practice, this led to legal uncertainties and increasingly to preventative reductions in works council remuneration.

The ruling prompted the Federal Ministry of Labor and Social Affairs (BMAS) to submit a draft bill for the statutory (re)regulation of works council remuneration. The government draft based on this was approved by the Bundesrat on December 15, 2023 and now also by the Bundestag.

According to the BMAS, the aim of the legislative amendment is to clarify the existing legal situation and to reduce the risk of breaches by honest employers and works council members of the ban on discrimination and preferential treatment under works constitution law. New or additional pay entitlements are expressly not created.

Taking into account the current legal situation in conjunction with the statutory amendments, the following should be noted with regard to the remuneration of works councils:

The correct assessment of the remuneration of works council members in accordance with the above principles can be complex - this applies in particular to works council members who are released from their duties for long periods of time. To help you navigate this difficult field, the most important principles are outlined below.

Honorary principle

The works council office is an honorary office and is therefore performed free of charge (Section 37 (1) BetrVG). The principle of honorary office ensures the independence of the members of the works council.

Loss of pay principle

Members of the works council are to be released from their professional duties for works council activities without a reduction in pay if and insofar as this is necessary for the proper performance of their works council duties. Remuneration must continue to be paid during the leave of absence in accordance with the principle of loss of earnings. This means that the works council member must continue to be paid the salary that they would have received if they had worked regularly without the works council activity. Remuneration includes not only basic remuneration, but also variable remuneration components, special payments (e.g. vacation or Christmas bonuses) or attendance bonuses. In addition, bonuses or allowances may also be included.

Prohibition of discrimination and favoritism

In order to safeguard the independence of the members of the works council, they may neither be favored nor disadvantaged because of their works council activities (Section 78 sentence 2 BetrVG). This also applies to their professional development, including the resulting remuneration.

Minimum pay protection

The remuneration of members of the works council may not be set at a lower level than the remuneration of comparable employees with a customary professional development (Section 37 (4) sentence 1 BetrVG) up to and including a period of one year after the end of their term of office.

The application of this provision has often led to legal uncertainty in the past. This is aggravated by the fact that, according to the case law of the Federal Labor Court, a direct claim of the works council member to a certain remuneration can (also) arise from the prohibition of discrimination (Section 78 sentence 2 BetrVG) if a lower remuneration constitutes discrimination due to the works council activity.

Against this background, both Section 37 (4) and Section 78 sentence 2 BetrVG are supplemented by the amendment in line with the case law of the BAG.

Clarifications through the amendment to the BetrVG

In accordance with the case law on this subject, Section 37 (4) BetrVG now clarifies that the time at which the works council member takes up the position is to be taken as the basis for determining which employees are comparable to the works council member. If there is an objective reason, the comparative group can be redefined (example: the works council member fulfills the requirements of a higher-paid position and concludes a corresponding amendment agreement with the employer). The works council and employer can regulate a procedure for determining comparable employees in a works agreement. This is in line with current case law and is now also set out in the BetrVG. If such a works agreement is agreed, the specification of comparability therein can only be reviewed for gross errors. The same applies to a subsequent determination of the specific comparators by the employer and works council if it is recorded in text form. The amendment to the law does not contain a right of initiative for the works council to enforce such a works agreement with the employer.

The prohibition of discrimination and favoritism set out in Section 78 BetrVG is specified to the extent that there is no favoritism or discrimination with regard to the remuneration paid if the works council member meets the requirements and criteria necessary for the granting of the remuneration and the determination was not based on an error of judgment.

With reference to the above-mentioned ruling of the Federal Court of Justice, the explanatory memorandum to the law states that when filling a position, it may be objectively justified to also take into account the knowledge, skills and qualifications acquired through and during the works council 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, as they are the result of an individual personal learning process of the works council member and are not automatically predetermined by a function on the works council or one of its committees or bodies. On the other hand, the fact that a member of the works council "negotiates on an equal footing" with board members and managers or performs "complex tasks" or is "involved in corporate decision-making complexes" cannot be taken into account. These standards were inadmissibly linked to works council activities and could not be based on the BetrVG.

What does this mean for company practice?

Like the prohibition of discrimination, the prohibition of favoritism is a fundamental principle of the Works Constitution Act, the violation of which may be punishable by law. Criminal liability may arise from the BetrVG itself (Section 119 BetrVG) and the German Criminal Code (for breach of trust pursuant to Section 266 StGB). It remains to be seen whether the amendment to the BetrVG will provide the necessary legal certainty.

In any case, employers should not be tempted to grant unlawful benefits to members of the works council - for example, in the expectation or hope that the favored works council member will therefore act more favorably towards the employer.

It should also be remembered that agreements that violate the prohibition of preferential treatment are null and void. This means that claims derived from them cannot be enforced. However, if a benefit has already been granted, it should be possible to reclaim it on the grounds of unjust enrichment according to the case law of the Federal Labor Court (5 AZR 11/17).