Bundestag passes new regulation on works council remuneration

On 28 June 2024, the Bundestag unanimously passed an amendment of the German Shop Constitution Act (Betriebsverfassungsgesetz, BetrVG) in order to eliminate legal uncertainties concerning works council remuneration, which has always been a complex issue. We explain the amendment and show you why this issue will remain problematic.

Background: risk of a breach of trust

The legislative initiative was triggered by the sensational so-called "Volkswagen ruling" of the Federal Court of Justice (FCJ) (Bundesgerichtshof, BGH) on 10 January 2023 (docket No. StR 133/22).

The BGH ruled that the criteria for a breach of trust pursuant to Sec. 266 (1) of the German Criminal Code (Strafgesetzbuch, StGB) can be fulfilled if works council members are paid excessive remuneration and the prohibition of preferential treatment under shop constitution law pursuant to Sec. 78 sentence 2 BetrVG has therefore been violated. As a result, various legal uncertainties have arisen as to how works councils should be remunerated in compliance with the law. The background to this is that works council activities are carried out on an honorary basis (Sec. 37 (1) BetrVG) and the so-called loss of earnings principle applies. 

As a result, many companies have been forced to reduce the salaries of their works council members as a precautionary measure in order to avoid criminal consequences for the company management. This has led to a wave of lawsuits by the works council members affected, who sued for their original remuneration before the labour courts with original jurisdiction.

In May 2023, the legislator then set up a specially formed expert commission on "Legal certainty regarding works council remuneration", whose amendment proposal it has now followed almost to the letter.

What will change with immediate effect

The following sentences 3 and 4 are being added to Sec. 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 shop agreement. The concretisation of comparability in such a shop agreement can only be reviewed for gross errors; the same applies to the determination of comparable persons, provided that it is mutually agreed between the employer and the works council and documented in text form."

The following sentence 3 is being added to Sec. 78 BetrVG:

"There is no preferential treatment or discrimination regarding the remuneration paid if the member of a representative body referred to in sentence 1 fulfils the operational requirements and criteria necessary for being granted the remuneration and the determination is not based on an error of judgement."

Evaluation of the new regulation

The amendment is fundamentally to be welcomed. Together with the detailed explanatory memorandum, it should enable the employer and works council to structure the works council remuneration with greater legal certainty. However, the legislator has in fact essentially limited itself to codifying the previous case law of the Federal Labour Court (Bundesarbeitsgericht, BAG). For example, the BAG had already ruled that the employer and works council may enter into agreements that concretise Sec. 37 (4) BetrVG.

The first-time regulation of the relevant point in time for determining the comparable group is also in line with current case law. New, however, is the fact that the concretisation of comparability in a shop agreement and the determination of comparable persons may only be reviewed for gross errors.

Issues that remain problematic

In detail, the merely half-hearted amendment and the fact that open questions remain unresolved can be criticised. In practice, remuneration issues arise not only for works council members who are fully released from their work duties, but also for those who are not released from their work duties - for example, with regard to how variable remuneration components are to be measured. Neither the legislator nor the BAG have yet satisfactorily clarified this (see BAG, judgement of 29 April 2015 - 7 AZR 123/13). It is also evident that the large number of undefined legal terms appears to lead to less as opposed to more legal certainty in individual cases.

Employers should also not enter into any unauthorised tie-in arrangements with the works council. Companies will have to accept the possibility created by the legislator of concluding shop agreements in order to determine the procedure for works council remuneration.

Conclusion

Legal uncertainties will remain - at least in individual cases. On the other hand, at the very latest with the amendment of the BetrVG, companies should become aware of the risk of triggering the criminal offence of a breach of trust under Sec. 266 StGB in the event of excessive works council remuneration. The lawful remuneration of works council members must continue to be determined on a company-specific basis. From a compliance perspective, companies should therefore focus on complete documentation and take into consideration the indications arising from the BetrVG and the explanatory memorandum to the law.

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