Restoring Legal Certainty Regarding Works Council Member Compensation by Amending the German Works Constitution Act (Betriebsverfassungsgesetz – BetrVG)?

As a result, many companies preemptively cut the salaries of their works council members, which in turn took their claims to the labor courts, and the vast majority of them were successful. At the end of June, the German legislator passed an amendment to the German Works Constitution Act (BetrVG). This amendment is intended to eliminate the legal uncertainty that has arisen. It is intended to help put the remuneration of works council members on a new, sustainable, and legally secure footing. The “Second Act to Amend the Works Constitution Act” became effective on July 25, 2024.

Legal Framework for the Remuneration of Works Councils under the German Works Constitution Act (BetrVG)

Sec. 37 IV and Sec. 78 II BetrVG provide the legal framework for remuneration of works council members. Sec. 37 IV BetrVG is intended to ensure that members of the works council do not suffer economic or professional disadvantages compared to comparable employees with a normal career development. To protect the works council member from financial disadvantages as a result of his or her works council activity, it is important whether the salary development of the works council member has decreased in relation to comparable employees during the period of his or her works council activity. Sec. 37 IV BetrVG, in turn, establishes a minimum remuneration for works council members as a statutory minimum for the assessment of works council remuneration. Sec. 78 II BetrVG, on the other hand, establishes a general, comprehensive ban on discrimination and preferential treatment, which also covers the professional development of works council members. The employer is obliged to guarantee the members the same professional development that they would be satisfied with if they did not hold office, and to structure their remuneration accordingly. To this purpose, the employer must draw up a forecast. If the works council member has not been promoted to a position with higher remuneration solely as a result of taking office, he or she will have a direct claim to payment of the higher remuneration in accordance with Sec. 611a of the German Civil Code (Bürgerliches Gesetzbuch – BGB) and Sec. 78 II of the BetrVG. The prerequisites for this fictitious entitlement to a promotion were previously characterized by extensive case law of the BAG. The BGH also referred to this decision in its reasoning but deviated from it in important respects. This inevitably leads to an area of tension between the prohibition of discrimination on the one hand and the prohibition of favoritism on the other, and the associated risk for the employer of being wrong in its predictive decision. The BGH has ruled that the salary development of works council members may only be based on the average expected development of comparable employees; the inclusion of a hypothetical salary development of the works council member in the case of a special career is prohibited. This contradicts the legal opinion of the BAG, which also considers the individual performance development of works council members to be a permissible criterion. The fictitious promotion claim must be based on the filling of specific positions in the company.

The BGH also rejects a deviating determination of new, now relevant comparative figures due to changed, special circumstances. The BAG, on the other hand, sees a need to redefine the comparative group within the framework of Sec. 37 IV 1 BetrVG for objective reasons, as otherwise there is a risk that, in the absence of a counter-performance, either the remuneration guarantee for comparable employees who are to be classified in a higher group would be rendered void or, conversely, no lower limit for the remuneration would be set, but the works council member would be placed in a better position, which could be avoided.

Specific amendments to the German Works Constitution Act (BetrVG)

The “Second Act to Amend the Works Constitution Act” is now intended to achieve a standard understanding of the legal framework by supplementing the content of these two provisions, which are central to the remuneration of works council members.

In Sec. 78 II BetrVG, sentence 3 supplements the prohibition of discrimination and preferential treatment of works council members in their work and professional development with criteria that can be used as a basis for granting remuneration that is free of discrimination and preferential treatment. Accordingly, there is no discrimination or preference with respect to the remuneration paid if the respective employee personally meets the operational requirements and criteria necessary for the granting of the remuneration in relation to the positions actually available in the company and the determination is not based on an error of judgment.

The new sentence 3 specifies the relevant time for the determination of the comparative group of employees for the calculation of the minimum remuneration claim pursuant to Sec. 37 IV BetrVG. In accordance with BAG’s case law, the date on which the employee takes up his or her position is the date on which the comparable group is formed. However, it is clarified that an objective reason may require a later redefinition of the comparative group. Sentence 4 of the paragraph, which has also been added, now also standardizes the possibility already recognized by the BAG case law of defining a procedure for determining comparable employees in a works agreement. The new sentence 5 provides that such an agreement, as well as the designation of concrete employees forming a comparative group in text form may only be reviewed by the courts for gross error, as an incentive to make the formation of settlement groups more transparent.

Clarifying rather than re-regulating

An extension of the wording of the BetrVG with regard to works council member compensation is not a “genuinely new regulation”. The recitals on the amendment to the BetrVG refer comprehensively to the BAG’s already extensive and established case law and clarify that the amendment is in line with the existing legal situation and case law. However, considering the decision of the BGH Criminal Senate of January 2023, the German legislator saw the need to eliminate as far as possible the legal uncertainties that had arisen in connection with the determination of the remuneration of works council members. It remains to be seen whether the amendments to the BetrVG that have now come into force will keep the promises made by the legislators. A predictive decision based on many years of labor court case-law should not lead to potential criminal liability for employer representatives.

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