Last year, by judgement dated 28 September 2021 (16 KLs 406 Js 59398/16 inter alia), the Regional Court [Landgericht, LG] of Braunschweig acquitted four high-ranking managers of the VW Group of the charge of breach of trust due to excessive works council remuneration. However, it is clear from the recently published reasons for the judgement that the judges nevertheless considered the objective fact for constituting a breach of trust pursuant to Sec. 266 (1) of the German Criminal Code [Strafgesetzbuch, StGB] to have been fulfilled.
The acquittal was based solely on a mistake of fact that precluded intent, as the defendants had been convinced that they had acted dutifully and in accordance with the law. Following this decision and the press released in connection with the VW affair regarding works council remuneration, it is doubtful that anyone will be able to demonstrate to a court’s conviction in future that they were mistaken about the prerequisites of the non-criminal law standards of Secs. 37 and 78 German Shop Constitution Act [Betriebsverfassungsgesetz, BetrVG].
From a compliance perspective, this - at the very latest - should be reason to review the works council remuneration at one's own company, especially in light of the fact that the government coalition also announced in its coalition agreement of 24 November 2021 that it intends to classify the obstruction of democratic co-determination as an official offence in the future. This also includes excessive salaries for works council members.
In addition, the regular works council elections were recently held from March to May of this year, which means that the question of permissible works council remuneration will have recently arisen again in many companies, not only for re-elected employees but also for employees elected to the works council for the first time.
In case of excessive works council remuneration, the allegation of a breach of trust can arise from a breach of Sec. 37 (1), (2) and (4) in conjunction with Sec. 78 sentence 2 BetrVG. Since the works council office is designed as an honorary office in order to ensure independence, a works council member may neither be favoured nor disadvantaged as a result of assuming such office. Sec. 37 (2) BetrVG prescribes remuneration for works council members who still actively work, i.e. who have not been fully released from their duties, according to the loss of earnings principle. In addition, according to Sec. 37 (4) BetrVG, works council members who have been fully released from their work duties may not be paid less than comparable employees "with normal career development".
The LG Braunschweig has now deemed payment "on equal footing" with the negotiating partners on the employer side to be inadmissible. Skills and knowledge acquired by the works council member in the course of his works council activity is not to be considered in any way whatsoever in the development of his salary. The only relevant factor is the activity performed by the works council member before assuming his office, and thus the salary development of comparable colleagues from his last position before assuming the honorary office.
However, calculation of works council remuneration is often a tightrope walk, as there are still many unresolved legal issues here on which the legislator is called upon to provide greater legal clarity - especially in view of the penalties faced. Here are just a few examples of the stumbling blocks that are typically found in practice:
Variable performance-related remuneration for works council members partially released from work duties
If, for example, a commission dependent on the turnover achieved is paid in addition to the basic remuneration, the question arises as to how the time-off for works council activities affects the commission entitlement of those works council members who still actively work. Since the Federal Labour Court [Bundesarbeitsgericht, BAG] rejects a direct connection between working time and performance in the case of performance-related remuneration components, the question arises as to how the performance during the release from work duties should hypothetically be calculated. Since this has to be considered on an individualised basis, a regulatory agreement with the works council on the equal treatment of all members according to a uniform regulation is also and especially prohibited.
Provision of company car
A works council member is not entitled to a company car for private use if he would not have been entitled to such car without the works council office. Although a business trip required of the works council member may oblige the employer to provide such member with a company vehicle as a material means for effectively performing the works council office pursuant to Sec. 40 BetrVG, this constitutes a claim of the works council as a body for the provision of required material resources in accordance with Sec. 40 BetrVG, which means that no private use may be granted in this respect.
Promotions only count as part of the company's normal career development if the vast majority of comparable employees within the meaning of Sec. 37 (4) BetrVG moves into a corresponding promotion position, i.e. the company promotion practice favours the majority of comparable employees. Consequently, blanket agreements, e.g. to give promotions simply after certain time periods, are prohibited.
In view of the threat of personal liability and criminal liability of board members and managing directors, a regular review of works council remuneration should therefore be carried out, particularly in the case of long-standing works council members, despite the considerable efforts that this can expect to entail. In the case of new works council members elected to the works council, immediate attention must be paid to ensuring accurate documentation on position, qualifications and skills as well as identified comparable employees. This is part of a functioning compliance management system.