Germany: Changes to Works Council Remuneration Came Into Force

The amendments to the Works Constitution Act on the remuneration of works council members passed the Federal Council on 5 July 2024 and came into force on 25 July 2024. These amendments were necessary due to the shortcomings in the previous legal situation and a ruling by the Federal Court of Justice in 2023, which created considerable uncertainty regarding the potential criminal liability of employers in the event of violations of the prohibition to favour works council members because of their position.

 

Previous legal situation

The works council position is an honorary position wherein the principle of loss of earnings applies. Therefore, works council members should receive the same salary they would have received without their works council activities. The comparison groups for determining works council remuneration were based on Federal Labour Court decisions.

Uncertainties arose, especially regarding the hypothetical career development used to determine remuneration development over time. In the end, those involved on the employer’s side were threatened with far-reaching criminal consequences for violating the prohibition of favouritism under the Works Constitution Act. At the same time, the correct determination of the remuneration of a works council member released from his regular duties for the purpose of performing works council tasks was a highly complex matter, depending on the circumstances.

 

Amendments to the Works Constitution Act

Firstly, Section 37(4) of the Works Constitution Act is amended so that the relevant date for determining comparable employees is the date on which the works council member first takes up office on the works council. Employers and works councils can agree on procedures for determining comparable employees in a work agreement. These agreements can only be reviewed for gross errors, expanding the scope for the work parties and reducing the risk for personnel managers.

Secondly, Section 78 of the Works Constitution Act now states that it does not constitute favouritism or discrimination if works council members meet the necessary operational requirements and the determination of their remuneration is not based on an error of judgement. Knowledge, skills and qualifications acquired during the term of office should be considered to the extent that they are relevant to the career and remuneration of the position in the company outside the works council office.

Practical Point

• Employers and works council now have the opportunity to develop their own company rules in relation to specific comparison groups and abstract criteria. It is recommended to only consider criteria that have a factual basis.
• However, it remains unclear how exactly employers can consider knowledge acquired during the period of employment in individual cases. It is expected that case law will develop over time regarding this question.