Works council remuneration: “Operational requirements and criteria”.

 When is works council remuneration free from discrimination and preferential treatment?

Works council remuneration: “Operational requirements and criteria”.

The path to legally compliant works council remuneration is full of legal pitfalls. The legislator has now created slightly more clarity concerning the prohibition of discrimination and preferential treatment.

Works council remuneration in the Works Constitution Act

Works council remuneration was and remains a delicate issue for many companies: The Works Constitution Act (BetrVG) lacked clear legal regulations. Moreover, inappropriately high works council remuneration for works council members (released from their other duties) entailed legal risks. Conversely, there was also uncertainty as to whether employers were paying works council members too little. The legislator only took action when the Federal Court of Justice for Criminal Matters ruled that excessive works council remuneration represented embezzlement in 2023.

No discrimination, no preferential treatment

Works council members may not receive preferential treatment nor be discriminated against because of their office. This also applies to their remuneration (prohibition of discrimination and preferential treatment pursuant to Section 78 sentence 2 of the Works Constitution Act (BetrVG)).

Preferential treatment for or discrimination against works council members may be punishable under Section 119 (1) no. 3 of the Works Constitution Act (BetrVG). In addition, criminal liability for tax evasion is another possibility if companies reduce their taxable profit by writing off excessively high remuneration as operating expenses and paying insufficient tax as a result. Last but not least, the embezzlement ruling by the Federal Court of Justice for Criminal Matters from 2023 also becomes a concern in the case of excessively high remuneration.

Determining the remuneration

In principle, a works council member who has been released from their duties must continue to receive the remuneration to which they would be entitled were they to continue their original duties.

However, employers and works councils sometimes agree on an arbitrary work obligation for the works council member in the employment contract. This indirectly results in impermissibly high works council remuneration when measured against the loss of earnings principle.

Operational requirements & criteria

Section 37 IV 1 of the Works Constitution Act (BetrVG) stipulates that works council remuneration must correspond to the remuneration of comparable employees with typical career development.

However, this only safeguards the minimum remuneration. Works council members may also be discriminated against when this minimum remuneration is granted.

Consequently, Section 78 sentence 2 of the Works Constitution Act (BetrVG) may also result in an entitlement to higher remuneration. At the same time, if the parties to the employment contract agree on a higher remuneration, this may in turn constitute prohibited preferential treatment because a works council member released from their duties does not perform any work. To enable legally secure agreements, Section 78 sentence 3 of the Works Constitution Act (BetrVG) now stipulates the following:

“There is no preferential treatment or discrimination with regard to the remuneration paid if the member of a representative body of the employees referred to in sentence 1 personally fulfils the necessary requirements and criteria applicable in the establishment for the granting of the remuneration and the determination was not made in an error of discretion.”

This means that the parties to the employment contract may agree on remuneration representing the assignment to a higher-ranking position if the works council member is suitably qualified.

As such, the legislator clarified that a fictitious career for the works council member remains an option.

While the Federal Labor Court has adopted this position in the past, the Federal Court of Justice obviously had not. However, this requires that there is a specific vacancy for which the works council member would be suitable and for which no other employee is objectively preferable when measured against the employer’s standards.

Subjective assessment and monitoring of discretionary mistakes

Subjective assessments and evaluations may be involved in deciding whether or not the operational requirements and criteria have been met.

What can we do for you?

Do you have any questions about the prohibition of discrimination and preferential treatment with regard to works council remuneration? Do not hesitate to contact us!

Summary of the key facts:

  • Section 37 (4) sentence 1 of the Works Constitution Act (BetrVG) establishes the framework for legally compliant works council remuneration: It must correspond to the remuneration of a comparable employee with typical career development.
  • The prohibition of discrimination and preferential treatment may also be complied with if the higher remuneration is derived from a fictitious career (Section 78 sentence 3 of the Works Constitution Act (BetrVG)).