Amendments to the Work Constitution Act: Bundestag approves draft bill

The German government introduced a draft bill (20/9469) aimed at modifying the Works Constitution Act (Act), prompted by a decision from the Federal Court of Justice regarding works council remuneration. On 28 June 2024, the Bundestag adopted the draft bill in an unamended version. The proposed amendments seek to provide clarity to section 37 paragraph 4 and section 78 of the Act. The purpose of this is to reduce the risk of employers violating discrimination regulations in situations where they are acting in good faith.

Principles for the remuneration of works council members

Under Section 37 para. 1 of the Act, works council members perform their duties without pay as an honorary position; however they are also released from their professional duties without any reduction in pay. The Act specifies two principles with regard to the determination of remuneration while works council activities are being performed:

• Section 37 para. 4 provides for a standard minimum remuneration. This minimum remuneration cannot be set lower than the remuneration of comparable employees. According to case law, the point in time immediately prior to an employee taking office for the first time is decisive for determining who the comparable employees are.
• Section 78 s. 2 provides for a general prohibition of discrimination and preferential treatment, including with regard to professional development and the associated development of remuneration. Employers are obliged to ensure that works council members have the same professional development that they would have had if they had not held office and to pay them the corresponding remuneration. However, according to case law, the fictitious promotion claim (fiktiver Beförderungsanspruch) must always be linked to the filling of a specific position.

Draft bill leaves questions unanswered

The decision of the Federal Labour Court (judgement of 10 January 2023 - 6 StR 133/22) caused major legal uncertainty about the application of the remuneration provisions of the Act. The Federal Government therefore presented a draft bill to provide clarity to section 37 paragraph 4 and section 78 of the Act.

Section 37 para. 4 new version:

• Section 37 para. 4 is to be extended to the effect that the relevant point in time for determining the works council member's comparison group is the commencement of the works council mandate, unless there is an objective reason for a subsequent redetermination.
• The objective reasons are not specified in the explanatory memorandum. The only example cited is the case where a works council member who fulfils the requirements of a higher-paid position and concludes a corresponding amendment agreement with the employer is to be reassigned to a new comparison group.
• In addition, the new provisions clarify that the parties to a works agreement may agree on a procedure for determining the comparison group. The group determined by that procedure can only be reviewed for gross errors.

Section 78 new version:

• According to the explanatory memorandum, the new provisions are intended to provide criteria that can be used as a basis for granting pay that is free of discrimination and privileges.
• The purpose of this is to take into account the case law of the Federal Labour Court on fictitious promotion claims: There is no privilege or disadvantage to a works council member with regard to the remuneration paid if they fulfil the operational requirements and criteria necessary for the granting of the remuneration in relation to a specific job actually available in the company. The determination of any hypothetical salary and career development must not be based on an error of judgement.
• The Federal Labour Court did not want to take hypothetical career developments into account. In contrast, the explanatory memorandum to the law states that the knowledge, skills and qualifications acquired through, and during, the term of office should also be taken into account when filling a position, insofar as they are also relevant to the career and remuneration of the respective position in the company. However, from a legal perspective it remains unclear in what form, and to what extent, these are to be taken into account when determining remuneration.

Practical advice and outlook

The ability for the parties to agree their own company regulations with regard to the comparison group and abstract comparison criteria is to be welcomed (section 37 para. 4). However, which criteria, in addition to those already established by case law, will constitute an objective reason for a subsequent redefinition of the comparison group will have to be answered by the courts. The question of how exactly employers may take into account the knowledge acquired during the term of office in individual cases (section 78) will also need to be firmed up by case law.

After the Committee on Labour and Social Affairs approved the Federal Government's draft bill, the Bundestag passed the bill in an unamended version on 28 June 2024. The draft was forwarded to the Bundesrat and discussed at its meeting on 5 July 2024. Objections to the draft bill are not expected. We will keep you up to date.