Amendments to the Work Constitution Act: New regulation of the remuneration of works council members in place

The German government introduced a draft bill aimed at modifying the Works Constitution Act (Act). This was prompted by a decision by the Federal Court of Justice regarding works council remuneration. On 25 July 2024, the Second Act Amending the Works Constitution Act came into force. The amendments seek to provide clarity to the Act, with a purpose of reducing 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 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:

• Minimum standard for remuneration: The minimum standard for remuneration cannot be 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.
• Prohibition against discrimination: There is 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.

New regulations

The decision of the Federal Labour Court (on 10 January 2023) created significant legal uncertainty about the application of the remuneration provisions of the Act. The Federal Government therefore presented a draft bill to provide clarity on the above principles.

Minimum standard for remuneration:

• This provision was 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. A subsequent redetermination is possible in exceptional cases, provided there is an objective reason for this.
• The objective reasons are not specified in the explanatory memorandum. The only example given is the case where a works council member who meets the requirements of a higher-paid role 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. The same applies to appointment of comparable persons determined on the basis of the procedure laid down in the works agreement.

Prohibition against discrimination:

• 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. According to the explanatory memorandum to the law, the vacant position has to be offered to the works council member ‘in the usual course of business’.
• Therefore, the prerequisites for a claim of higher remuneration are specific to a vacant position that was offered to the office holder in the usual course of business and whose qualification requirements the works council member fulfils.
• In addition, according to the explanatory memorandum to the law, the works council member must actually receive the advertised position; in the case of an exempted works council member, this regularly leads to a double appointment. The previous fictitious promotion entitlement therefore becomes an actual promotion.
• 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. The consideration of such knowledge has so far been highly controversial, as it can lead to a special career and privilege of the works council member.
• The standard of review with regard to a violation of the prohibition of discrimination and privilege is limited: A violation only exists if the determination of the hypothetical salary is based on an error of judgement.

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. 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 will also need to be firmed up by case law. The same applies to the interpretation of the legal terms ‘error of judgment’ and ‘gross error’.

Read the German version here.