The initial situation

The calculation of works council remuneration is not clearly regulated in the German Works Constitution Act (BetrVG). Ultimately, the law only contains a kind of "guideline." According to this, the remuneration of works council members may not be set lower than the remuneration of "comparable employees with customary professional development" (Section 37 para. 4 sentence 1 of the German Works Constitution Act). In addition, Section 78 sentence 2 of the German Works Constitution Act stipulates that works council members "may not be disadvantaged or favored because of their work; this also applies to their professional development."

On the basis of these guidelines, case law developed individual principles and specifics in a long series of decisions, especially by the Federal Labor Court ("Bundesarbeitsgericht" — BAG), but a reliable basis for calculation was still lacking.

The intended addition to the existing statutory provisions

The declared aim of the federal government was and is to mirror the previous decisions of the Federal Labor Court in the law and thus make their key points generally applicable. The planned amendments to Sections 37 and 78 of the German Works Constitution Act therefore revolve around the determination of employees comparable to the works council member ("peer group"), as well as the criteria that can be used as a basis for granting remuneration without discrimination or preferential treatment.

Section 37 (4) of the German Works Constitution Act is to be supplemented by three concretizing sentences. It has been clarified that the decisive point in time for determining the peer group is the assumption of the works council office, not an earlier or (in practice more often) later date. However, if there is an objective reason, the peer group can also be determined after the assumption of office. According to previous case law, this may be necessary in the case of promotions, for example.

Employers and works councils should also be able to conclude works agreements on the procedure for determining the peer group and determine specific comparable persons by mutual agreement. This is intended to create an incentive to transparently determine the comparability of employees in advance. Such agreements would then only be subject to judicial review for gross errors.

However, specific criteria for determining comparative groups are not specified, so the Federal Labor Court's guidelines can continue to be used as a guide. Accordingly, those comparable employees are those who, at the time of taking office, carried out similar, essentially equally qualified activities as the works council member, and were equally qualified to do so.

The other amendment concerns Section 78 of the German Works Constitution Act (BetrVG). The amendment primarily relates to an entitlement to higher remuneration, taking into account a fictitious career path. Works council activities should not lead to other employees advancing in their careers and the works council member being left behind as a result of their activities.

A works council member may already be entitled to a higher salary if their promotion to an advertised higher-paid position was rejected by the employer primarily due to their works council activities. According to case law, the notional promotion claim is always linked to the filling of a specific position. In practice, the company must therefore want to fill a position with the works council member and then actually fill it with another person (so-called double filling). Only then is the works council member to be remunerated in the same amount as this person.

The new Section 78 sentence 3 of the German Works Constitution Act stipulates that the works council member will not be favored or disadvantaged in relation to the remuneration paid if the member meets the operational requirements and criteria necessary for the granting of the remuneration, and the determination is not discretionary. The wording of the provision is not very meaningful. The explanatory memorandum helps; hypothetical salary and career developments must be properly taken into account when making the discretionary decision. When filling vacancies, companies may also consider knowledge, skills and qualifications acquired during the term of office, provided that they are also relevant to the career and remuneration of the respective position in the company outside of the works council office. In line with previous case law, it is stated as a restriction that the fact that the works council member "negotiates on an equal footing" in their office should not be taken into account, as this would be inadmissibly linked to the works council activity.

In individual cases, knowledge acquired through works council activities may also be taken into account when filling a position or for promotion. However, this knowledge must still be knowledge that is also — and above all — relevant for the promotion position, and not just for the works council office. Negotiating skills acquired in the works council office will therefore not be taken into account if they are not required for the promotion position.

Just an implementation of familiar practice or a real step forward?

The declared aim of the federal government was and is to mirror the previous decisions of the Federal Labor Court in the law and thus make their key points generally applicable. The planned amendments to Sections 37 and 78 of the German Works Constitution Act therefore revolve around the determination of employees comparable to the works council member ("peer group"), as well as the criteria that can be used as a basis for granting remuneration without discrimination or preferential treatment (largely the former).

In line with its objective, the amendment is essentially limited to the transfer of previous case law into the German Works Constitution Act. There are no real novelties. Nevertheless, the planned additions are to be welcomed from the employer's point of view. They provide helpful guidance as to which points should be considered when calculating works council remuneration. The explanatory memorandum is also particularly important here.

However, there are still uncertainties regarding the actual calculation of the amount of works council remuneration. For example, the practically important question of what the minimum size of the peer group must be to enable a meaningful calculation remains open. Unlike Section 12 (3) of the Remuneration Transparency Act, a minimum number of comparators is not specified.

The specific method of calculating the works council remuneration also remains unclear. Whether the average earnings of comparable employees within the peer group or the median should be used as the basis for the calculation remains open. The method of calculation that appears more appropriate in the individual case will have to be chosen.

Nevertheless, the amendment to the law now expressly opens up the possibility of coming closer to the goal of clarity, appropriateness and uniformity in the determination of future works council remuneration, by means of a works agreement or the determination of comparators. If a works agreement can, in the future, only be reviewed by the courts for gross errors, then it can offer greater certainty. This would benefit both parties to the agreement. Employers are therefore particularly advised to review the existing criteria for the formation of peer groups and, if necessary, to define them, ideally in a works agreement.

Overall, the amendment to the German Works Constitution Act is a step in the right direction. Unfortunately, some key issues remain unresolved. In particular, the upper limit for works council remuneration is still not easy to find. Here, it remains a matter of looking at the individual case and applying the most delicate touch possible.

As works council remuneration can be prone to disputes and has recently become the focus of much more public attention, employers should take this as an opportunity to review their current situation.

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