Determining the comparative remuneration of released works council members: LAG decides that the works council does not have to be involved!

The LAG’s decision is welcome news for employers, as it does not impose any additional hurdles under works constitution law on them when meeting compliance requirements in connection with works council activities. Most recently, the 6th Criminal Division of the German Federal Court of Justice (“BGH”) had ruled in its decision of January 10, 2023 (6 StR 133/22) that a management board member can fulfill the objective elements of the crime of breach of trust if he grants excessive compensation to a works council member in violation of the prohibition preferential treatment under works council constitution law.

Facts
The employer and the works council are in dispute about the existence of a right of co-determination with regard to the determination of the released works council chairman’s remuneration. The latter had started his professional career with an apprenticeship as a lathe operator and was later employed as a fitter in the employer’s company. For the company with generally more than twenty employees entitled to vote, there is an in-house collective agreement and a collective pay agreement.

After the released works council chairman had initially received remuneration according to a collectively agreed remuneration group including special and functional bonuses, he was listed as a non-tariff employee from 2006 onwards. His compensation most recently averaged EUR 13,576.63 gross per month. This also included a non-cash benefit for the company car provided for private use.
In 2022, the employer adjusted the works council chairman’s remuneration to EUR 6,338.56 gross per month and cancelled the company car with private use option. According to the payroll, such amount is made up as follows: Basic salary according to wage group 8/25, performance bonus (4 %), specialist career bonus and compensatory allowance. This was preceded by a review of the remuneration to ensure its compliance with applicable law. The works council had not been consulted beforehand.

With its application, the works council asserted that a remuneration adjustment required a conduct of the procedure pursuant to Art. 99 (1) sentence 1 BetrVG prior to the adjustment’s implementation, and that the works council’s consent to the works council chairman’s grading had to be obtained or replaced by court order. 
 

Solution
In cases where the employer conducted a grading or regrading without having tried to obtain the works council’s consent required pursuant to Art. 99 (1) sentence 1 BetrVG, the works council may, beyond the wording of Art. 101 BetrVG, demand that its consent be subsequently obtained in order to secure its right of co-determination and, in the event of its refusal, that the consent substitution procedure under employment law be carried out in accordance with Art. 99 (4) BetrVG. Unlike a hiring or transfer, which represent an actual process, a grading or regrading is a pure application of the law which the employer cannot actually rescind. It is either correct or incorrect.

The determination of the released works council chairman’s remuneration is indeed an act of application of the law and the announcement of the result found by the employer. However, it is “only” an application of the law pursuant to Art.  37 (4) sentence 1 BetrVG and not a grading or regrading within the meaning of Art. 99 (1) sentence 1 BetrVG. The employer therefore rightly did not involve the works council.

Grading is the – initial or renewed – classification of an employee in a company remuneration system. It is a purely theoretical act of allocating a certain activity to a job characteristic under a remuneration scheme. The works council’s right of co-assessment is intended to help ensure that this application of the law leads to results that are as appropriate as possible. It serves to ensure the uniform and equal application of the remuneration scheme in the same and comparable cases and thus to ensure a fair remuneration and the transparency of remuneration practice within the company. The pursuit and enforcement of an employee's individual legal claim, on the other hand, is not the purpose of the co-determination procedure pursuant to Art. 99 BetrVG.

The determination of the comparative remuneration pursuant to Art. 37 (4) Sentence 1 BetrVG does not constitute a grading or regrading as it lacks the typical subsumption of the activity performed by the released works council chairman under the delimiting and grading factual characteristics of the collective remuneration system under the in-house collective agreement. The works council chairman does not perform any activity under his employment contract which could be assigned to the job characteristics of the relevant remuneration groups. Rather, the remuneration group 8/25 and the other remuneration components merely express the average value of comparable employees’ remuneration with the usual professional development. The employer has evaluated the remuneration development of employees it considers to be comparable with the works council chairman on the basis of their qualifications, a similar length of service and a similarly high remuneration in the period immediately before the works council chairman was released from his duties, and has considered remuneration group 8/25 to be a “normal”, i.e., average career development within the company.

There is also no discrimination pursuant to Art. 78 sentence 2 BetrVG. To the extent the remuneration determination does not result solely from the application of the collective remuneration regulations to an employee’s activity, other employees and non-released works council members also have no right of co-determination pursuant to Art. 99 (1) Sentence 1 BetrVG for.

Practical advice
The decision makes it easier for employers to determine the remuneration of released works council members, as the works council does not have to be involved in such process. 

Employers should also take the decision as an opportunity to critically examine their monitoring of works council activities from a compliance perspective and ensure that the compensation of released works council members is reviewed at regular intervals.
By setting excessive compensation for released works council members, HR managers tie up funds in the company that are not available for investments, debt reduction or distributions to shareholders and should also be aware of the risks under criminal law.