Only the salaries of the works council members were negotiated Volkswagen-Group. However, the sentences with which the judges at the Federal Court of Justice in Karlsruhe orally justified their judgment on January 10 made personnel managers sit up and take notice across the country: If board members in companies pay their works council members too high a salary, the offense of breach of trust can be fulfilled (Az 6 StR 133/22). According to the highest German court, top managers may be liable to prosecution if they pay too much money to employee representatives who have been released from work.
The case is not a special case for Volkswagen, but is of fundamental importance for companies in Germany and for the German model of co-determination. If the Federal Court of Justice questions the remuneration system that has been in use up to now in its written justification expected at the end of February, then hundreds of corporations and companies in Germany will have to react. Like many other DAX companies, Volkswagen only wants to comment on the remuneration dispute once the BGH has written its reasons for the judgment. According to information from the “Handelsblatt”, there is already an internal one in Wolfsburg Task force busy
, to prepare a salary cut for 80 of the approximately 250 exempted works councils in the group.
“Hypothetical career” of works councils: According to the BGH ruling, the VW model can no longer be maintained
In the specific case, the public prosecutor’s office accuses two former VW board members and two HR managers of having paid several senior VW works councils over the years 2011 to 2016. The long-standing head of the VW works council, Bernd Osterloh (66), received up to 750,000 euros a year as a top earner including a bonus. Osterloh started as a line worker at Volkswagen, but as head of the works council he saw himself as a “co-manager”, without whom important decisions at VW could hardly be made.
In the Osterloh case, Volkswagen referred to a so-called “hypothetical career”: In his more than 30 years at Volkswagen, the head of the works council had also been offered top management positions, which he had turned down because of his work as head of the works council. After leaving the general works council in 2021, Osterloh actually switched to the board of directors of the VW subsidiary Traton and has since worked as HR director.
However, the BGH rejected payment on the basis of a “hypothetical career”. Works councils are supposed to negotiate “on an equal footing” with the top managers in a group. However, this does not mean that they are entitled to be paid like a top manager.
Works council as honorary office: the majority of corporations work with comparative models
In contrast to VW, the majority of DAX companies work with the “customary development” model – a remuneration model that follows the case law of the Federal Labor Court (BAG) from 2005. The Dax companies surveyed are correspondingly relaxed: they see no reason to change anything in their current remuneration models. At least as long as the written judgment of the BGH is not available.
“Each fully exempted works council member is assigned comparable persons who are comparable to the works council member in terms of training, function and professional career,” said Deutsche Telekom at the request of manager magazin. These comparison persons form the “yardstick for a development customary in the company”: If there is a salary increase for them, the member of the works council who is released from work also receives this salary increase. The automotive supplier handles it in a similar way Continental, which orients the salary of a works council “to the career path of three selected employees who have comparable starting positions.” The benchmark for the remuneration of the works council is therefore “the typical normal course” of comparable employees.
Such an auxiliary construction, which forms the salary of an exempt works council through a “shadow cabinet” of several comparable employees, has become necessary because the Works Constitution Act (BetrVG) hardly gives any concrete guidelines on the subject of payment for works councils. “The members of the works council hold their office free of charge as honorary posts,” it says succinctly in §37 BetrVG. At the same time, employees who work full-time as part-time works council members may not be disadvantaged or favored because of this activity (§78 BetrVG).
Because works council work itself must not be remunerated, but the elected employee representatives must not be disadvantaged either, corporations pay like BASF their released works council members according to the principle of loss of earnings: Remuneration is based on the assumption that the respective works council member would have continued in his or her previous position. Also the carmaker bmw bases its compensation model on the case law of the Federal Labor Court: BMW, BASF, Continental and Telekom currently see no reason to review or change their compensation models.
Conflict between criminal law and labor law
Nevertheless, the judgment of the BGH leads companies into dangerous territory. So far, disputes about the payment of works councils have been negotiated and decided before the labor courts, the BAG has given the direction with corresponding judgments. Now, however, personnel directors have to fear that they will be liable to prosecution for breach of trust if they pay too much salary or too high bonuses to workers’ council members who are not on duty. The topic becomes even more explosive because the Works Constitution Act does not contain any specific guidelines as to how much money a works council may earn and up to what limit HR managers are on the safe side.
At Mercedes and Siemens one is therefore eagerly waiting for the detailed written justification of the BGH judgment – and hopes for concrete specifications. “We would welcome it if the legislature would create regulations to eliminate the existing legal uncertainties in the remuneration of works councils,” a Siemens spokesman told manager magazin.
Unions push for reform
Trade unions and employee representatives formulate their criticism more clearly. 50 years after its most recent amendment, a revision of the Works Constitution Act is overdue, according to the IG Metal. But all reform proposals, whether from IG Metall or the German Trade Union Confederation (DGB), have failed in parliament in recent years.
“The regulations on remuneration in the Works Constitution Act are too vague and not sufficient,” says IG Metall spokeswoman Silke Ernst. A modern remuneration model must not only end the legal uncertainty, but also acknowledge the qualifications and work performance of the works council. If the payment remains in a legal gray area, long-term activity as a works council is not very attractive for employees. This would weaken co-determination.
Jochen Homburg, a lawyer at IG Metall, says that the “customary development” remuneration model is not suitable in practice for creating transparent salary structures for works councils. “Many companies simply don’t have any suitable people to compare them to. So it remains a contentious issue,” says Homburg.
“More clarity and certainty,” demands the chairman of IG Metall, Jörg Hofmann (67). He expects that the BGH will return the ball to the Federal Labor Court on the question of “appropriate remuneration”. “I can’t imagine that the highest German court in criminal law would contradict the highest German court in labor law,” says Hofmann when asked by manager magazin. For him personally, working on the works council is not compatible with manager salaries, emphasizes Hofmann: “Works councils shouldn’t earn more than those they elect.”
In the worst case, those involved fear that the judgment of the Federal Court of Justice will also call into question the remuneration models previously approved by the Federal Labor Court. Then not only Volkswagen, but many companies would have to react quickly. And the discussion about a reform of the Works Constitution Act would continue to pick up speed. According to one observer, “Most changes occur under high pressure.”