State Labor Court (LAG): no salary reduction for works council.

A landmark ruling and its consequences

Works council remuneration became an issue in early 2023 following a criminal ruling by the Federal Court of Justice (BGH): HR managers can be convicted of breach of trust if they grant works council members excessive salaries.

In response, many companies then cut works council salaries to avoid subjecting their HR managers to the risk of criminal prosecution. Moreover, some companies demanded the repayment of overpaid remuneration from works council members.

This triggered a wave of lawsuits by works council members against the cuts and repayment claims.

Criminal law vs. labor law

This ruling by the Federal Court of Justice has caused considerable uncertainty in human resources practice due to the fact that criminal law and labor law appear to reach different conclusions regarding permissible works council remuneration. This has created uncertainty, above all among the HR managers tasked with determining the amount of works council remuneration.

The key question now is whether the peer group approach represents the only permissible benchmark for determining works council remuneration or whether the hypothetical career development of a works council member can also serve as a basis for the assessment.

Case of a VW works council member

The Lower Saxony State Labor Court (LAG) addressed a case in which the remuneration of a works council member had been assessed on the basis of his hypothetical career development.

The works council member had been completely released from his other duties and was demoted by two pay grades (from 20 to 18) following the criminal ruling by the Federal Court of Justice in 2023. This resulted in a pay cut of 500 euros per month. His employer also demanded repayment of the overpaid remuneration for a specific period of time.

Although the works council member complied, he then sued for reimbursement of the amounts he had repaid his employer and wanted a court ruling to clarify whether his downgrading was unlawful.

Success in two instances

The works council member won the case before both the Braunschweig Labor Court (ArbG) and the Lower Saxony State Labor Court.

He successfully proved that he would have received a promotion several years earlier if he had not been prevented from accepting the position due to his duties on the works council.

Therefore, he was able to fulfill the conditions set forth by the Federal Labor Court (BAG) regarding his hypothetical career development. As such, the State Labor Court ruled that it must, therefore, be assumed that the works council member would have reached pay group 20 if his duties as a works council member had not prevented him from doing so.

Consequently, VW was ordered to refund the reimbursed amounts to the works council member plus interest and resume paying him at pay grade 20.

The future of works council remuneration

This case demonstrates that labor courts continue to regard assessing works council remuneration on the basis of hypothetical career development as a permissible approach. Nevertheless, legal uncertainty remains given the criminal law ruling by the Federal Court of Justice.

As such, the State Labor Court’s acceptance of the appeal in this case is a welcome step. The Federal Labor Court can now examine the case and establish legal certainty with regard to the labor law aspect. The court will clarify whether it will adhere to its prior case law despite the ruling by the Federal Court of Justice.

One can also hope that the currently initiated amendment to the Works Constitution Act on works council remuneration will also provide greater legal certainty. In particular, this concerns the option of assessing the remuneration of works council members who have been released from their duties for many years on the basis of their hypothetical career paths.

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