Germany: Works council remuneration: BGH overturns acquittals for VW Managers

In its ruling of 10. January 2023 (Case No. 6 StR 133/22), the BGH confirmed that the offence of embezzlement under Sec. 266 of the Criminal Code (StGB) may be fulfilled if executive board
members or managers grant excessive remuneration to works councils in violation of the prohibition of favouritism under works constitution law.

Background on the remuneration of works council members on leave of absence

Members of the works council perform their duties unpaid as an honorary office. They do not receive any special remuneration for their works council activities, but their contractually agreed remuneration. Particularly in the case of released works council members, determining the remuneration poses challenges for employers.

Sec. 37 para. 4 of the Works Constitution Act (BetrVG) is of central importance. It stipulates that the remuneration of works council members may not be lower than the remuneration of comparable employees with a normal career development. The provision is a concretisation of the prohibition of discrimination in Sec. 78, sentence 2 BetrVG, and is intended to ensure that works council members do not suffer any disadvantages regarding their remuneration because of their works council activities. This applies in particular to works council members who have been released from their duties and who concentrate entirely on works council work and cannot (for the time being) continue their career path in their original position.

To ensure that such full time works council members do not suffer any disadvantages regarding their remuneration, a reference group consisting of the works council member and comparable employees is formed for the determination of remuneration. The remuneration of the works council members is then adjusted to the remuneration of the reference group.

Determining this reference group regularly poses a practical challenge. At the same time, this reference group is of high significance. Excessive works council remuneration may not only
constitute a violation of works constitution law, but at the same time constitute criminal offence under Sec. 266 StGB, as the BGH stated in its ruling of 10 January 2023.

Excessive works council remuneration can constitute criminal liability for breach of trust

The defendants, two former board members and two other former managers of Volkswagen AG, had approved increases in pay and voluntary bonus payments to the full tome works council members in the years 2011 to 2016. These payments significantly exceeded the payments to their reference groups.

The Regional Court of Braunschweig ruled in the first instance that these payments, in conjunction with the damage of more than EUR 4.5 million caused to Volkswagen AG as a result, fulfilled the objective elements of embezzlement under Sec. 266 StGB, but denied the element of intent. The Regional Court reasoned that the defendants had relied on various internal and external advisors and existing remuneration systems and had therefore erroneously assumed that they would not commit a breach of duty. Accordingly, the Regional Court acquitted all defendants of the charge of breach of trust for lack of intent.

The BGH has now overturned these acquittals in its judgement of 10 January 2023 and referred the case back to the Regional Court for a new hearing and decision.

Violation of the prohibition of favouritism

The reference employees who were used to determine the (excessive) remuneration had not been selected in accordance with the requirements of works constitution law. Neither had they performed similar activities to the works council members at the decisive point in time when the respective works council member took office for the first time, nor had they been qualified in the same way. Any qualifications acquired as a works council member were not to be taken into account if they were not related to the previous work activity of the works council member.

The BGH referred the case back to the Regional Court, arguing, among other things, that the findings of the judgement did not meet the legal requirements for presentation. It could not be determined whether the granting of the increased remuneration and bonus payments contradicted the principles of works constitution law and whether the Regional Court had correctly denied intent.

Practical advice

The remuneration of full time council members remains a challenge. It is crucial that employers address this challenge in a timely manner. The importance of forming a proper reference group to determine appropriate works council remuneration was again underlined by the BGH ruling.

Finally, only the development of the members of the reference group is to be considered in order to determine how the works council member is to be remunerated. The hypothetical development of the works council member, on the other hand, should not be considered. Further, additional qualifications acquired during membership of the works council are to be disregarded if they are not related to the previous work activity.

A reference group formed in violation of the works constitution law and the resulting excessive remuneration of works council members can result in criminal liability for breach of trust under Sec. 266 StGB. In this context, the BGH emphasised that employers cannot invoke a lack of intent merely because they relied on legal advice.

We recommend determining the comparable employees at an early stage, at best at the time of taking over the works council office, as well as to continuously document the remuneration development within the reference group.