Remuneration of works council members remains a hot topic – latest from the German Federal Labour Court

The remuneration of works council members remains a hot topic – not least due to extensive case law surrounding the Volkswagen cases all the way up to the German Federal Court of Justice (judgment dated 10 January 2023, ref.: 6 StR 133/22) and last year’s legislative amendment (Second Act to Amend the German Works Constitution Act, German Federal Law Gazette I 2024, no. 248). On 20 March 2025, the German Federal Labour Court addressed the issue of works council remuneration in four judgments (ref.: 7 AZR 46/24, 7 AZR 159/24, 7 AZR 179/24 and 7 AZR 181/24). While the press release published at the time provided little insight, the eagerly anticipated reasonings for the judgments have now been available since 25 July 2025, 1 August 2025 and 7 August 2025 respectively. These contain important news and clarifications for company practice.

Minimum remuneration – the basics

According to section 37(4) sentence 1 of the German Works Constitution Act (Betriebsverfassungsgesetz – BetrVG), the remuneration of works council members must not be set lower than that of comparable employees with typical career progression within the site (known as minimum remuneration). This provision ensures that works council members’ remuneration evolves dynamically, preventing them from being financially disadvantaged due to their works council activities by ensuring their remuneration keeps pace with that of comparable employees. To apply section 37(4) sentence 1 of the German Works Constitution Act, it is first necessary to identify the comparable employees within the site, based on the point in time when the works council member took office. The typical career progression of these comparable employees must then be tracked. The burden of presentation and proof for a remuneration adjustment under section 37(4) sentence 1 of the German Works Constitution Act generally lies with the works council member concerned.

News/clarifications by the German Federal Labour Court on minimum remuneration

In the reasonings for its judgments of 20 March 2025, the German Federal Labour Court provides extensive comments on the minimum remuneration according to section 37(4) sentence 1 of the German Works Constitution Act. Alongside much that is already familiar, the judgments also contain several important news and clarifications:

• The burden of presentation and proof for an adjustment of remuneration under section 37(4) sentence 1 of the German Works Constitution Act generally continues to lie with the works council member concerned. However, if the employer has previously adjusted the remuneration and now wishes to deviate (downwards) from this, the employer must present and prove that the previous remuneration practice was incorrect and that different remuneration should have been paid. This applies not only if the employer and the works council member have implemented remuneration adjustments in the past through mutually agreed contractual amendments; it also applies if the employer has only notified the works council member of the remuneration adjustments by means of unilateral declarations of intent. Therefore, the party seeking to change the current level of remuneration always bears the burden of presentation and proof.
• Anyone who refers to a comparison group under section 37(4) sentence 1 of the German Works Constitution Act in legal proceedings must specify the comparable employees by name. This applies both to the works council member seeking a higher remuneration and to the employer wishing to reduce the level of remuneration. Data protection law does not oppose to this.
• If there are no comparable employees in the site, reference must be made to comparable employees in another site, at least if there are company-wide rules regarding remuneration and career progression.
• If the works council member was already released from work before taking up the office (for example, due to parental leave), the date for determining the comparable employees is nevertheless the date when the office was assumed. Relevant in this case is the work owed under the employment contract and most recently performed by the works council member before the release began.
• When a works council member’s term of office ends, the minimum remuneration protection according to section 37(4) sentence 1 of the German Works Constitution Act or section 38(3) of the German Works Constitution Act continues for one year or two years respectively. In any case, if the works council member starts a new term of office within this period, the date for determining comparable employees remains the date of the initial assumption of office.
• A subsequent redefinition of the comparable employees is possible if there is an objective reason for doing so. The legislator has not introduced this change to the comparison group by the recent legislative amendment of section 37(4) second half of sentence 3 of the German Works Constitution Act, but merely clarified it.
• In the case of a very small comparison group, when determining the typical career progression of comparable employees within the site, it is possible to refer not only to the average but also to the median of remuneration development (the central value in a data set ordered in ascending order). This avoids distortion caused by individual very high or very low remuneration.

Hypothetical career – the basics

Section 37(4) sentence 1 of the German Works Constitution Act is not an exhaustive provision regarding the level of works council remuneration but rather sets only a minimum remuneration threshold. In addition, a claim to (even) higher remuneration may arise directly from section 611a(2) of the German Civil Code (Bürgerliches Gesetzbuch – BGB) in conjunction with section 78 sentence 2 of the German Works Constitution Act (known as a hypothetical career). In this case, in contrast to section 37(4) sentence 1 of the German Works Constitution Act, the remuneration development is not based on that of comparable employees with typical career progression, but on the hypothetical remuneration development of the works council member themselves. The employer is obliged to grant the works council member such career progression and remuneration as they would have achieved or received if they had not assumed office or been released from work. For a claim under section 611a(2) of the German Civil Code in conjunction with section 78 sentence 2 of the German Works Constitution Act, the burden of presentation and proof also generally lies with the works council member.

Following the aforementioned judgment by the German Federal Court of Justice, a debate arose as to whether the German Federal Court of Justice had abolished the concept of the hypothetical career, meaning that works council members could now only claim the minimum remuneration. This was due to some unclear wording in the German Federal Court of Justice’s reasoning. It was not possible to determine unequivocally from the judgment whether the German Federal Court of Justice recognises the hypothetical career or not.

News/clarifications by the German Federal Labour Court on the hypothetical career

In the reasonings for its judgments of 20 March 2025, the German Federal Labour Court has now made it clear that the legal concept of the hypothetical career remains in place. Works council members can still rely both on section 37(4) sentence 1 of the German Works Constitution Act and on section 611a(2) of the German Civil Code in conjunction with section 78 sentence 2 of the German Works Constitution Act. The statements by the German Federal Court of Justice are not to be understood as a refusal to recognise the hypothetical career.

The German Federal Labour Court also states that the hypothetical career is an independent matter in dispute which is legally separate from the minimum remuneration claim. Therefore, if a works council member wishes to enforce higher remuneration in court, they must specify whether their claim is based on section 37(4) sentence 1 of the German Works Constitution Act or on section 611a(2) of the German Civil Code in conjunction with section 78 sentence 2 of the German Works Constitution Act. It is also possible to assert both claims in the same proceedings. In this case, however, the works council member must state which claim is asserted primarily and which is asserted only secondarily.

Significance for employers and recommended action

The judgments of the German Federal Labour Court provide some important guidance regarding the remuneration of works council members. However, they still leave questions unanswered, for example with regard to the consideration of qualifications acquired in the course of works council duties when determining the level of remuneration. Last year’s legislative amendment has indeed simplified the legal situation, but it does not give employers carte blanche for discretionary remuneration arrangements. Correctly determining works council remuneration will therefore continue to be a highly complex matter for employers, where the “sharp sword” of criminal law always looms (section 119(1) no. 3 of the German Works Constitution Act, section 266 of the German Criminal Code (Strafgesetzbuch – StGB) and section 370 of the German Fiscal Code (Abgabenordnung – AO)).

In order to avoid compliance risks, employers must therefore ensure that their works council remuneration is fully compliant with the law. This should be done in the following three steps:

• In the first step, the current situation must be analysed. For each works council member, the following must be determined: (i) the comparable employees, (ii) their career progression, and (iii) any promotions to vacancies that the works council member would have received in the past if they had not been engaged in works council duties or released from work. Depending on the quantity and quality of the data already available, this may involve considerable investigative effort.
• In the second step, the employer must, if necessary, adjust the works council remuneration. If the review reveals that a works council member is receiving a remuneration too low, it must be increased for the future and paid retroactively for the past. If the review shows that a works council member is receiving a remuneration too high, it must be reduced for the future. In certain cases, however, the employer may refrain from reclaiming overpayments for the past. When reducing and/or reclaiming remuneration, the employer must bear in mind the likely legal dispute with the works council member.
• In the third step, a procedure must be established to ensure adequate documentation and legally compliant ongoing adjustment of works council remuneration in the future. In doing so, the employer may also take advantage of several simplifications introduced by the recent legislative amendment. For example, the employer and works council may agree on the procedure for determining comparable employees and the specific comparison persons. These arrangements may only be reviewed by the courts for manifest error (section 37(4) sentences 4 and 5 of the German Works Constitution Act).