In companies with at least five permanent employees, employees may elect a works council. Millions of employees in Germany make use of this right. More than 1/3 of employees in Germany are represented by a works council. In larger companies with hundreds or thousands of employees, the existence of a works council is even the absolute norm.
If a works council has been elected in a company, the committee must be involved in numerous decisions. The relevant law (“Works Constitution Act”) contains numerous regulations on this. The proper fulfillment of these tasks costs money – a lot of money. The following article deals with the question of who bears the costs of the works constitution and which principles apply.
Overview: Costs of the works constitution
First of all, here is an overview of the various costs that arise when a works council is established.
Costs before and after the election of the works council
The costs of the works constitution do not only arise once the employees have elected the works council. Rather, costs are already incurred beforehand – with the election of the works council. Election costs include all financial expenses that are necessary for the proper preparation, initiation and implementation of the election. These are, for example, the costs for ballot boxes, ballot papers and polling booths. It also includes training election committees.
Once the works council has been successfully elected, costs are typically incurred for training (new) works council members and the acquiring material resources (e.g., office equipment).
Costs of activities and material expenditure
In addition to this differentiation in terms of time, a distinction can be made with regard to the content of the costs.
On the one hand, there are those costs that are caused by the activities of the works council. These include, in particular, the costs for lawyers, consultants and experts that the works council may under certain conditions consult in the performance of its duties.
In addition, there are the material expenses of the works council (e.g., its own secretary, commentaries on the interpretation of labor law, computers).
Costs of the body and the individual members
A distinction should also be made between the costs of the entire body and the personal costs of the employees.
The material resources just mentioned (e.g., computers in the works council office) are usually costs that arise from or are necessary for the work of the works council as a whole. The personal costs of the individual works council members must be distinguished from this. In Germany, the size of the works council depends largely on the total number of employees. In large companies, works councils with several dozen members are not uncommon. These members regularly require training. Travel and accommodation costs (travel expenses) may also be incurred when attending external meetings.
Costs of works council activities of members and continued remuneration
A distinction must again be made between individual works council members. If individual members carry out works council work (e.g., attending a works council meeting) during their working hours instead of the activity actually owed (e.g., selling IT software), the members retain their original entitlement to remuneration during working hours. This is one of the central principles of cost bearing in German works constitution law.
Personal costs incurred by individual members, e.g., after purchasing a ticket for a train journey to a works council training course, must be considered separately from the continued payment of remuneration.
Who bears the costs of the works council?
As you can see, there are numerous costs associated with the election and work of a works council and its members.
This raises the crucial question of who foots the bill for all these costs. If you are an employer, you should not read any further. Because this question is answered very clearly in German law. In principle, it is the employer who bears the costs of the works constitution in the company, § 40 (1) Works Constitution Act.
The employer may not pass these costs on to the employees and demand compensation or a fee from the employees. Such a levy is expressly prohibited under German law. Employees are also not allowed to contribute directly to the costs of the works council, e.g., by paying a fee to the committee (similar to a membership fee for trade unions).
Unlike trade unions, employees in Germany cannot choose whether they are represented by an elected works council. If a works council exists, it represents all employees – regardless of their wishes. As an organ of the works constitution, the works council is also not generally legally and financially capable. The works council only exists within the framework of the works constitution. Therefore, the works council is legally unable to accept money itself.
Limitation of the bearing of costs: Principle of necessity
However, the scope of costs that employers must bear is limited. This is because the Works Constitution Act requires that all costs incurred must be necessary for the performance of the works council’s duties. The principle of necessity governs the entire costs law in the German works constitution.
For example, election costs will only be reimbursed if they are necessary. Training costs and the costs of the works council’s activities will also only be borne by the employer if they are necessary. The same applies to material expenses and the continued remuneration of members. Those members will be released from their professional duties without a reduction in pay if and insofar as this is necessary for the proper performance of their duties in terms of the scope and nature of the business.
According to established case law of the highest German labor court (Federal Labor Court), the works council examines whether any measure that incurs costs is necessary. However, it may not base its decision solely on its subjective need. Rather, it must take into account the operational circumstances and the tasks facing it. The works council must weigh up the interests of the workforce in the proper exercise of the works council office against the legitimate interests of the employer, even if they are aimed at limiting the obligation to bear costs.
The question of the necessity of an individual measure (e.g., purchasing a specific textbook, implementing a chargeable training course, consulting an expert) is often and persistently disputed before the labor courts in Germany.
There is no general statement as to when costs are necessary. Employers, HR managers, works councils, courts and lawyers must always look at the individual case. Only a few cases are obvious. For example, training all members of a works council on the same topic with accommodation in a 5-star luxury hotel is out of the question. It is sufficient if individual members are familiarized with the topic. Likewise, accommodation in a hotel that complies with the travel guidelines is generally sufficient.
Amendment to the law: Protection of works council members against discrimination
Works council members enjoy special protection against discrimination under German law. This applies not only to dismissals (here they enjoy special protection against dismissal and may only be dismissed with the consent of the committee and for good cause), but also to costs. In particular, works council members may not be disadvantaged or favored because of their work.
Remuneration protection for works council members
The prohibition of discrimination applies first of all to the remuneration paid to a works council member, in particular basic remuneration. Consequently, it would be unlawful to pay a works council member less remuneration at the end of the month or to grant special benefits (e.g., a personal allowance or payment of private vacation travel as a bonus) on the basis of membership of the works council (= prohibited preferential treatment). A salary reduction, downgrading or reducing a bonus solely because of activity as a works council member would also be prohibited.
In the summer of 2024, the German legislator specified the previous regulation in a legal standard. Accordingly, there must be no favoritism or discrimination with regard to the remuneration paid if the member personally meets the operational requirements and criteria necessary for granting the remuneration and the determination of this is not based on an error of judgment, § 78 clause 3 Works Constitution Act.
Development protection for works council members
The prohibition of discrimination also applies to career development, § 78 clause 2 Works Constitution Act. As works council members sometimes spend less time on their regular duties or are even completely released from them, works council members may be promoted less frequently than other employees. In order to prevent a disadvantageous position here, the career path that the works council member would have taken if they had developed in line with the company’s normal development path will be traced. Consequently, the remuneration of works council members, including a period of one year after the end of their term of office, may not be set lower than the remuneration of comparable employees with normal career development, § 37 (4) Works Constitution Act.
The legislator has also made recent clarifications to development protection. Accordingly, comparable employees must be determined on the basis of the date on which the works council office is assumed, unless there is an objective reason for a later redefinition. The employer and works council can regulate a procedure for determining comparable employees in a works agreement. The specification of comparability in such a works agreement can only be reviewed for gross errors. The same applies to the determination of comparable persons, provided that it is mutually agreed between the employer and the works council and documented in text form.
Conclusion
If a works council exists in a company, this is associated with various – usually considerable – costs. In principle, the employer bears these costs. The employer is obliged to release voluntary works council members from their “normal” work, while continuing to pay their regular remuneration, if these members carry out works council activities. The employer also bears the costs of the works council – limited to what is necessary in each individual case.
Employers should not be too petty with regard to the existing ban on discrimination. On the other hand, from an HR perspective, it is perfectly legitimate to question costs and have the works council chair explain the works council activities on which the costs and invoices are based. If employers have serious doubts about the necessity of the cost-generating measure or its scope, the employer can refuse to pay the costs.
Author
Michael Riedel
ADVANT Beiten, Berlin
Partner
Author
Lisa Brix
ADVANT Beiten, Berlin
Senior Associate