Burden of proof in the case of decreased works council remuneration: Volkswagen must prove that the initial remuneration adjustment was incorrect

Federal Labor Court, judgment of March 20, 2025, Ref. 7 AZR 46/24 (press release only)
Previous instance: Lower Saxony Regional Labor Court, judgment of February 8, 2024, Ref. 6 Sa 559/23

In a recent ruling, the Federal Labor Court (BAG) clarified that the employer bears the burden of proof for correcting the remuneration of a works council member. This ruling consequently clarifies one of the various issues that employers face in connection with works council remuneration.

Facts

The case centers on a works council member whose remuneration was reduced by the employer following a review in the wake of a ruling by the Federal Court of Justice (BGH) dated January 10, 2023 (ref. 6 StR 133/22) – the so-called "VW ruling." In these proceedings, the BGH had to deal with board executives who were suspected of embezzlement due to the granting of excessive remuneration to works council members.

The reaction to this ruling proved to be swift: the employer reduced the remuneration of the plaintiff works council member from just under EUR 7,093 gross per month to EUR 6,454 gross. The plaintiff, a works council member who had solely been active as a works council since 2002 and was a trained car mechanic and industrial foreman, filed a lawsuit against this reduction and demanded a ruling that he should continue to be paid according to the higher pay scale and for the reimbursement of lost wages.

The Lower Saxony Regional Labor Court (LAG) largely upheld the plaintiff's claims for payment. According to the LAG, the plaintiff was not entitled to his previous higher remuneration under Section 37 (4) sentence 1 Works Constitution Act (BetrVG) (remuneration adjustment) but was entitled to it under Section 78 sentence 2 BetrVG in conjunction with Section 611a (2) BGB (fictitious promotion claim).

Content of the decision

The defendant's appeal against the decision of the LAG was successful and led to the case being referred back to the LAG.

The BAG ruled that the defendant bore the burden of proof under Section 37 (4) BetrVG for the correction of the works council remuneration. This means that the employer must demonstrate and prove that the previous remuneration was incorrect.

According to Section 37 (4) sentence 1 BetrVG, works council members are entitled to an increase in their remuneration to the extent that the remuneration of comparable employees with normal development within the company. Despite this, the burden of proof and demonstration that the requirements for this entitlement are met lies with the works council member. However, if the employer corrects a remuneration increase that previously has been granted and which could be regarded as an adjustment of the works council member's remuneration in accordance with section 37 (4) sentence 1 BetrVG, the employer must demonstrate and prove that the previous remuneration increase was in fact objectively incorrect.

In this respect, the BAG deviates from the previous decision of the LAG. Although the LAG largely upheld the plaintiff's claims for payment, it considered that the burden of proof under section 37 (4) BetrVG rested with the plaintiff and not with the employer. In the opinion of the BAG, the burden of proof for the objective incorrectness of the remuneration must lie with the employer if the latter subsequently corrects the calculation of the remuneration.

In a next step, the BAG pointed out that only when the defendant is able to demonstrate and, if necessary, prove the incorrectness of the remuneration adjustment the LAG must decide on the plaintiff's asserted payment claim. The decision of the LAG remains to be awaited in this respect.

Practical tips

The Federal Labor Court's decision outlined above represents a deviation from the principle of the burden of proof, which has been interpreted diversely in the past within the framework of Section 37 (4) sentence 1 BetrVG.

According to Section 37 (4) sentence 1 BetrVG, works council members are entitled to an increase in their remuneration to the extent that the remuneration of comparable employees with typical development within the company increases. However, the works council member generally bears the burden of proof for the existence of these prerequisites. If the employer corrects a remuneration increase that has already been granted and that could be regarded as an adjustment of the works council member's remuneration in accordance with Section 37 (4) sentence 1 BetrVG, the employer must, according to the current ruling of the BAG, demonstrate and prove that the remuneration increase was objectively incorrect. Employers should therefore only reduce works council remuneration in response to a possible (and punishable) favoring of employees after a thorough examination, taking into account the relevant burden of proof.

The remuneration of works council members is a complex area of law that has increasingly become the focus of public debate in recent years due to significant court rulings (the so-called VW rulings) and changes in the law.

The aforementioned case before the BGH, which involved, among other things, the payment of very high bonuses to works council members, recently served as a precedent for the possible preferential treatment of works council members. However, it does not require such evident situations: unlawful preferential treatment can already result from the granting of an (excessive) allowance. The decisions surrounding the BGH case and the subsequent reactions of employers, some of whom abruptly reduced   works council remuneration, clearly show that there is a fine line between favoring andiscriminating against works councils, in each case prosecutable. However, they also show that the legally compliant structuring of works council remuneration is an issue that employers must address.

We have taken the critical nature of this topic as an opportunity to provide employers with a step-by-step guidance on the most important points for dealing with works council remuneration in a legally compliant manner in a new series of publications. Our first article on this topic will be published shortly – we will keep you updated.