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Giving works council members a company car: proceed with caution in Germany

Written by
Kliemt.HR Lawyers, the first port of call in employment law for top-class and future-proof advice.
18.09.20
6
Can employers give works council members a company car with the right to use it for personal travel in Germany? This will depend whether they would have been entitled to that benefit in their capacity as ordinary employees. This article explains.

Remuneration of members of the works council is not only a perennial labour law issue, but also regularly the subject of critical press coverage in Germany. This is particularly the case when there are labour court disputes or even criminal investigations against works council members and company bodies.

Company cars with a right of private use also regularly lead to conflicts between the employer and the works council in practice against the background of the prohibition on preferential treatment under works constitution law.

Works constitution law and case law set clear limits: an employer who gives a company car to a works council member who travels a lot may not grant private use if the works council member would not have been allowed a company car without his official function. This was confirmed by the Berlin-Brandenburg Regional Labour Court in its decision of 11 February 2020 (7 Sa 997/19).

What was the Berlin-Brandenburg Labour Court’s decision?

Background

The parties disputed the plaintiff’s right to be provided with a company car, including for private use. The plaintiff was hired as a car mechanic in 1992, but was elected to the works council shortly after the beginning of his employment relationship. He was the chairman of the works council (with interruptions) until March 2018 and from March 2018 he was a member of the works council who was released from his duty to work in order to focus all of his time on works council duties.

The defendant had a company car directive which provided for the function-related provision of a personally allocated company car if travel time took up more than 50% of the employee’s working hours. In 2001, the defendant provided the plaintiff with a company car for the purpose of exercising his works council duties, which he was also allowed to use privately. In 2018, the defendant requested the plaintiff return the company car on the ground that, in his current function as a works council member released from his duties and no longer as chairman of the works council, the conditions of the company car directive were no longer met. The plaintiff returned the company car and since then used a vehicle from the defendant’s fleet which was personally assigned to him for his works council work but which was not available to him for private use. The works council member sued for the renewed provision of a company car for business and private use.

Findings

The Berlin-Brandenburg Regional Labour Court consistently implemented the strict requirements of the legislature and correctly found that the agreement concluded in 2001 on the provision of a company car pursuant to s 78(2) of the Works Constitution Act and s134 of the Civil Code was null and void. The employer was not allowed to make a company car available to the plaintiff for private use, i.e. it was not allowed to make it available to him.

Providing a company car including for private use would violate the principle that the role of works council member is an honorary position without payment as defined in s 37(1) of the Works Constitution Act and the prohibition of preferential treatment in s78(2)of the Works Constitution Act. The agreement on the provision of a company car for private use was therefore void, s134 of the Civil Code. The agreement granted the plaintiff an element of remuneration solely on the basis of his work on the works council which he would not have received for his regular work. The provision of a company car for private use is in principle an element of remuneration (Federal Labour Court, judgement dated 23 June 2004 – 7 AZR 514/03). The question of effective revocation of the company car usage agreement was not relevant because the agreement was invalid.

No preferential treatment for works council members due to their honorary position

The Regional Labour Court decision is welcome. The legislator has, for good reason, structured works council positions as an unpaid honorary office (s37 (1) Works Consitution Act). In doing so, it wanted to ensure that works council members are able to fulfil their roles in an impartial and independent manner without having to fear reprimands or disciplinary measures by the employer. For this reason, case law also holds the purpose of the (unpaid and honorary) office very highly and interprets the relevant statutes strictly. Special emphasis is placed on the strict prohibition of such actions in s78 of the Works Constitution Act as well as the criminal offence element of and s119 of the Works Constitution Act.

On this basis it is clear that any special remuneration, including the provision of a company car for private use, is prohibited in relation to works council activity itself. A works council official may not be remunerated either directly or indirectly for works council activities. The argument repeatedly put forward in practice that a works council officer who has to travel extensively in order to perform his or her official duties requires mandatory access to a company car for private use cannot help to dispel the fact that this constitutes prohibited preferential treatment.

According to Sec. 78(2) of the Works Constitution Act, members of the works council cannot be disadvantaged or favoured because of their works council activities. This provision, just like the principle of honorary office in accordance with s37(1) Works Constitution Act, serves the independence of works council members. An intention to favour is not required. Section 78 (2) of the Works Constitution Act will be violated every time a works council member is placed in an objectively better position than a comparable regular employee. ‘Preferential treatment’ prohibited under s 78(2) of the Works Constitution Act would be any better position based on the individual’s function as a works council member. In the area of remuneration, the prohibition of preferential treatment means that granting a company car with a right of private use as a remuneration component is prohibited if the works council member would not have received it if he or she had not performed a works council tasks but had continued to work as a normal employee.

Points of reference: Loss of earnings principle and hypothetical career development

Under s37(2) of the Works Constitution Act, every works council member is entitled to all the benefits the employer has provided him or her before election to the works council for the purpose of fulfilling the tasks he or she is required to perform under his or her employment contract or if the works council member’s position has evolved into one which would justify a claim to a company car also for private use. Only in these cases, the required adjustment to the remuneration of the works council member resulting from s37(4) of the Works Constitution Act would also include the provision of a company car for private use.

In the case at hand, however, the plaintiff would not have been granted a company car for private use by the defendant, either as a car mechanic or in the role of team foreman, which he would have held after almost 20 years of service in accordance with his hypothetical career development in accordance with  37 (4) of the Works Constitution Act.

A claim for the provision of material resources necessary to perform works council duties cannot be enforced in a pay claim brought by a works council member in his or her position as an employee

The works council’s need to travel for works council activities can lead to the employer being obliged to provide members with a company car as a material means of transport, in order to effectively exercise works council functions pursuant to s40 of the Works Constitution Act but it must be exclusively (!) for official use. This is, however, a claim by the works council committee as a whole for the provision of necessary material resources under s40 of the Works Constitution Act, not an individual claim by the individual works council member in his or her position as an employee. Consequently, a claim pursuant to s40 of the Works Constitution Act cannot be asserted as an individual legal claim brought forward by the works council member individually.

Conclusion

Employers would do well to observe the provisions of the Works Constitution Act. If an employer is too generous towards the works council members, it exposes itself to the accusation of preferential treatment. On the other hand, if the employer is too strict, it puts the works council member at a disadvantage. Both types of behaviour are not only relevant from a compliance point of view, but also from a criminal law perspective.

The decision of the Berlin-Brandenburg Regional Labour Court is to be welcomed. It sets clear limits on the demands of works council members. In practice, many companies still grant members of the works council (either under pressure from the boards or out of ignorance) compensation elements to which they would not be entitled without exercising their works council functions. However, the Works Constitution Act sets clear limits on this approach, limiting the rights of a works council member to what he or she would be entitled to if he or she were not exercising his or her works council duties.

Both companies and their governing bodies as well as the members of the works council should be aware that preferential treatment of works council members is not a trivial offence, and can constitute criminal offences under s119(1) No. 3 of the Works Constitution Act and embezzlement under s 266 of the Criminal Code.