Monthly Dose Employment Law 08/2025

Remuneration adjustment for exempt works council members

The BAG has in its judgement of 20 March 2025 (7 AZR 46/24) decided that an employer who corrects a remuneration increase previously granted to an exempt works council member based on Section 37 (4) BetrVG must demonstrate and prove that this increase was objectively incorrect and did not comply with the requirements of Section 37 (4) BetrVG. In addition, the BAG clarified that Section 37 (4) BetrVG and Section 78 sentence 2 BetrVG, as relied upon by the exempt works council member for the remuneration adjustment, each contain independent legal bases for claims and, as a result, independent causes of action, and can therefore be asserted independently in a corresponding remuneration dispute.

Facts

• The plaintiff has been employed by the defendant automotive manufacturer since 1984 and has been an exempt works council member since 2002. He trained as a motor vehicle mechanic and holds a qualification as an industrial foreman. Until his release from work duties as a works council member, he worked as a plant operator.
• Until his release, the plaintiff received remuneration under pay grade 13 of the applicable framework collective bargaining agreement (RTVE). The remuneration was gradually increased from 2003 onwards in order to the customary development of comparable employees in accordance with Section 37 (4) BetrVG.
• In October 2015, the production manager for the bodywork, paint shop and assembly departments in the G-production devision offered the plaintiff the position of production coordinator in vehicle finalization. The plaintiff declined the offer because he had just been elected committee chairman. The defendant subsequently increased the plaintiff's remuneration to pay grade 20 RTVE (corresponding to the remuneration of a production coordinator), taking into account the principles of so-called ‘hypothetical career development’.
• Following the decision of the German Federal Court of Justice (Bundesgerichtshof, BGH) of 10 January 2023 on the criminal liability for breach of trust in the case of excessive works council remuneration (6 StR 133/22), the defendant reviewed the plaintiff's classification and paid him remuneration at pay grade 18 RTVE from March 2023 onwards. For the period from October 2022 to January 2023, the defendant demanded a gross repayment of EUR 2,592.96, which the plaintiff paid under reservation.
• The plaintiff sued for payment of the difference to pay grade 20 RTV, repayment of the amount paid with reservation and a declaration that he should be remunerated according to pay grade 20 RTV since January 2015. He justified this both with the adjustment pursuant to Section 37 (4) BetrVG and with his hypothetical career development to become a production coordinator.

Reasons for the decision

• Two different subjects of dispute with independent bases for claims: A claim by the exempt works council member for an increase in his remuneration can be based on the following bases for claims:
  • Section 37 (4) BetrVG: Minimum remuneration guarantee based on the customary development of comparable employees within the company.
  • Section 78 sentence 2 BetrVG in conjunction with Section 611a (2) BGB: Entitlement to hypothetical career development (fictitious promotion entitlement).

The BAG clarifies that the plaintiff employee, as a works council member, must rank the two bases for entitlement in the legal dispute, taking into account the underlying circumstances in each case.

• Basis for remuneration adjustment entitlement: Section 37 (4) BetrVG – Burden of proof and presentation: If the works council member bases the remuneration claim on Section 37 (4) BetrVG, the works council member must first demonstrate that the relevant requirements of Section 37 (4) BetrVG are met (= especially with regard to comparable employees and their normal career development:
• If, on the other hand, the subject of the dispute is the correction of a remuneration increase already granted in the past by the employer, the BAG is of the opinion that the employer should bear the burden of proof and presentation for the objective incorrectness of the original remuneration increase, provided that this remuneration increase appeared to the works council member in the past to be an adjustment in accordance with Section 37 (4) BetrVG.
• In this respect, the works council member should, in principle, be able to trust that the employer will fulfil its obligation to make the correct adjustment. This reasoning, which aims to protect the trust of the works council member, is not mandatory; in terms of content, it seems more appropriate to argue that the burden of proof and presentation lies with the party that invokes its own unlawful conduct to justify its legal position.
• For the employer's specific submission, the BAG requires that the employer name the persons used for comparison in order to enable the plaintiff works council member to verify the information. Data protection concerns do not preclude this disclosure, as the employer can rely on Art. 6 GDPR to disclose the relevant personal data of the comparable employees. If there are no comparable employees in the company, employees from other companies belonging to the employer's group may be used if uniform remuneration and development rules apply there.
• Basis for the claim: Section 78 (2) BetrVG in conjunction with Section 611a (2) BGB – Distribution of the burden of proof and presentation: When invoking Section 78 (2) BetrVG as the basis for the claim, the works council member must demonstrate and prove that, without the works council activity, he or she would have been entrusted with a task that would entitle him or her to the increased remuneration.
• Connection between Section 37 (4) and Section 78 s. 2 BetrVG: A claim based on a hypothetical career (Section 78 s. 2 BetrVG) may exceed the minimum remuneration under Section 37 (4) BetrVG. Section 37 (4) BetrVG only regulates the minimum remuneration, not the upper limit. The BAG adheres to its previous case law and sees no reason to change its position due to the decision of the BGH of 10 January 2023 (6 StR 133/22) on the criminal liability of the employer's legal representatives in the case of remuneration that is incompatible with Sections 37 (4) and 78 sentence 2 BetrVG and therefore unlawful.
• Decision: In this case, the BAG partially overturned the ruling of the LAG, as the LAG had placed the burden of proof and presentation for the claim based on Section 37 (4) BetrVG on the plaintiff, and referred the case back to the LAG for a new hearing and decision.

Consequences for practice

The ruling strengthens the actual remuneration protection of works council members in relation to remuneration increases actually implemented in the context of Section 37 (4) BetrVG by attributing comprehensive protection of legitimate expectations to the works council member and imposing the comprehensive burden of proof for the incorrectness of a withdrawn remuneration increase on the employer.

Employers should document remuneration adjustments for exempt works council members particularly carefully in future and justify them transparently. If an adjustment is expressly based on section 37 (4) BetrVG, it can only be corrected later if the employer can prove that it was objectively incorrect. Every adjustment decision should therefore be recorded in writing and based on specific comparators.

The comparators used must be named in the event of a dispute; data protection objections do not preclude this. Employers should review their internal data protection guidelines accordingly. It is advisable to be prepared for possible requests for information from works council members and to continuously document the development of the relevant comparison groups.

Consideration of virtual stock options in compensation payments for post contractual-prohibition on competition

BAG judgement of 27 March 2025, 8 AZR 63/24In its judgement of 27 March 2025 (8 AZR 63/24), the BAG ruled that benefits from virtual stock options (VSOP) must be taken into account when calculating compensation for leave of absence in accordance with Section 74 (2) and Section 74b (2) Commercial Code (Handelsgesetzbuch, HGB), provided that these were granted as remuneration for job performance and exercised during the current employment. Options that are only exercised after the end of the employment relationship are not taken into account.

Facts of the case

• The plaintiff had been employed by the defendant employer since October 2019 as ‘Executive Director of Finance’ with a gross annual salary of EUR 100,000.
• In the employment contract, the parties agreed on a post-contractual non-competition clause for 12 months. The compensation for the non-competition clause was to correspond to half of the last contractual payments received (Section 74 (2) HGB).
• During the employment, the plaintiff participated in the defendant's ‘Virtual Option Plan 2016’ (VSOP 2016). The plan grants a payment claim based on the occurrence of a so-called exercise event (in particular an IPO or change of shareholders) after completion of a four-year vesting period, whereby the entitlement was earned pro rata over the vesting period and in periods with remuneration claims of the beneficiary employee.
• In September 2021, an Exercise Event occurred and the plaintiff exercised option rights from the VSOP 2016 in October 2021, i.e. while still employed, and received a gross payment of EUR 161,394 from the defendant for this.
• The employment ended on the basis of a termination agreement dated 18 January 2022 as of 30 June 2022. The post-contractual non-competition clause was shortened to six months (until 31 December 2022).
• • After the termination of the employment, the plaintiff exercised further option rights from the VSOP 2016 in October 2022 and received a further gross payment of EUR 17,706.32.
• The defendant granted the plaintiff compensation in lieu of notice in the amount of EUR 4,166.66, calculated solely on the basis of his fixed salary. The plaintiff demanded higher compensation in lieu of notice, taking into account both payments from the VSOP 2016. The defendant refused this on the grounds that these were not benefits under the employment contract.

Reasons for the decision

• Compensation for loss of earnings – claim on the merits: The BAG confirmed the validity of the post-contractual non-competition clause and the claim for compensation for loss of earnings (Section 110 of the Trade Regulation Act (Gewerbeordnung, GewO), Sections 74 et seq. HGB). The plaintiff had complied with the non-competition clause during the waiting period.
• Amount of compensation for loss of earnings – inclusion of the VSOP 2016 benefit received during the employment relationship: For the amount of compensation for non-competition, the cash payment received in October 2021 from the exercise of virtual stock options from the VSOP 2016 must be taken into account as a ‘contractual benefit’ within the meaning of Section 74 (2) HGB.
  • Contractual benefits within the meaning of Section 74 (2) HGB include
    all benefits that the employee received during the relevant period in return
    for his or her work.
  • The benefits from the VSOP 2016 are based on the exchange nature of the employment relationship and are part of the remuneration for work performed: Vesting is linked to periods of employment for which remuneration is payable (‘no pay without work’) and is suspended in the event of unpaid absences.
  • Even if the plan provides otherwise according to its wording (‘no consideration for past work’), the actual economic function is decisive: the payment has the character of remuneration and also serves to retain and motivate employees.
  • The fact that the parent company partially fulfilled the payment does not preclude the defendant's contractual obligation.
• Average calculation: According to Section 74b (2) HGB, variable remuneration must be taken into account based on the average of the last three years or, if the relevant contractual provision was in place for a shorter period, based on its duration. In the present case, the employment relationship lasted 33 months, so that the VSOP 2016 benefit had to be taken into account on a pro rata basis: the calculated annual value was EUR 58,689.01, which had to be added to the fixed salary and formed the basis for half of the non-competition compensation.
• No consideration of the VSOP 2016 benefit received in 2022: The options exercised in October 2022 – i.e. after the end of the employment relationship – are not to be included. Only benefits that were actually received during the current employment relationship are relevant. Rights that are merely established but not exercised do not affect the standard of living and cannot be reliably determined in terms of amount. Their value depends on future, uncertain events (e.g. stock market price, exercise event). Only when they are exercised do they become remuneration.
• Purpose of compensation payment: Compensation payments for consideration of post contractual prohibition on competition is intended to secure the standard of living that the employee has achieved through her work. This includes all remuneration components actually received during the employment, but not hypothetical or subsequent increases.
• Result: The VSOP 2016 payment from October 2021 must be taken into account, while the payment from October 2022 was not included in the calculation. The plaintiff was awarded an additional gross amount of EUR 9,781.52.

Implications for practice

The judgement makes it clear that virtual stock options (VSOPs) must be taken into account in the calculation of compensation payments, if, according to the contractual arrangement, they also include remuneration for the beneficiary employee's work and are exercised during the assessment period relevant for the calculation of the compensation payment while the employment is ongoing. Employers should therefore carefully review their contract and remuneration structures. Post-contractual non-competition clauses and share participation programmes should be coordinated in terms of content. Since the BAG bases its decision on the date of exercise and not on vesting, the exercise of options shortly before the end of the contract can lead to substantial additional payments. When drafting separation or termination agreements, employers should therefore consider whether it makes more economic sense to waive the non-competition clause (Section 75a HGB). It is equally important to control and clearly document the exercise date, as far as this is possible from a tax and organisational perspective. The decision also shows that mere wording in the VSOP plan (‘no consideration for work’) does not provide legal protection if the programme is in fact linked to work performance.

Power of representation of the administrator of a WEG 

In its judgement of 6 March 2025 (2 AZR 115/24), the BAG ruled that the conclusion and termination of an employment contract with a WEG is covered by the administrator's unlimited power of representation pursuant to Section 9b (1) s. 1 clause 1 of the German Condominium Act (Wohnungseigentumsgesetz, WEG).

Facts

• The parties disputed whether the defendant had effectively terminated the employment between them by giving notice of termination.
• The defendant is a WEG. The plaintiff is a member of this WEG as an apartment owner and had also been employed by the WEG as a caretaker since December 2021.
• The defendant's administrator first terminated the employment on 27 December 2022 with effect from 31 January 2023. In a legal dispute concerning the termination, the parties reached a settlement on 10 February 2023 regarding the continuation of the employment.
• In a letter dated 26 April 2023, the administrator terminated the employment with effect from 28 May 2023. The plaintiff rejected the termination on the grounds, among other things, that it was invalid due to the lack of a power of attorney. The plaintiff considered a prior resolution by the WEG to be necessary to authorise the administrator to terminate the employment relationship. Furthermore, the termination was contrary to good faith within the meaning of Section 242 BGB and violated Article 30 of the Charter of Fundamental Rights of the European Union (GRC).
• In his action, the plaintiff seeks a declaration that the employment relationship was not terminated by the notice of termination as of 28 May 2023. The Labour Court (Arbeitsgericht, ArbG) Ludwigshafen am Rhein dismissed the action. The LAG Rheinland-Pfalz considered the termination to be valid and ruled that the employment was terminated on 31 May 2023 and not on 28 May 2023. The plaintiff lodged an appeal with the BAG. 

Consequences for practice

The judgement clarifies that in the case of a legal transaction in which the apartment owner acts as an outsider vis-à-vis ‘his’ community, this constitutes a commercial or third-party transaction for which the commercial or third-party protection intended by the legislator is required. A WEG can and must use this freedom of disposition to shape legal relationships with non-third parties (in internal relationships). This serves the interests of the WEG as a whole in being able to participate efficiently in legal transactions ‘externally’. Thus, the dismissed employee no longer has the option of rejection under Section 174 BGB. If a restriction of the power of representation and management is to be imposed, this is only effective vis-à-vis non-third parties (in the internal relationship) and must be regulated by a resolution (Section 27 (2) WEG) or the community rules.

Protection against dismissal during pregnancy: No protection without timely notification

The LAG Cologne ruled in its judgment of 17 April 2025 (6 SLa 542/24) that the dismissal of a pregnant employee can be effective even if she was already pregnant at the time of the dismissal if the employer was not aware of the pregnancy at the time of dismissal and the subsequent notification of the pregnancy was not made in a timely manner.

Facts

• The plaintiff had been employed by the defendant, a small animal practice with fewer than ten employees, since 1 November 2019.
• On 17 July 2023, the plaintiff sent the defendant a photo of three positive pregnancy tests via WhatsApp. On 27 July 2023, she received notice of ordinary dismissal.
• On 5 September 2023, the plaintiff submitted a medical certificate stating an expected delivery date (vET) of 5 May 2024, which, according to the 280-day retroactive calculation method determined by the BAG in its case law on protection against dismissal during pregnancy, resulted in a calculated start of pregnancy on 30 July 2023 – i.e. after receipt of the notice of termination.
• On 10 October 2023, the plaintiff's legal representative requested that the defendant withdraw the notice of termination in view of the pregnancy.
• In the action for protection against dismissal brought on 15 December 2023, the plaintiff submitted a further medical certificate dated 19 October 2023 with a vET of 1 May 2024, according to which the calculated start of pregnancy was 22 July 2023 – i.e. before receipt of the notice of dismissal.
• A third certificate from another doctor dated 26 October 2023 stated the vET as 27 April 2024 (calculated start also 22 July 2023; biological/empirical – according to the gestation calculator – conception on 4 August 2023) This certificate was not sent to the defendant until 21 March 2024.
• As justification for the late filing of the action, the plaintiff argued that she had been prevented from filing the action in time due to severe depression. During the period in which the plaintiff claimed to have suffered from severe depression, she instructed her legal representative and repeatedly posted photos of herself at parties she had attended on her social media profiles. The plaintiff only applied for subsequent admission of the action for unfair dismissal in the appeal proceedings on 15 November 2024. 

Reasons for the decision

• The court ruled that the dismissal was legally valid under Section 7 termination Protection Act (Kündigungsschutzgesetz, KSchG) because the three-week deadline for filing a claim after receipt of the dismissal (Section 4 KSchG) had not been met.
• The dismissal was also not invalid due to a violation of Section 17 of the German Maternity Protection Act (Mutterschutzgesetz, MuSchG), which regulates the prohibition of dismissal of a pregnant employee:
  • Although the plaintiff was calculated to be pregnant according to BAG case law (280-day rule), the defendant was not aware of this at the time of termination. The notification of the three positive pregnancy tests did not sufficiently inform the defendant of the actual pregnancy.
  • The notification of the pregnancy was also not made within the two-week period pursuant to Section 17 (1) MuSchG – i.e. by 8 August 2023.
  • Nor was the immediate rectification of the notification due to the failure to meet the deadline through no fault of her own (Section 17 (1) sentence 2 MuSchG) justified in a timely or comprehensible manner.
• Furthermore, the application for subsequent admission of the action for protection against dismissal (Section 5 KSchG) was not made in time. The plaintiff's alleged depression does not alter this, as she had already instructed a legal representative in October, whose knowledge is attributable to the plaintiff pursuant to Section 85 of the German Civil Procedure Act (Zivilprozessordnung, ZPO).
• The dismissal is also not objectionable from a European law perspective, as European law is based on the biological concept of pregnancy and not the mathematical concept of pregnancy used by the BAG. According to the evidence taken, there was no biological pregnancy at the time of the dismissal. In this context, the LAG refers to the ECJ ruling (judgment of 27 June 2024, C-284/23), but does not consider it relevant because in this case there was no pregnancy that was only recognised after the deadline had expired, but rather a biologically non-existent condition on the date of termination.

Consequences for practice

In the case of an alleged pregnancy, not every notification is relevant – the decisive factor is whether an existing pregnancy that is relevant to the specific dismissal is reported by the pregnant employee in a timely and correct manner. If the pregnancy is not reported within two weeks of receipt of the notice of termination, the prohibition of termination under Section 17 MuSchG cannot be invoked in subsequent proceedings for protection against dismissal. The 280-day approach to calculating protection against dismissal continues to apply; however, it only provides protection if the employer is notified of the pregnancy within the statutory period.

Crediting previous employment towards the waiting period under Section 1 KSchG: No protection against dismissal without a factual connection

LAG Thüringen judgement of 4 June 2025, 4 Sa 281/22In its judgement of 4 June 2025 (4 Sa 281/22), the LAG Thüringen ruled that only previous employment that constitutes an employment and is closely related to the subsequent employment relationship is to be taken into account in the waiting period for the applicability of general protection against dismissal under the KSchG. 

Facts

• The parties are in dispute over the validity of two terminations of an employment.
• At the end of 2020, the plaintiff applied to the defendant employer, which operates an orchestra, for a position as a music dramaturge. The parties concluded a consulting/service contract for the period from 16 February 2021 to 26 February 2021 for the provision of music education services at a weekly consulting fee of EUR 750 gross (on an invoice basis).
• On 17 May 2021, the parties concluded an employment contract for the position of music dramaturge.
• On 25 October 2021, the managing director gave initial notice of termination of the employment. According to the defendant's articles of association, the defendant is represented by the executive board. The board had not granted the managing director separate power of attorney to declare the termination. On 11 November 2021, the defendant declared a further termination as a precautionary measure on the basis of a power of attorney granted to its attorneys by its executive board.
• The plaintiff seeks a declaration that neither of the two terminations effectively terminated the employment relationship.

Reasons for the decision

• Ineffectiveness of the termination of 25 October 2021: The first termination could not terminate the employment relationship because it was signed by the managing director, whose authority to give notice of termination could not be sufficiently demonstrated by the defendant. According to the articles of association, the defendant is represented by the executive board, whereby the chairperson of the executive board and her deputy are solely authorised to represent the defendant. No rules of procedure conferring this authority or any other power of attorney were presented. The court also rejected subsequent approval (Section 180 (2) BGB) or a power of attorney by acquiescence.
• Effectiveness of the termination of 11 November 2021: The second termination effectively terminated the employment relationship. The defendant's legal representative was duly authorised by the chair of the executive board, who is solely authorised to represent the defendant.
• No general protection against dismissal under the KSchG: The general protection against dismissal under the KSchG does not apply because the dismissal was issued during the six-month waiting period (Section 1 (1) KSchG). The employment relationship began (only) on 17 May 2021. The termination was received on 13 November 2021, i.e. within the six-month waiting period. The waiting period would have ended on 16 November 2021; since the termination was received before this date, Section 1 KSchG was not applicable.
• First contractual relationship (from 16 February 2021) was not an employment: The plaintiff did not sufficiently demonstrate that she performed work in the first contractual relationship that was subject to instructions, determined by others and in a position of personal dependence. Aspects such as remuneration on an invoice basis indicate a freelance service relationship. The structure of the contract (fee with VAT, no personal obligation to perform, short term and independent tasks) also argued against an employment relationship. The plaintiff bore the burden of proof (Section 611a (1) BGB). In the opinion of the LAG, there was no sham contract because the actual implementation corresponded to the wording of the contract.
• No aggregation of periods of employment: Even if the first contractual relationship were to be classified as an employment relationship, the two contractual relationships would not be aggregated. The factual connection between the two contractual relationships was interrupted because the defendant had in the meantime decided in favour of another applicant for the plaintiff's position. In this regard, the LAG refers to the case law of the BAG (judgment of 20 February 2014, 2 AZR 859/11), according to which aggregation is only possible in the case of seamless continuation or a close factual connection. In this case, the decision on the applicant represented a clear break that interrupted the connection.

Consequences for practice

The judgement of the LAG Thüringen makes employers (once again) aware of the need to ensure proper representation by the persons giving notice of termination and adequate documentation (in particular by means of a proper power of attorney).

The LAG Thüringen also confirms that only previous employments between the parties with a sufficient temporal and factual connection to the terminated employment relationship can be taken into account for the waiting period under Section 1 (1) KSchG.