Paying works council members inflated salaries may amount to embezzlement. That was the verdict of Germany’s most senior court for civil cases – the Bundesgerichtshof (BGH) – in a judgment from January 10, 2023 (case ref.: 6 StR 133/22).
Embezzlement lies at the heart of many corporate crimes, including (potentially) the failure to respect the prohibition on preferential treatment, as was found to be the case in a recent ruling delivered by the BGH, reports Michael Rainer, managing partner and point of contact for corporate crime at MTR Legal Rechtsanwälte.
The case in question was concerned with the high remuneration paid to members of the works council at an automobile manufacturer. During the years 2011 to 2016, the company was paying its employee representatives generous bonuses in addition to an already lavish salary. While the relevant regional court did acquit two former managing directors at the car company of embezzlement charges, the BGH went on to overturn the rulings earlier this year.
The background to all of this, as reported by the German newspaper the Frankfurter Allgemeine Zeitung on its website, is that the remuneration package of works council members was being modeled on their hypothetical careers. This compensation model, though not at all unusual within large corporations, has now been rejected by the BGH, which held that the salary of a member of the works council ought to be based on the remuneration paid to similar employees with a typical career trajectory within the company. The car manufacturer responded by adjusting the salaries of its works council members downwards, with one of the group’s subsidiary companies taking similar action.
But the impact of the ruling goes beyond the remuneration of works council members. It also has implications for the liability of employers and managing directors. This is because the judges considered the constituent elements of the crime of embezzlement to be present in this case, whereas the regional court considered there to be a lack of intent. The latter ruled that the directors had relied on evaluations made by internal and external advisors in sorting the works council members into their salary brackets, and that they had found an existing remuneration scheme. They were thus mistaken in assuming that they were not in breach of any obligations.
This assessment was deemed to be incomplete by the BGH, which pointed out that the regional court had only looked at the salary brackets but failed to consider the generous bonus payments, which must always be agreed individually. The matter will now have to be re-adjudicated by the regional court.
The ruling illustrates the major liability risks facing managing directors who fail to meet their duty of care.
The team of corporate crime experts at MTR Legal Rechtsanwälte can provide counsel.
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