Criminal liability for embezzlement and abuse of trust
Employer claims for return of benefits
Works council members in Germany hold an unpaid honorary office. According to Sections 37(1) and 78 of the Works Council Constitution Act, council members must not be granted advantages by their employer in return for their works council activity. The employer and the works council member risk committing a criminal offence under Section 119(1) of the act and Section 266 of the Penal Code if a council member is advantaged as a result of his or her membership of a council. Furthermore, under Section 23(1) of the act, staff can request that a works council member who has received any such advantage be excluded from the relevant council.
Since works council members frequently face complex scenarios which have far-reaching significance for the staff and which require expert knowledge, personal commitment and time, it is understandable that employers wish to reflect this through remuneration, be that through allowances, company cars or pension schemes. Certain cases concerning this issue have attracted intense media interest. For example, in the Siemens affair, payments of around €30 million were made to the works organisation AUB. In the Volkswagen affair, extra bonuses were regularly paid to the works council chairman to an aggregate of €1.95 million, as well as regular quarterly payments to the works council chairman's mistress. Not all cases regarding this issue have attracted as much media attention as these affairs, but the principle remains constant: it is not permissible to grant advantages to a group works council member, central works council member or other works council member or chairman on the basis of their involvement with a works council.
Remuneration of works council members, position-related allowances, attendance fees
Payments explicitly made as consideration for works council activities are obviously prohibited.(1)
Promotion or salary raise
A salary increase linked to the responsibility associated with works council activity, or to the knowledge acquired by a works council member as a result of this activity, is not permissible. Such an increase would be permissible only if employees who are employed in comparable roles with regard to position and salary were also promoted in the usual course of the company's business.
Therefore, it is necessary to record and document the circle of employees whose roles are comparable to those of works council members as precisely as possible. Employees whose position was comparable to that of the employee concerned with regard to qualifications, performance and personality at the time of their election to the works council are to be considered as benchmarks. If no such comparable employees exist in the company, employees are to be considered who perform tasks which would be allocated to the works council member in the event that he or she were to leave their office. In this procedure, the responsibilities entailed in works council activity must not be taken into account.
As a rule, preferential treatment by the employer when granting fringe benefits (eg, employer loans, company dwelling, amount of leave and company cars) is not allowed. Works council members who were not entitled to a company car for private use before their election must not be granted a company car for private use for the first time after their election to a works council.
Fixed allowances for expenses, reimbursement of travel costs
A works council member must not be advantaged through reimbursement of their travel costs to an extent which is beyond the travel expense policy of the company. Therefore, the works council member may be reimbursed only for such costs which he or she has actually incurred in connection with his or her activity in the works council.
Duty to stop impermissible advantages
A point that is often ignored is that the management must stop granting impermissible advantages as soon as it detects them, for instance, in the course of internal investigations. Otherwise, it risks committing a criminal offence.
Criminal preferential treatment of works council
If the granting of impermissible advantages to works council members continues, this constitutes the criminal offence of preferential treatment of the works council, which is punishable by up to one year's imprisonment or a fine, if at least contingent intent can be shown. The same applies if the preferential treatment of an employee who was formerly a member of a works council is the result of a commitment undertaken by the employer when the employee still held the office. This may be the case, for example, if a company pension is calculated on the basis of impermissible salary increases which were granted in the past, or if a stock option scheme was granted during the term of the works council office, but could not be drawn upon before the employee left the works council.
However, to date, criminal liability for the preferential treatment of works councils has rarely gained much practical importance, because such treatment cannot be prosecuted without a motion from the works council, the central works council, the group works council, an 'employee representation' in the meaning of Section 3(1) of the act, the election committee, the company or a trade union represented in the company. An individual employee has no right to file a motion.
Hence, criminal liability for embezzlement and abuse of trust pursuant to Section 266 of the Penal Code, which is prosecuted by the authorities on their own initiative, is of practical relevance. No criminal complaint need be lodged. Also, anonymous reporting to the prosecutor's office can lead to the initiation of a preliminary investigation.
Until Summer 2010 it was generally agreed that the preferential treatment of works council members in violation of the act also constituted a breach of duty in terms of embezzlement and abuse of trust.(2) This was all the more true after the Federal Court of Justice made clear in its Mannesmann/Vodafone judgment that embezzlement and abuse of trust are crimes, even without the requirement of a severe breach of duty.(3)
According to a Federal Constitutional Court order concerning the restrictive interpretation of the constituent elements of embezzlement and abuse of trust(4) and the judgments subsequently handed down in this respect by the Federal Court of Justice regarding Siemens-Schelsky,(5) this position could, in future, be called into doubt. The court deemed that the hidden financing of the AUB – which was granted on the order of the co-defendant and former head of division at Siemens AG – constituted preferential treatment of the works council that was liable to punishment, but did not amount to embezzlement and abuse of trust. Making reference to the Federal Constitutional Court order, it made clear that a violation of statute does not fufil the criteria of embezzlement and abuse of trust unless the violated statute has, at the very least, a protective effect for the assets entrusted. It opined that this was not the case with a criminal act pursuant to Section 119(1)(1) of the act, because the sole value protected by this provision is the integrity of the works council elections.
The Federal Court of Justice stuck to its line of case law when pronouncing its order concerning the entry of unlawfully obtained donations in a party's statement of account.(6) However, the court concluded that a breach of duty in terms of embezzlement and abuse of trust had nevertheless been committed, because compliance with the provisions of the Political Parties Act was the subject matter of an independent duty stipulated by the political party in its statute, even if Section 25 of the previous version of that act, which had been infringed in that case, did not aim to protect any assets.
Therefore, a court – or at least a prosecutor – may in future argue that the head of a human resources department has breached his or her duty to the company, as stipulated in detail in his or her employment contract, diligently and prudently to manage the assets of the company entrusted to him or her as per Sections 76, 93 and 116 of the Stock Corporation Act, if he or she has granted benefits derived from the company's assets to any works council member without having a valid legal basis to do so.
Special attention should be given to the potential crime of tax evasion under Section 370(1)(1) of the Fiscal Code, which is committed if the benefit is declared as business expenditure on the tax return under Section 4(5)(10) of the Income Tax Act.
An employer has the right to claim the return of benefits which were granted to individuals on the basis of their membership of a works council. However, in practice, a claim for damages will rarely be enforceable because the employer will be unable to prove that the works council member who received the benefit acted with intent, contingent or otherwise. Similar problems will arise if claims for damages are asserted against the employees responsible.
Therefore, claims based on unjustified enrichment under Section 812 of the Civil Code could play a role, because this exists irrespective of culpability and the difficulties of proof associated therewith. According to the prevailing opinion in legal literature, such claims are not excluded owing to the simultaneous violation of the laws by the employer under Section 817(2) of the code.
The benchmark by which to measure the remuneration of works council members is soley the remuneration of comparable employees whose professional development complies with the usual course in the company; works council activity and the knowledge acquired during that activity play no role. The principle of honorary office for works council members is relevant not only in connection with the granting of position-related allowances and attendance fees, but also to all other kinds of benefit granted by the employer. Therefore, besides pay rises and promotions, other kinds of fringe benefit (eg, company cars, leave, employer loans and company dwellings) and fixed allowances for travel and other expenses must be thoroughly examined to determine whether they advantage a works council member over a comparable employee. In this context, continued and detailed documentation of the development of those employees whose roles are comparable to that of the works council member are essential. Otherwise, employees, executives, managers and directors risk criminal prosecution, as well as unwanted attention from the media.
For further information on this topic please contact Barbara Bittman, Bjoern Gaul, Susanne Mujan or Bernd Roock at CMS Hasche Sigle by telephone (+49 211 4934 418), fax (+49 211 4934 126) or email (email@example.com, firstname.lastname@example.org, email@example.com or firstname.lastname@example.org).
(1) See Bielefeld Labour Court, Cases 3 Ca 2633/10 and 3 Ca 2383/10, May 11 2011.
(2) Federal Court of Justice, Case 5 StR 521/08, September 17 2009.
(3) Federal Court of Justice, Case 3 StR 470/04, February 21 2005.
(4) Case 2 BvR 2559/08, June 23 2010.
(5) See, for example, Federal Court of Justice, Case 1 StR 220/09, September 13 2010.
(6) Case 1 StR 94/10, April 13 2011.
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