The German Federal Labour Court (BAG) has held that responsibility for the exercise of the co-determination right regarding the introduction of remuneration principles for non-tariff employees (außertarifliche Angestellte) lies with the local works council and not with the company works council (Gesamtbetriebsrat). Non-tariff employees are those employees who are not compensated on the basis of a collective bargaining agreement. Competence of the company works council is only given if a compelling need exists for company-wide regulation. According to the BAG, a compelling need for company-wide regulation of remuneration principles for non-tariff employees does not exist because local work councils are capable of handling the introduction of remuneration principles at local level.

In the light of this judgment, company works agreements on remuneration of non-tariff employees are likely to be invalid unless the company works council was formally instructed by a local works council to enter into the agreement. Companies should check whether an individual company works agreement exists. The risk of an invalid company works agreement on remuneration and how best to deal with this will depend on the content of the agreement and the company’s relationship with the local works councils. For topics not related to remuneration, employers should assess carefully whether the company works council is in fact competent to enter into a specific company works agreement.