White & Case LLP - Publications - Germany: Works Council Members May Claim for Stock Options

Services	Sectors
Antitrust Asset Finance Banking Canada Capital Markets Climate Change Commercial Litigation Data Privacy Employment & Benefits Financial Restructuring and Insolvency India Indonesia Intellectual Property International Arbitration International Trade Israel Korea Latin America Mergers & Acquisitions Private Clients Pro Bono Project Finance Sovereign Wealth Funds Sovereigns Spain Taiwan Tax White Collar	Communications and Media Construction Environmental Funds Islamic Finance Mining and Metals Oil & Gas Pharmaceuticals and Healthcare Power Real Estate Sourcing & Technology Transactions

North America	Latin America	Europe		Asia	Middle East/Africa
Los Angeles Miami New York Silicon Valley Washington, DC	Mexico City Monterrey São Paulo	Almaty Ankara Berlin Bratislava Brussels Bucharest Budapest Düsseldorf Frankfurt Geneva Hamburg	Helsinki Istanbul London Milan Moscow Munich Paris Prague Stockholm Warsaw	Beijing Hong Kong Shanghai Singapore Tokyo	Abu Dhabi Doha Johannesburg Riyadh

Germany: Works Council Members May Claim for Stock Options

April 2008

Those companies with international stock options should be aware: Even though they have not been awarded stock options under an international stock option plan set up by the foreign parent company, members of the works councils in Germany may claim for stock option awards against their local employer. This has been decided by the German Federal Employment Tribunal (Bundesarbeitsgericht) in a recent ruling.

(January 16, 2008, ref no. 7 AZR 887/06)

In Germany, there are not many jurisdictions in which the superior courts deal with the impacts of foreign stock option plans regarding employment relationships in Germany. The last decision that became well-known among German employment lawyers was the decision by the German Federal Employment Tribunal in 2003 concerning the Nokia stock option plan and its legal treatment under the TUPE regulations (Transfer of Undertakings and Protection of Employment). The court decided that the award agreement regarding the granting of stock options concluded between the individual employee and the foreign company must be qualified as an independent contractual arrangement and therefore stands independently alongside the local employment agreement with the German subsidiary. The obligations arising out of the award agreement do not become part of the local employment relationship and thus are not automatically transferred to the buyer of a business under TUPE.

In the case decided now, a member of the works council claimed stock options that his fellow colleagues, who were not members of the works council, had received. There is a basic principle in German law regarding works councils in which members of the works council may not suffer economical or job-related disadvantages due to their membership. Especially regarding renumeration, section 37, paragraph four of the German Works Constitution Act regulates that the remuneration of the members of the works council must not be lower than the remuneration of a comparable employee. The defendant employer, however, brought forward the arguments from the Nokia case and argued that the stock options award relationship is independent from the German employment relationship and thus stock options do not count as remuneration. The lower German employment courts followed this reasoning and dismissed the case. From the point of view of the lower German employment courts, the award of stock options by the foreign parent company is not considered remuneration in the sense of section 37, paragraph four of the German Works Constitution Act. Any benefits from third parties do not fall under this provision. Even applying a broad interpretation of the term ‘remuneration,’ benefits from third parties do not fall under this provision.

The German Federal Employment Tribunal did not agree. The court stated that benefits from third parties can well be regarded as remuneration. The crucial question is whether the local employer has promised these benefits. If this is the case, the members of the works council may also be entitled to claim stock options. The lower courts, so far, did not clarify if the local employer had promised these benefits, so the case was returned to them for clarification.

Should you have any questions regarding stock option plans and their implementation in Germany, you may contact , a lawyer in White & Case's Munich office.

This newsletter may include links to websites other than the White & Case website. White & Case LLP has no responsibility for any websites other than its own, and does not endorse the information, content, presentation or accuracy, or make any warranty, express or implied, regarding any other website.

This newsletter is protected by copyright. Material appearing herein may be reproduced or translated with appropriate credit. Due to space limitations and the general nature of its content, this newsletter is not intended to be and should not be regarded as legal advice.

Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any advice set forth herein with respect to US federal tax issues was not intended or written by White & Case LLP to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.