Short answer: Performance management software falls under co-determination in the DACH region because it can monitor behaviour and performance. In Germany the strongest basis is Section 87(1) no. 6 BetrVG (technical monitoring), plus Section 94(2) for assessment principles; in Austria it is Section 96a ArbVG. Without agreement, the rollout is void. This works council checklist walks you through the legal basis, the works agreement, and a realistic timeline.

If you roll out performance management software in the DACH region and skip structured co-determination, you risk delays, mistrust, and even a court-ordered shutdown of the system. This article is the legal anchor checklist: it cites the relevant statutes with primary sources, provides a full works agreement checklist with sample clause ideas, and a five-phase process roadmap with realistic timings.

You will find:

Let’s break down what every HR team should have on the table before the next meeting with the works council.

1. Why performance management software triggers co-determination in DACH

Rolling out performance management software in Germany or Austria is never just an IT upgrade. It touches several mandatory co-determination grounds. The order matters: the strongest, enforceable basis is not Section 94, but Section 87(1) no. 6 BetrVG.

1.1 Section 87(1) no. 6 BetrVG – the strongest legal basis

Under Section 87(1) no. 6 BetrVG, the works council has a mandatory co-determination right over the “introduction and use of technical devices designed to monitor the behaviour or performance of employees”. The decisive point: it is enough that the system is objectively suitable for monitoring – the employer’s actual intent to monitor is irrelevant. Performance dashboards, score histories, audit logs and AI analytics regularly meet this test.

The consequence is sharp: a technical device introduced without agreement with the works council is void according to the settled case law of the Federal Labour Court (BAG). The works council can stop its use via an interim injunction. There is no “implied consent” under Section 87 – the council’s silence does not count as approval. If no agreement is reached, the conciliation committee decides (Section 87(2) BetrVG), with a ruling that has the effect of a works agreement. A software update that activates new monitoring features triggers co-determination again.

1.2 Section 94(2) BetrVG – assessment principles

In addition, Section 94(2) BetrVG applies: drawing up general assessment principles requires the works council’s consent. Here is an important distinction many guides miss: the employer alone decides whether to introduce assessment principles at all. But once it does, the council co-determines the how – the criteria, data sources, scales, the procedure, the timing, the documentation format, and the objection mechanism. Software that captures assessment data falls fully within this scope. If breached, employees can demand removal of unlawfully created assessments from their personnel file, and the council can demand cessation and deletion.

1.3 Escalation: Section 87 no. 10/11 when pay is involved

This is the key difference in the depth of co-determination. As long as the software only evaluates, Section 87 no. 6 and Section 94(2) apply. But the moment results feed directly into pay – through bonus formulas or salary bands – Section 87(1) no. 10 and 11 BetrVG (remuneration structure, piecework and bonuses) also applies. These grounds give the council an initiative right – it can actively demand rules, not just veto. That shifts the negotiating balance considerably.

1.4 Early warning: Section 90 and Section 80(3) BetrVG

Two further provisions kick in before actual co-determination. Under Section 90 BetrVG, the employer must inform and consult the works council in good time during the planning phase – including the use of artificial intelligence, which is explicitly named in Section 90(1) no. 3. Informing the council only at go-live breaches this duty. Under Section 80(3) BetrVG, the council can also bring in experts; for AI systems, the statute deems this “necessary” – with the employer bearing the cost.

A practical example shows the risk: a mid-sized tech company in Berlin (around 250 employees) tried to roll out a US-style performance tool with forced ranking and unclear retention settings. The works council was only informed two weeks before go-live. Result: the council stopped the rollout, demanded full transparency on rating logic and a retention schedule, and the project was delayed by six months. Companies that treat the system as a co-determination project from the start – early involvement, clean documentation, a prepared checklist – reach go-live far faster. For how to choose the right system in the first place, see our guide on how to choose enterprise performance management software.

2. Austria: Section 96a ArbVG – its own rules, its own mechanics

“DACH” in the keyword means Austria needs its own look, because there the ArbVG applies rather than the BetrVG. Section 96a ArbVG governs consent-required measures for personnel data systems and employee evaluation. The mechanics differ noticeably from Germany.

Important: in establishments with a works council, an individual employee’s consent does not replace the works agreement. For Austrian sites, Section 96a ArbVG therefore belongs firmly in every performance management roadmap – ideally with a separate works agreement per country.

3. GDPR and the EU AI Act: the compliance frame for AI features

As soon as your software evaluates automatically or uses AI, two European frameworks come into play that the works council knows and will raise.

3.1 GDPR Art. 22 and Art. 88

Under Art. 22(1) GDPR, a person has the right “not to be subject to a decision based solely on automated processing, including profiling”, which produces legal effects or similarly significantly affects them. An AI score that decides on bonus or promotion without human review falls under this. Where an exception applies, the controller must, under Art. 22(3), implement “suitable measures” – at minimum the right to human intervention, to express one’s point of view, and to contest the decision.

In the employment context, consent is regularly not a suitable legal basis because of the dependency relationship. However, Art. 88 GDPR allows more specific rules via collective agreement – so a works agreement can itself serve as the legal basis for the processing, complemented by Section 26 BDSG.

3.2 EU AI Act: high-risk from August 2026

The EU AI Act classifies AI in the HR area as high-risk. Under Annex III, category 4(b), AI systems intended “to monitor and evaluate the performance and behaviour of persons” in work-related relationships count as high-risk AI. This entails obligations on risk assessment, technical documentation, bias testing, human oversight, transparency and audit trails. The full obligations apply from 2 August 2026; emotion recognition at the workplace and biometric categorisation have already been banned since 2 February 2025. In practice: any AI feature that generates scores or builds rankings is high-risk AI – and the works council has a right to an expert via Section 80(3) BetrVG.

4. What works councils care about in performance review systems

Works councils are usually not anti-performance management. They want fair processes, transparent data use, and strong employee rights. When you present a new tool, they typically focus on seven to eight core themes.

4.1 Data types collected

Councils will ask exactly which data the software stores and why. That includes numeric scores, written comments, goals, competency ratings, attendance metrics, and any behavioural or potential ratings.

4.2 Transparency for employees

Employees must be able to see what is written about them. A lack of transparency is one of the most common reasons reviews are felt to be unfair – often because employees cannot see the criteria and feedback.

4.3 Rating scales, calibration and criteria

Section 94(2) BetrVG explicitly covers assessment principles. Councils will examine:

They prefer clear, behaviour-based descriptions over vague labels. Forced ranking that pushes a fixed percentage into “low performer” categories often meets strong resistance – a pattern we also describe in our analysis of why your current performance management system is failing.

4.4 Links to pay, promotion and termination

Any connection between performance ratings and pay, bonuses, promotions, demotions, or dismissals is critical. As shown above, where pay is involved, Section 87 no. 10/11 BetrVG also applies, with the council’s initiative right.

4.5 Access rights and audit logs

4.6 Retention and deletion

4.7 Algorithmic and AI support

Under GDPR Art. 22 and the EU AI Act (Annex III cat. 4(b)), explainability and human oversight are mandatory for automated decision support. Black-box rankings of employees are highly problematic.

4.8 Language, communication and employee voice

5. The works council checklist for HR (5 areas)

Guesswork makes negotiations slow and frustrating. A structured, internal checklist helps you clarify your own position before you sit down with the council. Use the following five areas as a practical framework.

5.1 Process design: how the performance cycle works

5.2 Data and visibility: who sees what, when

5.3 Technical and security: infrastructure, logs and permissions

5.4 Use in decisions: from feedback to action

5.5 AI features and guardrails: keeping human control

6. Works agreement checklist with sample clause ideas

Once HR, management, and the works council are aligned, the agreed rules should be written down – as a works agreement (in Austria, a works agreement under Section 96a ArbVG). The goal is clarity, not legal jargon. The following checklist covers the ten sections a robust works agreement should contain – each with a concrete sample clause idea as a starting point. The final legal wording belongs in the hands of legal counsel.

These building blocks stay largely the same regardless of the specific tool. Tools already aligned with GDPR and the EU AI Act, with human-in-the-loop and granular role permissions, noticeably simplify the negotiation.

7. Five-phase process roadmap with timings

How long does it all take? That depends mainly on when you involve the works council. With early, transparent involvement from the planning phase, 4–8 weeks of pure negotiation time is realistic; without it, that quickly becomes 2–6 months. The roadmap below shows a typical flow – phases 2 and 3 start in parallel.

A rule of thumb from working with DACH HR teams: every week you invest in phases 1 and 3 saves you double in phase 4. Inform the council only just before go-live, and you risk exactly the six-month delay in the example above.

8. Typical red flags and how to mitigate them

Even with good preparation, certain features almost always raise concerns. Address them proactively and build mitigations into your configuration and works agreement.

9. Typical works council questions – and how HR can answer

Prepare for these recurring questions with clear, written answers aligned with your checklist.

Conclusion: transparent alignment beats last-minute firefighting

Performance management software can strengthen development, alignment and fairness. In the DACH region it can also become a source of conflict if works councils are involved too late. Three points are decisive:

As automation grows, so does the need for joint governance. Co-determination does not have to slow you down – with a structured works council checklist, HR and the council can jointly build a performance process that employees understand and trust.

Frequently Asked Questions (FAQ)

1. Does the works council have to approve every performance management software?

Yes, if the system can monitor behaviour or performance – which is almost always the case for performance software (Section 87(1) no. 6 BetrVG). In addition, Section 94(2) BetrVG applies to assessment principles once the employer introduces them. What matters is the objective suitability for monitoring, not the employer’s intent.

2. What happens if the employer introduces the system without approval?

The measure is void according to the settled case law of the BAG. The works council can obtain an interim injunction to shut it down. If no agreement is reached, the conciliation committee decides (Section 87(2) BetrVG) with a ruling that has the effect of a works agreement.

3. Which BetrVG sections apply to PM software?

Primarily Section 87(1) no. 6 (technical monitoring) and Section 94(2) (assessment principles). Where pay is involved, Section 87(1) no. 10/11 applies with the council’s initiative right. Upstream, Section 90 (information in the planning phase) and Section 80(3) (experts, “necessary” for AI) apply.

4. What must a works agreement for PM software contain?

Scope, purpose limitation, data fields collected, role-based access rights, retention and deletion, transparency and objection rights, the link to pay and measures, an AI clause with human-in-the-loop, a manager training obligation, and a change and evaluation clause. Sample clause ideas are in the checklist above.

5. Do the same rules apply in Austria?

No. Austria regulates this in Section 96a ArbVG: consent is required for automated personnel data systems (para. 1 no. 1) and for employee evaluation systems (para. 1 no. 2). If no agreement is reached, the arbitration board decides. An individual’s consent does not replace the works agreement.

6. Does AI in PM software fall under the EU AI Act?

Yes. Under Annex III, category 4(b) of the EU AI Act, AI systems that monitor and evaluate employee performance and behaviour count as high-risk AI. The full obligations apply from 2 August 2026, including risk assessment, technical documentation, bias testing, human oversight and audit trails.

7. Can AI-driven scoring breach GDPR Art. 22?

Yes, if the decision is based solely on automated processing and produces legal or significant effects (Art. 22(1) GDPR). Employees then have the right to human intervention, to express their point of view, and to contest the decision (Art. 22(3)). Consent is usually not a suitable legal basis in employment; a works agreement under Art. 88 GDPR is the better route.