For corporate Germany, it promises to be the trial of the year. Allegations of sex and sleaze tumbled into the court-room yesterday as proceedings began against the former head of the works council at Volkswagen, the largest car manufacturer in Europe.

In the dock was Klaus Volkert, 64, a dapper former foundry worker who acquired a taste for the good life when he rose through the German trade union hierarchy. He is facing 48 charges of breach of trust – that is, allegedly demanding and taking hand-outs from Volkswagen executives in return for keeping the workforce tame and cooperative.

“I made serious errors,” Mr Volkert told the court. Though he admitted that he had made use of the services of prostitutes paid for by VW management, Mr Volkert denied setting up a vast network of kickbacks in exchange for peaceful labour relations.

The 81-page indictment took more than two hours to read out at the start of the trial because the prosecutor insisted on presenting the detail of each charge: $4,500 (£2,200) for jewellery for the Brazilian mistress of Mr Volkert, an evening spent in a Prague brothel, luxurious hotel visits . . .

The trial is expected to provide a damning account of Germany’s consensus model of industrial relations, which relies on workers being informed and consulted at board level of every key investment decision. In this case, at least, the model seems to have sugared the lives of the top unionists.

The executive who is accused of settling the entertainment bills was Klaus-Joachim Gebauer, a senior personnel manager, who was also in the dock yesterday on breach of trust charges. Like Mr Volkert, he faces up to ten years in jail if found guilty; unlike Mr Volkert, he has agreed to cooperate with the Prosecutor’s Office. “I settled the accounts and was paid back after submitting the documentation,” Mr Gebauer told the court. If there was no documentation – such as in some of the brothel visits – Mr Gebauer would draw up a special receipt.

Mr Gebauer said that the money was drawn from a slush fund authorised by the top ranks of Volkswagen. His link to the board was the human resources director, Peter Hartz, who revolutionised the company’s labour practices and who went on to help Gerhard Schröder, the former Chancellor, to reform Germany’s welfare state. Mr Hartz cut a deal with the prosecution and received a suspended sentence.

According to Stern magazine, the court will be presented with e-mail traffic between Mr Volkert and his 43-year-old Brazilian mistress, Adriana Barros, who was paid more than €23,000 (£16,000) a quarter by Volkswagen for “inter-cultural projects”. One exchange of e-mails has Ms Barros appealing: “I Have Too Much Problems About Money”. Mr Volkert replies (on June 27, 2005): “This is the last you will hear from me, I am ending my job.” He then goes on to remind her that she should say she was involved in children’s projects.

The indictment claims that Mr Volkert caused €2.7 million of damage to Volkswagen, and Mr Gebauer €1.3 million. Mr Volkert’s defence team argues that he is innocent of breach of trust. Since Volkswagen paid these sums to Mr Volkert, he cannot be said to have damaged the company.

Mr Volkert has emphasised that he kept his side of the bargain, persuading workers at a Spanish plant to reject strike action, for example. He said that he served the workers well, helping to convince managers at the company’s South American factories to drop their “hire and fire” tactics.

The case, therefore, hinges on whether the slush fund was approved by the top management. If it was an accepted instrument of labour policy, Mr Volkert has a chance of walking free – and questions will be asked across German industry about how widespread bribery has become in buying off truculent workers. A verdict is expected in January.

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