Codetermined without knowing it – Do employees of non-German subsidiaries count when deciding if 50% of the supervisory board members are to be elected by the workers?
By way of background: According to the German Codetermination Act (Mitbestimmungsgesetz) in particular corporations like stock corporations (Aktiengesellschaft, AG) or private limited liability companies (Gesellschaft mit beschränkter Haftung, GmbH) must establish a supervisory board where half of their members are elected by the employees if more than 2,000 employees regularly work at the company and its subsidiaries. According to the prevailing opinion to date, only those employees who work at German businesses of German companies of the group have to be considered. In contrast, employees of foreign businesses of German group companies (with certain exceptions) and in particular employees of foreign subsidiaries, are not to be included. Although this distinction is not expressly stipulated in the Act, it is derived from the legislator’s intention and the interpretation of the law.
The Regional Court of Frankfurt am Main does not share this opinion. Rather, all employees working at a group company have to be included irrespective of whether their employer is situated in Germany or abroad. Especially when the employer is a group company of another EU country, this ensues from the non-discrimination principle of European law.
This argument is not convincing. The prevailing interpretation of the Codetermination Act discriminates neither foreign enterprises (upon which the Regional Court bases its case) nor their employees. Discrimination of the enterprise can be ruled out because the question at issue here has no effect upon this enterprise, rather only on its German parent company. Whether or not this parent company should establish a supervisory board and/or how many of its members should be elected from the employees has no effect on the corporate governance of the foreign subsidiary.
The employees of the foreign group company also do not incur any disadvantages vis-à-vis their colleagues with a German group company as employer: whether the ultimate German parent company must form a supervisory board according to the Codetermination Act that is to say in the scope of which the employees participate in the control of the management, affects both equally.
The Regional Court’s decision is not legally binding. In view of its less than convincing reasoning, it is not unlikely that it will be repealed in the next instance. This is not certain, however. The dispute concerns the correct interpretation of the law, the wording of which allows for both interpretations. A change of the law, thus, requires no legislative procedure, rather a change in opinion suffices. And this sometimes happens faster than one might think. Anyone wanting to safeguard against these risks would be well advised to check the structure of their corporate group in Germany.