Corporate Law: Codetermined without knowing it (II)
Corporate Law Newsletter: Codetermined without knowing it (II)
- Two new court decisions could lead to your enterprise falling under the German Co-determination Act in future
Pursuant to the provisions of the German Codetermination Act [Mitbestimmungsgesetz, MitbestG], a corporation has to establish a supervisory board where half of its members are elected by the employees if the corporation itself or its subsidiaries employ more than 2,000 employees. Which employees are to be counted in the calculation and which are not was quite clear to date. These criteria – and thus the question of whether an enterprise has to establish such a codetermined supervisory board – have been significantly called into question and altered by the most recent decisions of the Berlin Court of Appeal [Berliner Kammergericht, KG] and the Federal Labour Court [Bundesarbeitsgericht, BAG].
The decision of the Berlin Court of Appeal:
In the almost unanimous opinion of the German courts, only employees who are employed in domestic businesses of a German enterprise are actively and passively entitled to vote in supervisory board elections. In contrast, employees working in the group’s foreign businesses or in German businesses of foreign group companies have no voting right and are also unable to become members of the supervisory board. Accordingly, they also cannot be counted in the calculation of the 2,000 threshold required for the application of the Codetermination Act.
This was contested for the first time this spring by the Regional Court [Landgericht, LG] of Frankfurt am Main, which decided that employees working in subsidiaries abroad, particularly within the EU, should be counted in the calculation (cf. our Newsletter in this respect). At the end of October the Berlin Court of Appeal addressed a complaint by a stockholder of TUI AG and brought before the European Court of Justice (ECJ) the question of whether the said application practice of the German courts violated applicable EU law. The Berlin Court of Appeal considered a violation to at least be possible. First of
all, employees excluded from the active and passive voting right were possibly being discriminated on grounds of their nationality. Secondly, it could constitute a violation of the right of freedom of movement if an employee who was previously a member of the supervisory board is hindered in applying for a position at a foreign business of his German employer or at a foreign group affiliate because his transfer would result in him losing his position as supervisory board member.
If the ECJ declares the German application practice to be a contravention of European law, there is the risk that the Codetermination Act will become applicable immediately and with no further acts on the part of the legislator to a multitude of German enterprises which – in the previous opinion of the courts – were at best subject to the diminished form of corporate codetermination pursuant to the German One-Third Participation Act [Drittelbeteiligungsgesetz] or were not subject to codetermination at all. In this case, namely, the Codetermination Act would have to be interpreted in alignment with European law in such a way that all employees working in the group’s businesses in the EU would be immediately actively and passively entitled to vote in elections for the German parent company’s supervisory board. In consequence, all of these employees would have to be counted in the calculation of the 2,000 threshold. For German enterprises with a large share of employees abroad within the EU, this would turn the (codetermination) world topsy-turvy.
The decision of the Federal Labour Court:
With its decision in the beginning of November, the BAG established the case-law framework that temporary workers should be counted in the calculation of the threshold values of the Codetermination Act and One-Third Participation Act. With this, the BAG has ventured into unchartered territory and has taken an opposing stand to the previously prevailing opinion of the civil courts and legal literature.
Through this decision, the BAG has clearly deviated from the recent case law which relates in particular to the threshold values of the German Shop Constitution Act [Betriebsverfassungsgesetz, BetrVG] and German Unfair Dismissals Act [Kündigungsschutzgesetz, KSchG] to the effect that temporary workers must be included in the calculation of the threshold values determined there. Temporary workers are now also relevant to the threshold values applicable to the corporate codetermination. Although the BAG’s current decision only establishes that temporary workers must also be taken into consideration in the threshold values of relevance to the procedure for electing the supervisory board members who represent the employees, the development of case law is such that it goes without saying that the BAG will also include temporary workers in the initial threshold values applicable to the corporate codetermination (2,000 or 500).
The basis of this decision is doubtlessly the path taken by the BAG over the last few years of renouncing the definition of employee pursuant to the German Shop Constitution Act and the so-called “two-components doctrine”. Previously, the decisive factor was that an employee was in an employment relationship with one employer and was integrated into one single business. The BAG had stipulated in this respect that this definition of employee created problems in case of the so-called “third-party based assignment of personnel” and therewith opened the door for the inclusion of temporary workers, who generally have one “contractual employer” and one “assignment employer” in case of the relevant threshold values of the shop constitution.
The world of codetermination is changing. Companies seeking to secure themselves against such changes are advised to review the structure of their corporate group.