Does German Corporate Codetermination violate European Law? Press Release – B&P
Frankfurt am Main, October 26, 2015. German employee participation on supervisory boards, as presently implemented, possibly violates European law and may no longer be applicable. According to codetermination law, only workers employed in Germany are represented on the supervisory boards of German corporations, workers employed abroad are, however, not represented. The Berlin Court of Appeals decision of October 16, 2015 (14 W 89/15) referred the question of if non-representation of workers employed abroad is compatible with the European principle of non-discrimination and free movement of workers within the European community to the European Court of Justice. If this is not the case, German codetermination is inapplicable and in turn only shareholders’ representatives may be appointed to supervisory boards. The referral to the European Court of Justice was made within the scope of a corporate law-related status proceeding involving TUI AG. The company employs approx. 10,000 workers in Germany and approx. 40,000 workers abroad.
In the underlying status proceeding according to Section 98 German Stock Corporation Act, Brandhoff & Partner represents the legal interpretation of the petitioner Konrad Erzberger that the TUI AG supervisory board is not properly appointed. Instead of comprising the supervisory board equally of shareholders and workers’ representatives, the board should solely be comprised of shareholders’ representatives. The codetermination law may not be applied, because it stands in contradiction to EU-law (so-called primacy of European law). According to general practice, only workers employed in Germany possess active and passive voting rights and may participate in the election of workers’ representatives to the supervisory board; workers employed aboard (e.g. at foreign operations or subsidiaries) are excluded from such elections. The Court of Appeals followed Brandhoff & Partner’s argumentation and considers it possible that this practice violates European non-discrimination and free movement of workers laws. The referral to the European Court of Justice will remove uncertainty from this central corporate governance issue. Most recently, this issue has introduced substantial uncertainty to corporate law practices.
While the Regional Court of Frankfurt a.M. recently passed down the decision on the Deutsche Börse AG supervisory board case, it found that foreign workers are to be counted in the computation of the codetermination intensity-related employee headcount. One thing is certain in the Brandhoff & Partner case, expansion of codetermination is not up for debate. Rather the issue is, if German codetermination regulations violate European law and in turn no longer apply, at least until such time as the legislature passes a revision that complies with European law. The Courts of Instance rulings and legal literature are not on the same page in this matter.
This proceeding affects all corporations with supervisory boards that are composed equally of employee and shareholders’ representatives in accordance with the German Codetermination Act. Currently, this would affect 635 corporations. The expectation is, however, that the objections against the implementation of co-determination based on European law will also affect corporations whose supervisory board is comprised of one third employee representatives in accordance with the German One-Third Participation Act. This would affect roughly 1,500 additional corporations. Affected corporations should pay close attention to future developments in this matter and be mindful of the possible legal implications this may have on the composition of supervisory boards.
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If you have any questions please contact:
Attorney Dr. Jochen Brandhoff (Partner) or Dr. Caspar Behme (Of Counsel),
Brandhoff & Partner Rechtsanwälte mbB, Kaiserstraße 53, 60329 Frankfurt a.M.,
+49 69 34 879 20-0, j.brandhoff(at)brandhoff.com und c.behme(at)brandhoff.com.
Brandhoff & Partner is an international commercial law firm located in Frankfurt am Main. The firm’s main practice areas are mergers & acquisitions, corporate law, drafting of agreements, commercial law, banking and capital market law, as well as renewable energy. Our corporate law practice routinely addresses corporate governance and corporate litigation issues. Our clients include top companies from industry and commerce; we also represent banks and investors. In addition to top-tier legal counsel and tax advice, the firm is known for its exceptional business know-how. The firm’s attorneys worked as corporate lawyers, general counsels or managing directors for corporations or banks prior to joining Brandhoff & Partner.