Ruling of First Impression: Employees Working Abroad Do Matter for Thresholds of Corporate Co-determination in Germany

Posted In Employment, Labor

In a February 16, 2015, decision from the Regional Court of Frankfurt a. M. (ref.: 3-16 O 1/14), the court determined that employees working outside of Germany have to be taken into account when determining whether or not the statutory thresholds that trigger corporate co-determination in Germany are met.

In this case, a new shareholder of Deutsche Börse AG initiated a proceeding against Deutsche Börse AG, arguing that its supervisory board was not staffed correctly due to its failure to count employees located outside of Germany when applying German statutory requirements regarding co-determination.

There are two main statutes in Germany based on which employees’ co-determination in a supervisory board can become mandatory. One statute states that, in companies with more than 500 employees, one-third of the supervisory board members shall be employees.  Another statute states that, in companies with more than 2,000 employees, the supervisory board needs to be staffed with half of its representatives from the employees’ side.

The court found that neither statute contained any indication that only employees working within Germany count when determining if the above mentioned thresholds are met. Thus, according to Frankfurt’s Regional Court, employees working outside Germany have to be counted when determining the 500-employee or the 2,000-employee thresholds. In the specific case, when considering employees working in Germany and working outside of Germany, Deutsche Börse AG would have had to staff its supervisory board with half of its representative from the employees’ side.

The decision contradicted prevailing opinion regarding the employees counted when determining the statutory thresholds.  Most companies assumed that requirements under German labor laws would not be extended to workers located outside of Germany. For this reason, employees not working in Germany have not historically been counted for the purpose of co-determination statutes.

The decision is not legally binding yet. Certainly, the defendants are going to appeal until the German Federal Supreme Court renders its final judgement. The decision is of particular relevance for many mid-sized companies because taking into consideration employees working abroad may, in many cases, result in exceeding the applicable thresholds, and thus in being obliged to establish a co-determined supervisory board.  In addition, the occurrence of a cross-border transaction could result in an employee headcount that exceeds the co-determination statutory thresholds.

McDermott will continue to monitor the law in this area.

Bettina Holzberger
  Bettina Holzberger focuses her practice on labor and employment law. Her practice covers cross-border transaction work as well as traditional labor and employment matters. In the area of labor and employment law, she advises clients, inter alia, on the drafting of a broad range of contracts (including traditional employment contracts as well as bonus plans, service agreements for directors and officers, and termination and assignment agreements for employees as well as executives), often in an international context that requires coordinating the advice of foreign counsel.  Read Bettina Holzberger's full bio.

Dr. Sandra Urban-Crell
Dr. Sandra Urban-Crell has vast experience across the spectrum of labor and employment law, having handled everything from day-to-day practical advice tailored to her national and international clients’ operational and commercial needs, to complex multi-jurisdictional transactions from strategic planning through post-merger integration. She regularly advises on co-determination matters on the company and board levels, and on outsourcing and restructurings, including negotiations with employee representatives. Sandra is an experienced litigator and has particular knowledge of international assignments, service agreements for board members, managing directors and executive employees (including separation processes), and bonus and benefit plans. Read Dr. Sandra Urban-Crell's full bio.




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