Germany: Contradicting judgments on territorial scope of corporate codetermination

On 1 June 2015 the Berlin Regional Court ("LG Berlin") issued a much considered judgment (102 O 65 / 14 AktG), holding that German regulations on corporate codetermination cannot be extended to employees of companies belonging to the group but located in other countries. Thereby the judgment shows a different interpretation of the territorial scope of the German Codetermination Act than a controversial Frankfurt a. M. Regional Court (“LG Frankfurt”) decision from earlier this year. LG Frankfurt ruled that employees working abroad had to be taken into account when calculating the relevant number of employees for corporate codetermination purposes.

The LG Berlin explained in detail that its interpretation is compatible with European Union law and both the principle of non-discrimination and the freedom of movement of workers. The court highlighted that any extension of German codetermination to cover subsidiaries in EU countries would raise serious concerns; most notably, that the international territorial principle prevents the German legislature from interfering in the legislative authority of other EU states. Due to this restriction the German legislature lacks legal authority to set binding rules regarding the right of employees abroad to vote.

The LG Berlin confirmed the prevailing view concerning the territorial principle and, although the matter has not yet been decided by the Federal Supreme Court, provides some assurance that the LG Frankfurt decision is not likely to be widely adopted.

Background

The LG Berlin judgment comes after the controversial decision of LG Frankfurt issued on 16 February 2015 (3 – 16 O 1 / 14) which caused legal uncertainty for companies with large numbers of employees and cross-border group structures. Contrary to the prevailing opinion, LG Frankfurt ruled that employees working abroad, including in particular those working for foreign group companies, must be included in the calculation of the relevant number of employees for corporate codetermination purposes.

Under German law, corporate codetermination depends on – among other things – the number of regularly employed workers. If the company – for example, an AG (stock corporation) or a GmbH (limited liability company) – regularly has between more than 500 and 2,000 employees, it falls under the German One-Third Participation Act. Therefore, in principle, it must have a supervisory board with one-third of its members being employee representatives. If the company regularly has more than 2,000 employees – including the employees of its subsidiaries – half of the members of the supervisory board must in principle be employee representatives, according to the German Codetermination Act. According to previous practice and prevailing opinion, employees of foreign subsidiaries are not included in these calculations. The LG Frankfurt decision deviated from this established view.

We will continue to keep you updated on developments and the outcome of the appeal against the judgment given by LG Frankfurt. Until then, there is no need to take any immediate action as neither the LG Berlin judgment nor the LG Frankfurt judgment have been confirmed by higher courts.

If you would like more information, please contact:
Andreas Josupeit, CMS Hasche Sigle, Düsseldorf
Dr. Christoph von Eiff, EMBA, CMS Hasche Sigle, Düsseldorf