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German Employee Boardroom Participation under European Scrutiny

On 4 May 2017, the Advocate General delivered his Opinion in the case of TUI/Erzberger (docket number: C-566/15) in front of the ECJ and found that the German provisions on employee participation do not violate European law. He has now been confirmed by the ECJ on 18 July 2017.

The Higher Regional Court Berlin (Kammergericht Berlin) referred the following question to the ECJ: Do, the German provisions on employee participation conform with European Law? In particular, the Court asked whether it is compatible with Article 18 TFEU relating to the principle of non‑discrimination on grounds of nationality and Article 45 TFEU relating to freedom of movement for workers for a Member State to grant the right to vote,  and stand as a candidate,  for the employees’ representatives in the supervisory body of a company only to those workers who are employed in establishments of the company or in companies of the group within the national territory?

Mr Erzberger, a minority shareholder of TUI AG had brought the case before the Berlin court challenging the composition of the company’s Supervisory Board. German law gives employees of a German corporation and of its subsidiaries the right of co-determination through elected employee representatives on the corporation’s supervisory board. There  are detailed rules for the election which is organized by the employee representative bodies at works level. Employees working in branches or subsidiaries in other EU Member States are excluded from the election.

The ECJ has now followed the Advocate General’s lead. It has taken the view that the German provisions on corporate participation do not violate European law. Articles 18 and 45 TFEU must be interpreted as meaning that they do not preclude legislation, such as that at issue, which provides that only employees employed in the establishments of a company or in the companies of the group situated on national territory have a right to vote for, and to stand for election as employee representatives on the supervisory board of that company.

The right to vote and to stand for elections for the employees’ representatives in a supervisory body of a company is one of the ‘other conditions of work and employment’ according to Article 45 (2) TFEU.

However, in the case of TUI Group employees employed by subsidiaries established in other Member States, the necessary cross-border connection is missing. Yet, Article 45 TFEU is applicable to workers employed in Germany. Article 45 TFEU is not concerned with any disparities in treatment of employees which may result from divergences existing between the laws of the various Member States, so long as the latter affect all persons subject to them in accordance with objective criteria and without regard to their nationality. This is also not altered by the cross-border nature of the group of companies. The employment situation of the employee is still mainly determined by the legislation of the Member State in which the  employee’s activities are carried out. The court held that EU law does not, in the field of representation and collective defence of the interests of workers in the management or supervisory bodies of a company established under national law, a field which, to date, has not been harmonised or even coordinated at Union level, prevent a Member State from providing that the legislation it has adopted be applicable only to workers employed by establishments located in its national territory. EU law cannot guarantee to a worker that moving to a Member State other than his Member State of origin will be neutral in terms of social security, since, given the disparities between the Member States’ social security schemes and legislation, such a move may be more or less advantageous for the person concerned in that regard.

The Court generally follows the opinion of the Advocate General. This has been confirmed once more. At the hearing on 24 January 2017, the EU Commission had also already stepped back from its previous contrary opinion and took the position that the German provisions do not violate EU law. Therefore, it was unlikely that the feared changes in the field of German employee participation would actually occur. Anything else would also have been extremely difficult in the current political environment of the Member States.

The case was tried by the Grand Chamber, emphasising that its significance has not gone unnoticed by the court. The ruling was widely welcomed by employers and unions alike as a clear confirmation of the existing German rules on employee boardroom participation. A ruling in favour of Erzberger could have had considerable implications for other Member States’ systems of board-level employee representation. There are no EU rules providing for universal and automatic inclusion of employees outside the domestic territory.

The Regional Court Frankfurt recently had to decide a similar case that did not, however, concern the right to vote, and stand as a candidate, for the employees’ representatives in the supervisory body of a company. It held that employees of foreign subsidiaries were to be taken into account when looking at the thresholds regarding the number of employees that trigger application of employee boardroom participation rules (Drittelbeteiligungsgesetz; Mitbestimmungsgesetz). Upon appeal the Higher Regional Court Frankfurt (decision of 17 June, 2016, docket number 21 W 91/15) stayed the proceedings until a final decision in the present TUI/Erzberger case. It will be interesting to see the outcome of this case as well, as many believe it will end up with the German Federal Court of Justice or potentially again with the ECJ.