David vs. Goliath

Delivery Hero court case a litmus test for startup governance

delivery hero, foodora, germany, startup
The daily grind. Source: vecteezy

For Semih Yalcin, a regular work day fluctuates between biking up to 30 miles a day and waiting. The 29-year-old is a delivery cyclist for the food delivery startup Foodora. Rain, shine or snow, he’s shifting gears across Cologne. For €10 ($12.32) an hour, he hands out pizza, burgers and Asian takeaway from a thermal box worn as a backpack.

Mr. Yalcin is a good worker, but a thorn in his employer’s side. Last summer he helped found a local works council of Foodora drivers. They want an allowance for bike maintenance and repairs, employee appraisals and to know the publicly traded company’s business figures. Foodora’s parent company, Delivery Hero, has responded by terminating employee contracts, and refusing to pay hours logged for works council activity.

Delivery Hero, the German equivalent of Grubhub in the US, operates delivery platforms in over 40 countries with over 150,000 worldwide employees. But in a Berlin courtroom, it recently got its comeuppance. The Berlin-based startup, founded in 2011, has been ordered to put employees on its German supervisory board.

In Germany’s two-tier board system, joint-stock corporations with more than 2,000 employees must have equal numbers of shareholders and employees on supervisory boards, which have the power to hire and fire executives and can block strategy changes.

FoodPanda Delivery Operations in Bangkok
No pedaling, but more pollution. Delivery Hero in Bangkok. Source: Getty

Delivery Hero, which listed on the stock market last June, told Handelsblatt it will appeal the decision. “We take employee concerns very seriously and, of course, ensure that they are reflected on the supervisory board sufficiently,” said spokesman Bodo von Braunmühl.

It plans to sidestep Germany’s strict labor laws by converting to a Societas Europaea (SE) corporation under European Union corporate law. It would do so by merging with Delivery Hero’s Dutch firm, slipping from under German co-determination rules and into a single-tier board system like what’s practiced in America. Other German startups such as meal-kit company Hello Fresh and fashion firm Tom Tailor have already switched to SE companies.

In Germany, tech startups have got away with poor working conditions thanks to the nature of the new “gig economy”: uncontracted work based on new technology. At Foodora, employees work under so-called “mini-job” or “midi-job” contracts. Workers cannot make more than €850 a month or work more than 100 hours per month, just shy of the traditional 40-hour work week. No freelancers are allowed.

It’s a scheme intended to free up students and parents, but easily takes advantage of foreigners desperate for work. At protests in Berlin last year, cyclists from Foodora and Deliveroo, a rival British-based delivery platform, complained of inadequate hours and job security. Most demonstrators came from outside Germany.

While Germany’s coal miners, steelmakers and auto factory workers are organized into a position of boardroom clout, startup employees are on their back feet.

A shareholder-lawyer for tour operator TUI nearly dismantled Germany's entire co-determination scheme last year.

The Berlin ruling on Delivery Hero sets an important precedent and could “make it difficult for companies who flee from employee participation,” according to Guide Zeitler of Germany’s Food, Beverages and Catering union. “Employee participation … also applies to startup companies.”

One active lawyer has triggered Delivery Hero’s labor predicaments in court: Konrad Erzberger. As a shareholder of TUI, Europe’s largest tour operator headquartered in Hannover, he nearly dismantled Germany’s entire co-determination scheme last year. A lawyer, Konrad Erzberger had the European Court of Justice (ECJ) review TUI’s supervisory board. He said that it wasn’t fair that only the company’s 10,000 German employees could vote reps onto the supervisory board. What about 40,000 others across Europe?

The ECJ could have thrown open German employee participation laws to reinterpretation. Judges decided to keep the status quo. Mr. Erzberger has filed more than 50 status proceedings for reviews of supervisory boards. The 31-year-old – whose LinkedIn profile includes past work at startup incubator Rocket Internet, which owns about 37 percent of Delivery Hero – could still be successful yet.

Mr. Erzberger refused to comment on the court ruling about Delivery Hero, which the company hasn’t implemented yet. But the decision has bolstered employee Semih Yalcin in his case for labor representation. “They wanted to allow employees onto the supervisory board, but only under tight conditions,” said Mr. Yalcin. “We are now demanding equal representation. We can’t be fobbed off with less.”

Based in Berlin, Lars-Marten Nagel is a member of Handelsblatt’s investigative team. To contact the author: nagel@handelsblattgroup.com

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