Court Ruling

More Powers for Employees

Deutsche Boerse Headquarters in Eschborn near Frankfurt am Main includes logo Source DPA
A ruling at Deutsche Börse could give employees more power country-wide.
  • Why it matters

    Why it matters

    German companies, especially medium-sized firms, may have to give employees a greater say in corporate governance if a German district court ruling is confirmed by higher courts.

  • Facts

    Facts

    • A German court ruled blue chip firm Deutsche Börse needs to consider foreign employees when composing its non-executive supervisory board.
    • Under German law, a supervisory board need to include employee representatives when the company has more than 500 workers.
    • In Germany’s two-tier corporate governance system the supervisory board hires and fires the top executive and sets broad company policy.
  • Audio

    Audio

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Germany’s co-determination law gives workers the right to sit on the company’s non-executive supervisory board, which hires and fires the top executive and sets broad company policy.

At exchange operator Deutsche Börse, a legal fight has erupted about a key question: Do company employees working outside Germany count for purposes of the law?

The ruling, if confirmed by higher courts, could affect especially medium-sized firms, which jointly are one of the largest producers and exporters in Germany.

The co-determination law defines when a German company must establish a supervisory board and when employee representatives need to be included in the non-executive panel.

“Should the higher regional court confirm the decision, it would have considerable implications.”

Eckhard Schmid, Partner at law firm CMS in Munich

In the German two-tier board system, the supervisory board represents shareholders and, with large corporations, employees.

German companies with more than 500 employees must have boards in which a third of the supervisory board members are workers’ representatives. In companies with more than 2,000 employees, half of the supervisory board members must come from the employee pool.

Almost equally clear for lawyers up to now is that the determination of this threshold value was made according to the territoriality principle: Only workers employed in Germany were to be considered. Employees hired abroad didn’t count.

A decision made by the Frankfurt district court questions this. In a case involving Deutsche Börse and its stockholder Volker Rieble, who is a Munich law professor, the court decided that employees working abroad and company subsidiaries abroad must also be taken into consideration for the purposes of the co-determination law.

Deutsche Börse, which owns the Frankfurt Stock Exchange, clearing house Clearstream and other businesses, has 1,624 employees in Germany and 1,747 in other European Union countries. The court said the company was obligated to form a supervisory board with appropriate levels of worker representation.

 

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The opposing parties have both appealed to the higher regional court. For Mr. Rieble, the decision does not go far enough. He said he will not rest “until all companies have hoisted the flags of co-determination.”

Deutsche Börse, on the other hand, aims to restore the status quo and many in the legal profession agreed with the company.

Christian Hoefs, a partner at law firm Hengeler Mueller in Frankfurt who specializes in labor law, said the district court ruled incorrectly: “The circumstances show that the legislator wanted the co-determination law precisely not to apply to employees abroad.”

Germany’s federal labor court had already decided several times that employees working abroad did not have to be considered for co-determination threshold values, Mr. Hoefs said. The district court has ignored both aspects, he said. “There is still hope that the appeals court will correct this.”

Mr. Hoefs estimated a decision would come by the end of the year at the earliest but legal proceedings could go on much longer. “It’s quite conceivable that this will ultimately have to be decided by Germany’s Federal Court of Justice – or even the European Court of Justice,” he said. That could take years.

Companies face great uncertainty. “Should the higher regional court confirm the decision, it would have considerable implications,” said Eckhard Schmid, a partner at law firm CMS in Munich.

However, he said this scenario was unlikely. If it did come about, it would particularly affect mid-sized companies which have a certain number of employees in their subsidiaries abroad. “They then face the danger of having to establish a supervisory board, or having to re-assemble existing committees anew – possibly with more powerful employee representation.”

Despite this risk, Mr. Schmid did not see an urgent need for action by companies that might be affected. He said that companies need not fear that the court’s decision would mean supervisory board decisions would have to be reversed.

The court case had already brought benefits, Mr. Schmid said. “It gives companies another good reason to look closely at their company structure for ways to improve co-determination – and there are many ways they can do that.”

 

Catrin Gesellensetter covers the insurance industry and social security for Handelsblatt. A trained lawyer, she lives and works in Munich. Gilbert Kreijger, an editor with Handelsblatt Global Edition in Berlin, also contributed to this article. To contact the author: gesellensetter@handelsblatt.com

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