In companies where the number of employees exceeds particular thresholds, a certain number of employees have to be represented in the supervisory board pursuant to the German laws on employee participation (co-determination). Up to now, it was regarded as secure that employees working abroad do not have to be considered in the calculation of the number of employees which is relevant in this regard. This practice is now under scrutiny.

It is mandatory under the law that one third of the supervisory board of companies with more than 500 employees is to be filled with employee representatives. If the threshold of 2,000 employees is exceeded, even half of the supervisory board has to consist of employee representatives. According to the previously prevailing view in the case law and in the legal literature, employees working abroad did not have to be considered for these thresholds. This common practice has now been discarded by the regional court Frankfurt am Main in a current decision. Accordingly, employees working abroad are supposed to be included in the calculation of the co-determination thresholds.

Facts of the case

One party to the proceedings before the district court Frankfurt is the host company of the Frankfurt stock exchange and controlling organization of the Deutsche Börse Group. It had 3,811 employees in total effective on 31 December 2013, of that 1,624 in Germany and 1,747 in the rest of Europe. As it is legally mandatory for companies with more than 500, but less than 2,000 employees, the company’s supervisory board with a total headcount of 18 has six members of staff. The proceeding was initiated by a labor law professor from Munich. He acquired more than 100 registered shares of the opponent. Subsequently, he initiated so-called status proceedings under the German Stock Corporation Act. With that, a shareholder can have the correct structure of the supervisory board examined by a court.

The decision of the district court Frankfurt

The court ruled that the supervisory board was incorrectly staffed. The employees of the foreign group companies would have to be included in the threshold values relevant for employee participation (co-determination). Consequently, the company in question had a lot more than 2,000 employees in total. Since only 1,624 people were employed in Germany, the consideration of the foreign employees had the result that the thresholds which are relevant for the participation limit of 2,000 were exceeded. With that, the court discarded the view which previously prevailed and according to which the “territoriality principle” would prohibit that German legal norms extend to the territory of other countries. The court argued that such a restriction could not be inferred from the wording of the law. In any event, in the case of branch offices located in the EU, the previous practice would also violate the discrimination prohibition under European Community law and could lead to unfair competition.

Information for the practice

The decision of the regional court Frankfurt is not yet legally binding. Therefore, it has to be awaited how the appellate court will decide.

However, should the view of the regional court Frankfurt prevail, small and medium-sized companies that employ a larger number of staff abroad will be particularly affected. They could for the first time become obliged to co-determination, i.e. forced to fill one third of the supervisory board with employees. Companies that currently only have to fill one third of their supervisory board with employee representatives could now fall within equal co-determination, by exceeding the threshold of 2,000 employees. The supervisory board would then consist of an equal number of employees and shareholders. It remains unclear whether it is now also necessary that elections for the employee representatives in the supervisory board take place in foreign subsidiaries and how this can be implemented in practice.

The current legal development should be observed in particular by companies planning to expand abroad.

(Regional court Frankfurt, decision of 16 February 2015, 3 /16 O 1/14, not legally binding, complaint lodged)

Caroline Fündling, Attorney (Frankfurt)