Introduction

Since the Berlin Higher Regional Court referred the question to the European Court of Justice (ECJ) in October 2015 of whether it is compatible with EU law that only workers employed in Germany are eligible to participate in the election of workers' representatives on the supervisory board, Germany's legal sector has been eagerly looking to Luxembourg and awaiting an answer from the ECJ.

The answer is now available and is likely to allow the legal sector to breathe a sigh of relief. On July 18 2017 the ECJ ruled that restricting the right to vote and the right to stand as a candidate for workers' representatives on the supervisory board to workers employed in establishments in Germany does not violate EU law (Erzberger v TUI AG,C-566/15).

Decision

Facts The claimant, Mr Erzberger, is a shareholder of TUI AG. In the main proceedings he asserted that TUI AG's supervisory board was not properly constituted. Erzberger considered the fact that the German provisions on worker codetermination limit the right to vote and stand as a candidate for workers' representatives on the supervisory board to workers employed in establishments in Germany to be a violation of the prohibition of discrimination on grounds of nationality under EU law (Article 18 of the Treaty on the Functioning of the European Union (TFEU)) and of the free movement of workers guaranteed under EU law (Article 45 of the TFEU).

It is true that case law and prevailing opinion in legal commentary have thus far assumed that workers employed outside Germany do not participate in the election of workers' representatives on the supervisory board. This limitation was justified by the principle of territoriality, according to which German corporate codetermination cannot extend to the territory of other states.

Whereas the Berlin Regional Court had denied a violation of EU law standards in the first instance, the Higher Regional Court considered such a violation conceivable and thus referred this question to the ECJ.

Content of judgment Giving only a brief explanation of the grounds for its decision, the ECJ denied that it violates EU law.

A violation of the general prohibition of discrimination on grounds of nationality does not exist for the sole reason that in such employment law scenarios only the more special and thus overriding guarantee of free movement of workers is relevant.

When reviewing any possible impediment to the free movement of workers by German codetermination laws, the ECJ forms two groups of workers and denies an impediment of the free movement of workers in each case.

Regarding workers who have never worked in Germany, but always in another EU state and thus have never exercised their freedom to move within the European Union and who do not intend to do so, there is no cross-border element from the outset. However, in order for fundamental freedoms under EU law to apply, a cross-border element is always necessary. National situations are generally not covered by the fundamental freedoms under EU law, so an infringement of the free movement of workers is ruled out with regard to these workers.

It is true that a cross-border element exists with regard to workers who have first worked in Germany and then assumed a position in another EU state (transfer to another EU state). However, an impediment to the free movement of workers does not exist. EU law cannot guarantee that a worker moving to another member state will be neutral in terms of social security. Therefore, the guarantee of free movement of workers does not give workers, in the host member state, the right to rely on the conditions of employment that they would have enjoyed in the member state of origin under the national legislation of the latter state. Germany is therefore not prevented from limiting the scope of application of the codetermination laws with regard to the right to vote and stand as a candidate for the workers employed in establishments in Germany.

Practical implications

The ECJ's decision is to be welcomed. It would be difficult to understand why the free movement of workers should be impeded only because workers employed in EU states other than Germany may not participate in the elections of members to the supervisory board in Germany. It is hard to imagine that dropping out of codetermination can prevent employees from transferring from a position in Germany to a position in another EU state.

No EU-wide new elections of supervisory board members required By way of its decision, the ECJ made an important clarification. Workers employed in EU states other than Germany (irrespective of their nationality) do not participate in elections of workers' representatives on the supervisory board. Companies employing workers in EU states other than Germany are thus not obliged to conduct EU-wide (new) elections of workers' representatives on their supervisory board. The constitution of the supervisory board will remain unchanged until the next regular election. Only the workers employed in establishments in Germany must be involved – as before – in the next regular election of workers' representatives.

Transferability to thresholds under codetermination law possibly required However, it has not yet been clarified whether the decision can be transferred to the thresholds under codetermination law. In this respect, the question arises of whether workers employed outside Germany must be counted when determining the correct codetermination statute. For example, in Germany parity codetermination is not applicable until 2,000 workers are regularly employed (Section 1(1)(2) of the Codetermination Act). With 500 regular employees, one-third of the supervisory board members must be workers' representatives (Section 1(1) of the One-Third Participation Act).

The Frankfurt am Main Higher Regional Court suspended proceedings concerning Deutsche Börse AG dealing with the application of the correct codetermination statute until the ECJ decision (June 17 2016, 21 W 91/15). In view of the ECJ judgment, it is expected that the Frankfurt am Main Higher Regional Court will repeal the decision to the contrary that was rendered in the previous instance and rule that, in general, workers employed in Germany must be taken as a basis when calculating whether the relevant thresholds under codetermination law are reached. Even if there will be no final certainty until after the court decision, it is not to be feared that companies that currently employ just under 2,000 regular employees in Germany will be subject to parity codetermination all of a sudden, because the workers employed in other EU states must also be taken into account. Notwithstanding this good news, it may be reasonable for companies that come within a whisker of the numbers of workers relevant under codetermination law in Germany to consider whether the applicability of (parity) codetermination could be avoided by internal reorganisation within the group.

For further information on this topic please contact Michael Rein at CMS Hasche Sigle by telephone (+49 711 9764 248) or email (michael.rein@cms-hs.com). The CMS Hasche Sigle website can be accessed at cms.law.

This article was first published by the International Law Office, a premium online legal update service for major companies and law firms worldwide. Register for a free subscription.