Employee representation on a supervisory board

A resolution of the Regional Court Frankfurt dated 16 February 2015 may have a massive impact on employee representation on supervisory boards of German companies, many of which currently may not comply with the Act on the Co-Determination of the Employees (“MitbestG”) or with the One-Third Participation Act (“DrittelbG”).  For some companies, it may mean they are forced to establish a supervisory board with employee representation for the first time.  The resolution is still subject to appeal and the expectation of many legal practitioners is that it will be overruled by the Appellate Court. But what is the resolution all about?

Pursuant to the German laws on employee representation, some companies, inter alia a public limited company (“Aktiengesellschaft”) or a company with limited liability (“Gesellschaft mit beschränkter Haftung – GmbH”), are obliged to establish a supervisory board with employee representatives.  Under the DrittelbG, one third of the supervisory board must be employee representatives if such companies employ more than 500 employees.  Further, under the MitbestG, 50% of the supervisory board members must be employee representatives if such companies employ more than 2,000 employees.  For group companies, not only do the employees of the parent company need to be taken into account when determining these thresholds but – under certain conditions – employees of subsidiaries must also be considered.

Up to now, legal scholars and commentators have operated on the assumption, based on common sense, that only employees of German subsidiaries must be counted when determining the thresholds for employee representation obligations. Why?  Because, pursuant to the principle of territoriality, no German rules may be imposed on foreign companies and employees working abroad. However, the Regional Court Frankfurt is of a different opinion and held that the employees of subsidiaries abroad must also be counted. The basic reasoning was rather straightforward: the Court simply stated that there was no point of reference in the wording of the Act that stated or made clear that only German employees must be counted.

The impact of the resolution is obvious. In the case decided by the Regional Court of Frankfurt, Deutsche Börse AG established an unlawful supervisory board pursuant to the rules of the One-Third Participation Act. Deutsche Börse AG employed more than 2,000 employees in the world, and therefore it was under an obligation to establish a 50% supervisory board pursuant to the Co-determination Act.

Women quota on supervisory boards

On 6 March 2015, the German Parliament adopted the law on equal participation of men and women in leadership positions in private business and public service – informally known as “Women-Quota-Act.”  Pursuant to this law, 30% of the members on the supervisory board of publicly listed corporations which are subject to the MitbestG – i.e. companies employing more than 2,000 employees – must be female.  From 1 January 2016 onwards, this quota must gradually be achieved by such companies. Some legal scholars doubt that the “women quota act” complies with the constitutional principle of equal treatment between women and men, as it discriminates men. It remains to be seen how this new Act will affect the representation of woman on German supervisory boards.