On 18 July 2017, the ECJ ruled that restricting the right to vote and run for a supervisory board workers' representative position to workers employed in establishments in Germany did not violate EU law. The ECJ ruling came in the case of Erzberger v. TUI AG (C-566/15), which the Berlin Higher Regional Court referred to the ECJ back in 2015.
The claimant, Mr Erzberger, a shareholder of TUI AG, asserted that the German provisions on worker codetermination, which limit the right to vote and run for workers' representatives positions on supervisory boards to workers employed in establishments in Germany, violate the prohibition of discrimination on grounds of nationality under EU law (Article 18 of the TFEU) and of the free movement of workers guaranteed under EU law (Article 45 of the TFEU).
Although the German codetermination laws were generally considered to be justified by the so-called “principle of territoriality”, which precludes German corporate codetermination from extend to the territory of other states, the Berlin Higher Regional Court considered that a violation of EU law was conceivable and thus referred this question to the ECJ.
The ECJ decision:
When reviewing whether the German codetermination laws impede the free movement of workers, the ECJ assessed two groups of workers: (i) workers who have never worked in Germany; and (ii) workers who have previously worked in Germany, but now work in another Member State.
According to the ECJ, workers who have never worked in Germany don’t present a cross-border element and as a result, fundamental freedoms under EU law do not apply. 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.
Although a cross-border element exists with regard to the workers who have first worked in Germany and then assumed a position in another Member State, the ECJ determined that the codetermination laws do not amount to an impediment to the free movement of workers. The guarantee of free movement of workers does not give workers the right to rely, in the host Member State, on the conditions of employment that they would have enjoyed in the Member State of origin. Germany is therefore not prevented from limiting the right to vote and stand as a candidate for advisory board positions to the workers employed in establishments in Germany.
The decision's practical implications:
Overall, this decision is welcomed as a logical outcome; it is hard to imagine that "dropping out" of codetermination would prevent employees from transferring from a position in Germany to a position in another Member State.
One thing remains unclear however - whether the ECJ decision permits companies to count only those employees located in Germany when determining the applicable codetermination law. For example, parity codetermination only applies if the company regularly employees over 2,000 workers (§ 1 (1) No. 2 of the German Codetermination Act). Whereas, in companies with 500 regular employees, one third of the supervisory board members must be workers' representatives (§ 1 (1) of the German One-Third Participation Act).
In fact, the Higher Regional Court of Frankfurt/Main suspended proceedings concerning Deutsche Börse AG dealing with this very issue – with the hope that the ECJ ruling would offer guidance. The Higher Regional Court of Frankfurt/Main will now likely rule that, in general, only those workers employed in Germany must be considered when determining the relevant thresholds under codetermination laws.
Notwithstanding this good news, companies with employees in Germany that come within a hair of the numbers of workers relevant under codetermination laws should consider whether the applicability of codetermination could be avoided by internal reorganisation within the group.