The Regional Court of Berlin has ruled that employees of foreign subsidiaries are not entitled to employee participation rights in German companies. 

While the recent decision of the Regional Court of Berlin (ref. 102 O 65/14) has confirmed the undoubted opinion of many scholars, it clearly contradicts the diametrically opposed decision of the Regional Court of Frankfurt (ref. 3-16 O 1/14) from earlier this year. In the case involving the supervisory board of Deutsche Boerse AG, and much to the surprise of experts on the subject, the Frankfurt court had held that employees of foreign subsidiaries are to be included in German employee representation of supervisory boards.

The more recent Berlin decision relating to the supervisory board of the tourist carrier TUI AG now has stated the exact opposite, i.e. that employees of foreign subsidiaries are not entitled to German employee participation rights. The Berlin court however did not specifically refer to the Frankfurt decision – likely because the judgment was not published yet at the time of the issuing of the judgment.

TUI AG, with a total of approximately 80,000 employees worldwide (10,000 in Germany and 40,000 in other states of the EU), was faced with a claim by one of its shareholders. According to the statement of claims, the shareholder asserted that the German Co-determination Act (Mitbestimmungsgesetz) is invalid, as it does not include employees of foreign subsidiaries. In the claimant's opinion, the TUI supervisory board therefore should consist only of employer representatives, rather than including 50% representatives of employees.

The Berlin court however ruled that there is no legal basis for the inclusion of employees of foreign subsidiaries in German co-determination rules. The election to a supervisory board is a matter of national concern only and does not involve interests of the joint European Market. As the European Market is not concerned, the Berlin court denied the possibility of discrimination pursuant to Art. 18 of the Treaty on the functioning of the EU ("AEUV"). It also stated that the member states have different rules regarding employee participation which are not among those laws that are to be harmonized. It is therefore to be accepted that a different level of employee participation exists in different member states. Accordingly, there is no obligation to include all EU employees outside the territory of a particular member state in employee participation. Foreign employees usually maintain a local employment relationship and are therefore included in local employee participation. Also, the Berlin court ruled that the German codetermination rules do not constitute impediments to the free movement of employees within the member states (Art. 45 AEUV), as the decision to move from one member state to another is not seriously affected by a potential loss of the respective election rights.

In addition, the Berlin court reasoned that the German legislator has no jurisdiction over foreign territory and therefore is not in a position to determine binding election rules for foreign subsidiaries. Even regulations requesting German holding companies to ensure the adherence to election rules abroad would be imperfect, as German courts have no authority to enforce such rules abroad.

The Berlin court however did not mention an additional argument against the claimant's request: Even if the German Co-determination Act would have been found to be invalid, the original members would have stayed in power until the law would have been replaced by an act consistent with European law.

It is to be hoped that the Berlin decision is upheld by higher courts. As mentioned, the decision is a very welcome reply to the questionable decision of the Frankfurt court. Individual employee participation of each member state across the EU has to be regarded from a national point of view. Specifically, the electoral rules for supervisory boards are appropriate only for German companies and may only be enforced in Germany – prohibiting the extension to foreign EU countries. Moreover, the European Works Council Directive already includes provisions relating to cross-border employee representation within the European Union. Whether an EU-wide employee representation is to be established is up to the EU lawmakers – rather than to national courts.