Country overview
Employee representatives have half the seats on the boards of larger Germany companies and one-third of the seats in medium-sized companies. Both unions and employers were consulted on the legislation implementing the directive and the employers used the discussion on implementation to start a wide-ranging attack on the national system of board-level representation.
Employee representation at board level is a central part of the German system of industrial relations. Employee representatives have a right to seats on the supervisory board of larger companies – one-third in companies with 500 to 2,000 employees, half in companies with more than 2,000. This made the issue of employee representation in European companies a key concern. In the years of debate before the directive was passed, the German government was concerned to ensure that German companies could not use the opportunity to become European companies to escape from their obligations to give supervisory board seats to employee representatives.
Unions and employers were consulted on the implementation of the directive and the employers used the opportunity to launch an attack on the existing system, arguing in a document published in November 2004 that it required substantial “modernisation”. This led in turn to a government commission, made up of representatives of the unions and the employers and independent experts, being appointed to discuss employee board-level representation in Germany. It completed its work at the end of 2006 but was unable to present a common report because of fundamental disagreements between the unions and employers. However, the independent members of the commission produced their own report, which stated that they saw no reason to propose a fundamental revision of the German system of board-level representation but called for a number of changes. As the coalition government which by that time was in place, had agreed that it would only implement the recommendations of the commission if they were unanimous, no subsequent changes were introduced.
It remains the case, however, that Germany is one of the few, if the not the only country, where the implementation of the directive led to a wide public debate.
Directive was implemented through legislation passed in December 2004, slightly more than two months after the October 2004 deadline.
The legislation implementing the directive on employee involvement in European companies was passed on 22 December 2004 and published in the Federal Law Gazette on 28 December. The legislation, Law on the introduction of the European company (Gesetz zur Einführung der Europäischen Gesellschaft (SEEG)) includes both legislation to adapt German company law to the requirements of the Regulation on European companies and the legislation necessary to implement the directive itself. (The paragraphs transposing the directive are in Article 2 of the law).
Special negotiating body (SNB)
German SNB members are initially chosen by a meeting of works council representatives. Only if there are no works councils are the SNB members directly elected by the employees. The proportion of men and women elected should reflect the gender make-up of the workforce and unions are guaranteed a third of the SNB members from Germany if there are more than three.
German SNB members are chosen by an election body (Wahlgremium) with a maximum of 40 members in a secret ballot. Where only one group of companies is involved, the election body is composed of the members of the group works council (Konzernbetriebsrat), or, if this does not exist, the members of the company works councils (Gesamtbetriebsräte), or where these do not exist the members of the works councils (Betriebsräte). Where there are workplaces and companies without a works council these are represented by the bodies that do exist.
Where there is only one company or one workplace involved, similar rules apply with the company works council or the works council respectively taking the position of the group works council.
Where there are several groups of companies or a mixture of groups of companies and independent companies or workplaces, the election body consists of the members of the group, company and works councils. If some of these companies have no employee representatives, the members of the election body representing them are elected directly by the employees.
If there are no employee representative bodies at all the members of the SNB are chosen by the employees in a secret ballot (Article 2 §8).
The number of German male and female members elected to the SNB should be in proportion to the number of male and female employees in the companies involved in Germany and where at least three members SNB members come from Germany, every third member should be a union representative, nominated by a union with members in one or more of the companies involved. (If there are seven or more SNB members from Germany, every seventh should be a managerial employee.) (Article 2 §6) Where only one union nominates, there should be at least twice as many nominated candidates as seats (Article 2 §8).
External union representatives from Germany can be members of the SNB and must be if there are three or more German SNB members.
The German legislation states specifically that both employees and trade union representatives can be elected as SNB members from Germany. If at least three SNB members come from Germany, every third member must be a union representative, nominated by a union with members in one or more of the companies involved. (If there are seven or more SNB members from Germany, every seventh should be a managerial employee.) (Article 2 §6) Where only one union nominates, there should be at least twice as many nominated candidates as seats (Article 2 §8).
Funding not limited to a single expert.
The German legislation does not limit funding to a single expert. It states that the SNB may “draw on the assistance of experts of its choice” (Article 2 §14) and goes on to state that the companies are liable “for the expenses incurred with the establishment and activities of the special negotiating body” (Article 2 §19). There is no restriction on the number of experts who can be funded.
Standard rules under the fallback procedure
Same arrangements apply as for SNB members – German SNB members are initially chosen by a meeting of works council representatives, with direct elections only if there are no works councils. Unions are guaranteed a third of the German seats on the representative body if there are more than three.
The same arrangements which apply for the choice of German members of the SNB also apply for the choice of German members of the SE representative body – known as the SE works council (SE-Betriebsrat) in the German legislation. In other words, they are chosen by a meeting of works council representatives, with direct elections by the employees only if no works councils are present. The same rules on gender balance and external union representation also apply. The number of male and female SE works council members from Germany, should be in proportion to the number of male and female SE employees in Germany, and at least one third of the German seats must go to the unions if there are more than three SE works council members from Germany (see section on SNB) (Article 2 §23).
The company should bear the expenses of the representative body, including the costs of experts.
The company is obliged to cover the costs of the representative body. These include “the assistance of experts of their choice where this is necessary to enable them to properly carry out their tasks” (Article 2 §32 and §33).
Same arrangements apply as for SNB members – German board-level employee representative members are initially chosen by a meeting of works council representatives, with direct elections only if there are no works councils. Unions are guaranteed a third of the German seats on the board if there are more than three.
The same arrangements which apply for the choice of German members of the SNB also apply for the choice of German employee representatives at board level. In other words, they are chosen by a meeting of works council representatives, with direct elections by the employees only if no works councils are present. The same rules on gender balance and external union representation also apply. The number of male and female employee board members from Germany, should be in proportion to the number of male and female SE employees in Germany, and at least one third of the German seats must go to the unions if there are more than three SE works council members from Germany (see section on SNB) (Article 2 §23).
Misuse of procedures and structural change
Changes in the structure of a European company in the first year, which result in employees being deprived of or failing to gain board-level involvement, are regarded as a misuse of procedure, unless such changes lead to a renegotiation of the agreement.
The legislation states that a European company may not be misused to deprive employees of participation rights or to withhold these rights from them. It states that changes in the company structure which are likely to result in employees losing or not gaining these rights in the first year of a European company’s existence are to be taken as a misuse of procedures unless they lead to a renegotiation of the agreement (Article 2 §43).
The agreement must be renegotiated if, after the SE has been established, structural changes are planned which are likely to lead to a reduction in employees’ board-level involvement.
The German legislation includes a clear requirement for the agreement to be renegotiated, if structural changes “are planned, which are likely to lead to a reduction of the employees’ participation rights”. Either the management or the SE works council can initiate these negotiations, and if both sides agree these negotiations can include representatives of employees who are planned to be brought into the SE.
Both unions and employers were consulted on the legislation implementing the directive. While the unions were positive about the proposals, the employers were critical, accusing the government of going beyond the requirement of the directive.
Initial drafts of the legislation were sent to both the unions and the employers. However, while the unions were very positive, issuing a statement in May 2004 which stated that the draft deserved “both praise and recognition”, the employers were much more critical.
In a joint statement, also in May 2004, all the main employers’ associations expressed their concern that German companies would face “renewed disadvantages” because the German government had reproduced the existing national system of board-level representation in the legislation implementing the directive. They were particularly critical of the requirement for union representatives to be members of the SNB, the SE representative body and the board, which they said gave unions “over-proportional influence” and was not required by the directive.
These points were not, however, taken up in the final text of the legislation and the employers moved on to a broader attack on the German system of board-level representation (see introduction).
SEEurope update
With the votes of the ruling SPD / Greens coalition, the German Bundestag has rejected on 17-12-2004 the objection raised by the (opposition dominated) second chamber (Bundesrat). The transposition law has come into force on 29 December 2004.
SEEurope report
Torsten Müller (Fachhochschule Fulda)
(October 2004): The German government failed to meet the 8 October deadline for transposition of the SE statute and directive into national law. However, on 29 October the Lower House (Bundestag) passed the draft legislation on introduction of the European Company (Societas Europeae or SE) after its second and third readings. The draft legislation is now to be debated by the Upper House (Bundesrat) at its 26 November session. Although the legislation on the introduction of the SE does not require Upper House approval to come into effect, there is still a possibility that the Opposition will request that the matter be considered by the mediation committee, so delaying the legislative process. In that case, the earliest possible date on which the Upper House could finally adopt the draft legislation would be 17 December 2004. Thus, the legislation is unlikely to come into force before 1 January or 1 February 2005.
(May 2004):
In April 2004 the German legislator issued draft legislation on the introduction of a European Company (SE) which consists of two main parts: first, the law on the implementation of Council Regulation No. 2157/2001 on the European Company Statute which contains provisions on the company-law aspects of the establishment, structure and operation of an SE under German law; and second, the law on the transposition of Council Directive 2001/86/EC supplementing the European Company Statute with regard to employee involvement.
Since the main aspects of the SE Regulation’s introduction have already been dealt with in a previous country report, this update on the situation in Germany will focus on the rules for employee involvement in the SE as laid out in the draft legislation.
Concerning the introduction of the SE Regulation into national law the most notable feature of the draft legislation is the fact that it enables SEs to choose between a monistic corporate governance structure with a single administrative organ – the so-called ‘administrative board’ – and a dualistic structure involving a supervisory organ and a management organ. The option of a monistic corporate governance structure is a novelty in Germany because the German law on joint stock companies provides exclusively for a dualistic structure.
Therefore, the German legislator saw the need to make use of the authorisation provided by Article 43, Paragraph 4 of the SE Regulation in order to define a detailed catalogue of rules concerning the rights and duties of an administrative board and the managing directors appointed by the administrative board.
With respect to the rules on employee involvement in the SE, the crucial feature of the draft legislation is that the German legislator applied the ‘before and after principle’ as laid out in the SE Directive: this means that employee participation rights already applying to participating companies are retained within the SE. Therefore, the draft legislation follows the SE Directive by specifying that a special majority of the members of the Special Negotiating Body (SNB) – two thirds of SNB members representing at least two thirds of the total workforce, and including the votes of members representing employees in at least two member states – is required to approve an agreement which would lead to the reduction of employee participation rights. This applies in the case of SEs established by merger, if board-level participation rights already cover at least 25% of the total workforce of the participating companies. In the case of SEs established by creating a holding company or a subsidiary, a special majority vote is required if co-determination rights already apply to at least 50% of the combined workforce of the participating companies. In the case of SEs established through transformation, a reduction of employee participation rights is not possible.
Concerning the composition of the SNB, the draft legislation follows the proportional principle set out in the SE Directive; that is, the seats on the SNB must be allocated in proportion to the number of employees employed in each member state by the participating companies. However, the draft legislation explicitly stipulates that men and women should be represented on the SNB in proportion to their numbers in the workforce. It also explicitly allows SNB membership for trade union representatives. According to the draft legislation, German SNB members are to be elected by the highest-level body of employee representation (that is, group works council, central works council or works council). Since the SNB is only a temporary body, the only provisions of the draft regulation which deal with its internal structure state that the SNB must elect a chair and a deputy chair from among its members. In accordance with the SE Directive, the SNB has the right to request experts of its choice, including representatives from Community-level trade union organisations. Any expenses relating to SNB functioning, and the negotiations in general, shall be borne by the participating companies.
The fall-back provisions governing the establishment, as well as the rights and duties of, the so-called ‘SE Works Council’ which has to be established if management and SNB fail to reach an agreement (or if they so decide) essentially echo the legal provisions on EWCs. However, the draft legislation on SE introduction contains important improvements, such as a more precise definition of information and consultation rights, the right to training for SE Works Council members and no explicit restrictions on the number of external experts to be financed by the company.
Assessment of the two sides of industry
In its statement, the DGB welcomes the draft legislation as a good opportunity to retain the German system of co-determination in the event of SE establishment and in that way to make a substantial contribution to promoting the EU’s social dimension. The detailed suggestions put forward by the DGB to improve transposition of the SE Directive concern the following: clearer definition of when the company should provide information to the employee side in the event of SE establishment; making mandatory the provision that men and women should be represented on the SNB in proportion to their numbers in the workforce; ensuring trade union participation in the negotiations between management and SE Works Council on information, consultation and co-determination if negotiations have to be resumed due to structural changes in the SE; expanding the select committee of the SE Works Council in order to ensure appropriate representation of the various European member states; and two joint meetings a year between management and SE Works Council (instead of the one stipulated by the draft legislation).
In contrast to the positive assessment of the DGB, the German employers’ organisations are rather critical in their joint statement. While they appreciate the opportunities offered by the SE with regard to cross-border cooperation and restructuring for companies operating on a European scale, they criticise the ‘de facto 1:1 transfer of the existing system of co-determination to the SE’. The employers’ federations emphasise that, due to the strong co-determination rights envisaged in the draft legislation on introduction of the SE, foreign companies will hesitate to invest in Germany. Furthermore, the employers argue that the strong co-determination rights retained in the SE under German law will practically exclude German companies from partnership in the establishment of SEs. They criticise in particular the fact that the German legislator made no distinction between the monistic and dualistic corporate governance structures in respect of employee involvement. According to the joint statement, some foreign investors may even consider this as ‘expropriation’ because the German legislator intends to extend employee involvement beyond the supervisory organ to the management organ in a monistic SE. A recurring theme is the employers’ criticism that the German legislator went beyond the provisions of the SE Directive: for example, in strengthening the definition of consultation or in specifying that trade unions have the right to up to one third of the seats in the German SNB delegation. In sum, the German employers’ federations call the draft legislation on SE introduction ‘a failure’.
SEEurope report
Torsten Müller (Fachhochschule Fulda)
In view of the deadline (8 October 2004) set by the European legislator for transposition of the SE Statute and SE Directive into national law, the German government planned to complete a comprehensive draft regulation by September 2003, covering implementation of both the SE Statute and the SE Directive, and to bring this draft text before parliament. However, in September 2003 only a draft discussion paper by the Ministry of Justice – which is responsible for transposition of the SE Statute – was ready, covering the national supplementary provisions necessary for introduction of the SE.
This draft discussion paper refers only to company-law issues governing the establishment and structure of an SE, and says nothing about the intended regulation of employee involvement. This latter aspect comes under the jurisdiction of the Ministry of Trade, Industry and Labour, which also planned to issue a discussion paper outlining its ideas on transposition of the SE Directive into national law and to submit this discussion paper to representatives of both social partners for comment. However, this discussion paper from the Ministry of Trade, Industry and Labour never materialised. Due to time pressure, representatives of the two ministries involved in the transposition of the SE Statute and SE Directive are currently discussing the formulation of a government bill covering both the company-law aspects and the provisions for employee involvement in the SE.
Since the German law on joint stock companies is entirely based on the premise of a dualistic corporate governance structure the most problematic area with regard to the transposition of the SE Statute as envisaged in the Ministry of Justice’s draft discussion paper is the formulation of national supplementary rules allowing for a monistic structure like that of the SE. The German legislator faces two crucial problems here:
1. How will it be possible to integrate elements of codetermination into the monistic system of corporate governance?
2. How can the monistic system be adapted to the German law on joint stock companies which presupposes a dualistic corporate governance structure?
The two sides of industry in principle welcome the adoption of both the SE Statute and the SE Directive. While the company-law aspects of SE introduction are fairly unproblematic for the employers’ organisations, they express strong reservations concerning the intention of the German legislator to use the (comparatively high) German standards of codetermination as reference point for the national regulations governing employee involvement in the SE.
According to a statement issued by the employers’ organisations, their main bones of contention are, first, that no SE would be established in Germany if the German legislator uses German codetermination rights as a benchmark for national implementation of the SE Directive’s standards; and second, that German companies would practically be excluded from establishing SEs abroad since no foreign company would accept the de-facto importation of German-style codetermination.
The most important issue for the German trade unions, particularly with regard to implementation of the SE Directive, is preservation of the German codetermination system, elements of which would be imported into the national regulations on the SE. This is of particular importance in relation to the national supplementary rules on the establishment of a monistic SE in Germany in order to ensure that German codetermination rights also apply to employee representatives on the administrative board.