Threshold Values in German Labor Law and Employees Abroad

German labor law frequently touches on international matters. German companies operate through international branches, generally employing foreign workers, while international companies are represented by branches in Germany which typically employ German workers. Especially in the tri-border area (Germany, Switzerland, France), there are often smaller companies (with 10 employees or less in Germany), with additional employees in the bordering nations. These offices often act as a single organizational unit although they are physically apart.

The jurisdiction applicable to individual employment relationships is generally determined based on the country in which the work is performed. However, if the applicability of employment protection regulations in Germany depends on a certain number of employees (so-called threshold values), are employees working abroad taken into consideration to determine the applicability of such laws, if the operating facilities in Germany and those abroad form a single organizational unit?

There are multiple threshold values in German labor law, such as in Sec. 23 para. 1 of the Germany Employment Protection Legislation (Kündigungsschutzgesetz - "KSchG"), Sec. 17 KSchG, Sec. 1 of the German Works Constitution Act (Betriebsverfassungsgesetz - "BetrVG"), Sec. 111 BetrVG, Sec. 112a BetrVG, Sec. 1a of the German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz – “AÜG”), Sec. 622 para. 5 no. 2 of the German Civil Code (Bürgerliches Gesetzbuch – “BGB”), Sec. 1 of the German Co-Determination Act (Mitbestimmungsgesetz - "MitbestG"), Sec. 1 of the German One-Third Participation Act (Drittelbeteiligungsgesetz - "DrittelbG"), Sec. 9 of the European Works Council Act.

In general, the territorial principle applies as the basis for calculating threshold values. The territorial principle is based on international law, and stipulates that individual states are only granted the right to pass legislature for their national territory, and are prohibited from interfering with the rights of other states to pass legislation.

Applying the territorial principle, in accordance with Sec. 1 para. 1 BetrVG, works councils may only be established if the company is headquartered within the territory of the Federal Republic of Germany – regardless of whether the legal entity is a foreign company – and if (generally) at least five employees eligible to vote are continuously employed in said company. Therefore, only those employees should be taken into account that are employed in companies within the territory of the Federal Republic of Germany.

The KSchG, according to Sec. 23 para. 1, is valid for companies with more than ten employees. With regard to the scope of applicability for the KSchG, the Federal Labor Court requires that the company as an organizational unit must be situated in Germany, and that the size requirements must be fulfilled by employees in Germany.

Furthermore, both the MitbestG and the DrittelbG include threshold values for their applicability. In accordance with these laws, a company with more than 2,000 or more than 500 employees must establish a co-determined advisory board with either half or one third of employee representatives, respectively. If the controlling entity of the company is a group, the employees in the subsidiary company must be added to those in the group parent company. According to the territorial principle, previously only employees working in Germany were to be taken into account in determining threshold values. If a German company has more than 2,000 employees, and if additional employees worked for the German company itself or for a subsidiary company abroad, only employees working in Germany would take part in the election of employee representatives for the advisory board.

In 2015, the Regional Court of Frankfurt a.M. decided that employees working abroad should be included both in the basis for determining threshold values in accordance with the MitbestG/DrittelbG and in voting for employee representatives to the advisory board, thereby deviating from the territorial principle. The decision is not yet legally binding, and is currently being reviewed by the Higher Regional Court of Frankfurt a.M.

In addition, last October the Chamber Court of Berlin dealt with the question of whether employees working abroad should be included in electing employee representatives to the advisory board. The Chamber Court of Berlin also submitted the question of whether the fact that only employees working domestically (in Germany) for the company or group company should have the right to elect employee representatives for the advisory board was compatible with European law to the European Court of Justice ("EuGH").

Therefore, the EuGH will have to review the compatibility of German corporate co-determination with European law – specifically regarding the exclusion of employees working abroad from the election of employee representatives in the advisory board. In particular, the EuGH will decide whether (foreign) employees are discriminated against or restricted in their freedom when they are excluded from German co-determination under the territorial principle.

Comment

What effects do the judgment of the Regional Court of Frankfurt a.M. and any associated decision of the EuGH have on other labor laws and their threshold values? Must workers employed abroad also be taken into consideration in other labor laws such as the KSchG or the BetrVG?

Since these laws are not based on European legal provisions, and are therefore originally national law, and since the restrictions to the territorial principle do not lead to any unequal treatment in violation of European law or any other such unequal treatment, the answer is likely to be No.