Employee co-determination in groups with foreign parent companies

Under the German Co-Determination Act, employees have a right of co-determination in corporations with, as a rule, more than 2,000 employees. Co-determination is implemented by ensuring that the supervisory boards to be formed in these companies are made up of equal numbers of shareholder and employee representatives. The case-law of the Higher Regional Courts (Oberlandesgerichte), of which the Higher Regional Court of Hamburg is part with its decision described below, strengthens this co-determination of employees by ensuring that the national co-determination law is applied to the greatest extent possible, even in constellations with foreign implications.

Circumstances

The parties involved in the proceedings dispute whether a supervisory board is to be formed in accordance with the provisions of the German Co-Determination Act (Mitbestimmungsgesetz) for the defendant, an intermediate holding company based in Germany. The Applicant is the central works council of a wholly-owned subsidiary of the respondent with its registered office in Germany. In addition to this, the defendant has four further wholly-owned subsidiaries as well as another subsidiary in Germany, in which it holds a 74.9% stake.

51% of the respondent is held directly by a holding company based in Switzerland, the controlling parent company. The remaining 49% of the shares of the defendant are held by another company domiciled in Switzerland. This is a wholly owned subsidiary of a Dutch company, which in turn is a wholly owned subsidiary of the Swiss parent company.

The decision of the Higher Regional Court of Hamburg of 04.07.2017 (Case No.: 11 W 19/17)

The Hamburg Higher Regional Court (OLG) considers that the respondent is obliged to form a co-determined supervisory board. The principle that co-determination in the Group must take place in the controlling group company fails if it is not itself subject to co-determination, as in the present case, for example, at the headquarters of the controlling parent company abroad. In this case, Section 5 (3) of the German Co-Determination Act (MitbestG) would simulate the dependent domestic company of the Group, which is closest to the controlling company and drafted in accordance with the German Co-Determination Act, as the controlling company, provided that the group parent directly or indirectly exercises the Group Executive Board via other dependent companies. It is irrelevant whether the intermediate holding company itself actually exercises managerial power. The only decisive factor is that the parent company exercises managerial power via the intermediate holding company, or at any rate can exercise it. Because any legal organization of management routes would be made possible by the existing majorities and could be subject to change at any time. At least simple management or a minimum number of management options by the intermediate holding company are not to be demanded according to the sense and purpose of employee co-determination. This is also necessary for reasons of legal certainty and legal clarity as well as to limit the possibility of circumvention.