No executive status despite authorization for ‘hire and fire’

The director of a retail store is not to be regarded as a senior executive within the meaning of Section 5 (3) of the German Works Constitution Act (BetrVG), even if she is authorized to hire and fire staff independently. This was decided by the Regional Labor Court of Hessen (‘LAG Hessen’) in a ruling dated December 9, 2024 (Ref. 16 TaBV 93/24).

Facts of the case

The defendant is a retail company with around 3,500 employees in 70 different stores throughout Germany. Around 100 employees work for the company in store A, most of whom are subject to the management rights of a local store director. The applicant in the proceedings is the works council formed for store A. It is in dispute with the respondent over the question of whether the store manager is to be regarded as a senior executive within the meaning of Section 5 (3) BetrVG. The respondent assumes that the requirements for this are met based on the fact that, according to its organizational structure, the stores are each independent and all essential business decisions are made by the store management. The company argued that the director of store A reports directly to the management, that she is authorized to independently hire and fire the majority of the local staff and that she has been granted unlimited authority internally. For example, she takes all decisions in personnel and social matters, decides on shift planning and allocation of shifts, approves vacation requests and issues warnings. In comparison, the company’s headquarters have a purely supportive, advisory and administrative function.

The works council is of the opinion that the mere hiring and firing authority presented by the applicant is not sufficient to justify the status pursuant to Section 5 (3) BetrVG, because the store manager does not have any further entrepreneurial powers. For example, works agreements are not signed by her, but by the management. Contrary to the respondent's assertions, the store manager does not have her own scope for action and decision-making but implements the company's instructions. At 2.6%, the number of employees covered by her personnel competence is too small in relation to the size of the company’s total workforce.

Reasons for the decision

After the court of first instance had already granted the works council's application, the company was again unsuccessful at second instance. Pursuant to Section 5 (3) sentence 2 no. 1 BetrVG, a senior executive is an employee who is authorized to independently hire and fire employees according to his or her employment contract and position in the company or business. According to the 16th Chamber of LAG Hessen, ‘hire and fire’ is an instrument of HR management and thus located in the core area of entrepreneurial activity. However, the requirements of Section 5 para. 3 sentence 2 no. 1 BetrVG are only met if the personnel competences granted to an employee are not only of subordinate entrepreneurial importance. The entrepreneurial significance of the personnel responsibility can result from the number of employees to whom the independent hiring and firing authority relates. It is also relevant whether the authority also extends to highly qualified employees with the corresponding scope for decision-making in important business areas. In the present case, the personnel authority granted to the store manager by the defendant was neither qualitatively nor quantitatively sufficient according to the court’s view. Although the employee was the superior of the employees working in Branch A, she did not have sufficient influence on the management of the company required for the status of a senior executive. In this context, the store, which constitutes an independent operation pursuant to Section 1 (1) BetrVG, cannot be assessed completely separately from the company as a whole. From this point of view, even a large and high-turnover store, in which almost 100 employees are employed with activities ranging from checking incoming goods, presenting goods and advising customers to cash up the sales price, is ultimately only a sales outlet according to a strictly predetermined concept. Consequently, the store manager was not entitled to any significant scope for decision-making, characterized by extensive freedom from instructions and self-determination.

Note for the practice

Senior executives are not subject to the co-determination of the works council. A number of employee protection provisions do not apply to them either. The decision makes clear that the hurdles for assuming this status are very high and that even the existence of an independent ‘hire and fire’ authority is not sufficient in every case. In addition, the transferred personnel responsibility must be of more than a minor business significance. It remains to be seen whether the defendant will also defend herself against the decision in the next instance. Here, too, success on her part remains highly questionable, especially as the decision of LAG Hessen is in line with the jurisdiction of Federal Labor Court (BAG). BAG last ruled in 2016 that senior executives must not only have personnel powers, but also entrepreneurial scope for decision-making. This distinction is of great practical importance for both employers and works councils. Companies should not be lulled into a false sense of security with regard to the status of their executives under works constitution law within the meaning of Section 5 (3) BetrVG.