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published on 9 December 2021 | reading time approx. 3 minutes
On 7 December 2021, the so-called traffic light coalition (Ampelkoalition) including SPD, FDP and BÜNDNIS 90/DIE GRÜNEN (in following: coalition) signed the coalition agreement for the 20th legislative period of the German Bundestag (2021 until 2025). The coalition agreement includes in its nearly 180 pages also short but yet important statements regarding co-determination within companies. In particular, the aims stipulated in five sentences are expected to significantly change the current provisions concerning co-determination within companies. Within the next four years, the changes aimed by the coalition will particularly affect owner-managed companies and sparked significant need to take action already.
One of the coalition's foremost goals is "to prevent abusive circumvention of applicable co-determination laws". Considering the legislative initiatives, demands and statements made in the past legislative period, the dimension of the modifications concerning a transposition of the goals is imaginable. In addition to the frequently demanded lowering of the applicable thresholds, stipulated in the German co-determination laws (Mitbestimmungsgesetze), members of SPD and BÜNDNIS 90/DIE GRÜNEN criticised the so-called "avoidance of co-determination" relating to the
However, the goals are still partly vaguely stipulated in the coalition agreement.
The SE as a "European public limited-liability company" has enjoyed great popularity among German enterprises. Apart from its image as a global player, the character as a multinational company resulting out of its Europe-wide uniform appearance, the possibility of raising capital through IPO, Europe-wide mobility and uniform corporate group structures, this legal form is taken into consideration by entrepreneurs for tax law and co-determination law-related reasons as well.
According to the concept of co-determination, stipulated by European laws, the level of co-determination within the SE corresponds with the level already existing in the companies initially founded. This concept is furthermore in line with Directive 2001/86/EC (SE-Directive). Based on this concept, a change of the circumstances affecting the co-determination under national laws – particularly if the number of employees exceeds the thresholds – does explicitly not affect the co-determination-related status of the SE. In judicial literature as well as case law, the lack of affection is also called the "effect of freezing the status quo" (Einfriereffekt). In other words, the level of co-determination existing in the company initially founded is "frozen" at the time changing its legal form for the future and thus remains unaffected.
This "effect of freezing the status quo" related to the SE has particularly been criticised as a "structure of avoidance" and is explicitly targeted in the coalition agreement. It is hence intended to be the starting point for future measures to strengthen corporate co-determination. Out of a current perspective, however, since this effect bases on the balance stipulated by EU law, any modification seems to only be possible on an European level needing a consensus of the EU member states. This consensus, nonetheless is not yet predictable.
According to the explicit wording of the coalition agreement, the new coalition intends to extend the principle to counting employees working in affiliates as employees of the groups' holding (Konzernzurechnung). Presently, this principle has only been regulated within the Co-Determination Act (Mitbestimmungsgesetz) (in case of companies with 2,000 employees or more supervisory boards must meet the composition parity requirement) and is thus intended to be implemented into the One-Third-Participation Act. Within the scope of the One-Third-Participation Act groups employing 500 employees or more in Germany are obliged to establish a supervisory board including employees as a third of its members, if the parent company, as usually, owns at least a majority of the affiliates.
An amendment to the One-Third-Participation Act would not need to be approved by the German Bundesrat because it is an act whose enactment the Bundesrat may only object to (Einspruchsgesetz). Thus, ultimately, even a majority in the Bundesrat would not be able to effectively prevent that the principle to counting employees working in affiliates as employees of the groups' holding from being implemented.
Moreover, a motion put forward by BÜNDNIS 90/DIE GRÜNEN, rejected in the previous 19th legislative period, is still subject to discussions in the German Bundestag. According to that motion, the provisions laid down in the Co-Determination Act should be entirely incorporated into the provisions concerning co-determination of the One-Third-Participation Act (BT-Drs. [Federal Council Journal] 19/27828). With respect to the legal forms combining a company and a limited partnership (corporation & Co. KG), these provisions stipulate that under certain circumstances employees of the limited partnership are counted as employees of the complementary company. Respective demands were also repeatedly expressed among circles affiliated with SPD.
Facing the involvement of foreign legal forms equivalent to a stock corporation, a partnership limited by shares or a limited liability company, a bill to adapt in the scope of German co-determination laws was already proposed by the Hans Böckler Foundation in June 2021 (I.M.U. Mitbestimmungsreport Nr. 65, 06.2021). According to this bill, co-determination will be extended both at the level of the Co-Determination Act as well as the level of the One-Third Participation Act. The bill also contains a provision related to counting employees of the limited partnership as employees of the general partner where a foreign company acts as the general partner in a limited partnership.
The motion put forward by BÜNDNIS 90/DIE GRÜNEN, which was still rejected during the 19th legislative period in the German Bundestag, also contains the demand that the scope of application concerning corporate co-determination of employees should include foundations with business operations, i.e. foundations pursuing purposes of profit, if these foundations have a corresponding number of employees. In this respect, the structure of the foundations (Stiftung and Stiftung & Co. KG) used by the companies Aldi, Lidl and Würth Group are particularly criticised.
The new coalition has sparked the need for companies to quickly take action. Since the "strategies of avoidance " concerning corporate co-determination are subject to debates by the new Federal Government, taking action quickly is to be recommended. Facing the upcoming laws, we are happy to assist you not only in identifying a possible need for action but also in choosing the appropriate corporate legal form in such a case.
The content of the coalition agreement clearly indicates that the German law on corporate co-determination of employees will probably be reformed during the 20th legislative period. This is expected to have an impact at every level, because the new co-determination radar of the German Federal Government will target all forms of entities organised as companies. Hence, it will no longer be possible to control corporate co-determination solely by choosing the legal form.
However, due to the clear general European principle stipulating the lack of competence of national regulators to regulate this issue, a tightening of co-determination rules at the level of the SE solely by the German legislator seems unlikely. A legal amendment at European level will thus be needed. Such an agreement, however, will require a major consensus of the EU member states and will take more time than the upcoming legislative period. In contrast, closing the loophole in the German One-Third-Participation Act and extending co-determination to include foreign companies are likely to be realised soon. The SE therefore remains a tried and tested legal form. In addition to the expected lack of majorities required to change the co-determination regulations for the SE at European level, the other advantages of this legal form, in particular from the point of view of tax law and governance, continue to speak in favour of the SE.
Dr. Oliver Schmitt
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Dr. Christoph Kurzböck
