July 18, 2017
Today, the European Court of Justice has rendered a landmark decision about German corporate co-determination, avoiding a "Europeanization" of the current regime.
Germany has a unique system of employee co-determination on the supervisory board of mid-sized and large corporations. In most companies between 500 and 2,000 employees, a third of the supervisory board members must be employee representatives. In corporations with more than 2,000 employees, even half of the seats are filled with employee and union representatives. This system has undergone criticism from investors and legal scholars alike, albeit for different reasons. Since 2013, several scholars and activists have been trying to curb this system in several German courts, which is virtually carved in stone on a political level. The German courts have responded differently to these approaches. One of them (the "TUI Case") has been referred to the European Court of Justice, which has led to the case at hand. The plaintiff argues that the German co-determination laws only consider employees in Germany, not in other EU countries and therefore violate European laws, particularly the principles of non-discrimination (Art. 18 TFEU) and/or the freedom of movement for workers (Art. 45 TFEU).
The Court has heard various parties. Most interestingly, the EU Commission performed a surprising turn around in the oral hearing. In their written brief, the Commission had argued that the German co-determination laws do violate EU law. In the oral hearing of 24 January 2017, however, the Commission representative suddenly presented a different legal opinion. As evident from a press release (http://europa.eu/rapid/press-release_STATEMENT-17-141_en.htm), the Commission now held that the German co-determination laws do not violate European law. A similar development could be observed with regard to the Advocate General: In the oral hearing, he held that the German laws did violate EU law and referred to his home country Denmark to argue that co-determination laws could indeed extent to foreign operations. However, in his final written comments on 4 May 2017, the Advocate General deviated from this position and found the contested German co-determination rules compatible with EU law (https://curia.europa.eu/jcms/upload/docs/application/pdf/2017-05/cp170043en.pdf).
This decision comes as a relief to many German companies, which had feared a revolution of their co-determination system with tedious adaption steps, all of which is now history.
Gibson Dunn’s lawyers are available to assist in addressing any questions you may have regarding the issues discussed in this update. The two German offices of Gibson Dunn in Munich and Frankfurt bring together lawyers with extensive knowledge of corporate, tax, labor, real estate, antitrust, intellectual property law, litigation and arbitration as well as extensive compliance / white collar crime experience. The German offices are comprised of seasoned lawyers with a breadth of experience who have assisted clients in various industries and in jurisdictions around the world. Our German lawyers work closely with the firm’s practice groups in other jurisdictions to provide cutting-edge legal advice and guidance in the most complex transactions and legal matters. For further information, please contact the Gibson Dunn lawyer with whom you work or any of the following authors in the firm’s Munich office:
Lutz Englisch (+49 89 189 33 150, [email protected])
Mark Zimmer (+49 89 189 33 130, [email protected])
Please also feel free to contact any of the following partners in the firm’s Frankfurt and Munich offices:
General Corporate and Corporate Transactions
Lutz Englisch (+49 89 189 33 150, [email protected])
Ferdinand Fromholzer (+49 89 189 33 121, [email protected])
Markus Nauheim (+49 89 189 33 122, [email protected])
Dirk Oberbracht (+49 69 247 411 510, [email protected])
Wilhelm Reinhardt (+49 69 247 411 520, [email protected])
Labor and Employment
Mark Zimmer (+49 89 189 33 130, [email protected])
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