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National codetermination rules under European Scrutiny

On 24 January 2017, the European Court of Justice heard what could turn out to be a landmark case (C-566/15 Erzberger) conce

european court of justice

rning workers’ board-level participation.

Mr Erzberger, a minority shareholder of TUI AG – a multinational travel and tourism company headquartered in Hannover, Germany -- had brought a case before a Berlin court challenging the composition of the company’s Supervisory Board. According to German rules, the employees working for the group but outside German territory are not counted and therefore excluded from the election of board-level employee representatives since they have neither active nor passive election rights. The applicant argues that such geographical rules restrict the right to free movement of workers and also constitute discrimination on the basis of nationality, both of which would be contrary to EU law.

In contrast, the German authorities, trade unions, employee representatives, and other intervening

Member States (Austria, France, the Netherlands and Luxembourg) insisted that EU law does not apply to this case; moreover, if it were to be found to apply, then the restrictions in place are in any case justified by both the territoriality principle, and by the necessity to uphold the workers’ representation system and the historic social model chosen by Germany. And, indeed, since the Supervisory Board elections are organised and controlled entirely by the employees themselves, rather than by the company, it might be impossible to extend such practices beyond Germany’s borders while still maintaining the legitimacy and transparency granted by this highly juridified mechanism without any pan-European rules in place. However, the EFTA Surveillance Authority pointed out that some national legal systems in Europe have less restrictive rules in place which under certain circumstances allow the participation of employees working in branches of the company outside the state’s territory, for instance Norway. While workers of some foreign subsidiaries may be involved subject to company-specific arrangements negotiated between employees and the management, even this system is not necessarily extensible to other countries. For its part, the Commission during the hearing seemed to significantly change its position previously expressed during the written procedure. After the hearing, the Commission has suggested that it in fact considers the German system to be fully in compliance with the EU law requirements.

The four-hour Court hearing brought into the spotlight all the key arguments of the parties. The case was tried by the Grand Chamber, emphasising that its significance has not gone unnoticed by the judges. Indeed, a ruling in favour of Erzberger could in the medium and long run have enormous implications for other Member States’ systems of board-level employee representation, since no arrangement in the EU provides for universal and automatic inclusion of employees outside the home country. In other words, if the German model is found to breach EU law, then this might in future raise questions of compatibility of other existing models. In the absence of common EU standards, the highly specific existing arrangements in place in each Member State would continue to raise legal uncertainties and conflicts of laws. It remains to be seen what the Advocate General finds in his Opinion, which is due on 4 May 2017, and what the Court decides in the final ruling in the case, which is due some time during the summer.

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Hans Boeckler Foundation; supervisory board; corporate governance

Further reading: the Hans Boeckler-Foundation recently published an insightful analysis 'Better Corporate Governance in Europe through Employee Boardroom Participation' on the topic.

The paper is available for download by clicking the below link, or directly from the HBS website.

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For further questions concerning the Erzberger case and/or any other issue related to board level employees' representation please contact Sara Lafuente-Hernandez (slafuentehernandez@etui.org), researcher at the ETUI specialising in this field.

All European Company (SE)

Contact: Sara Lafuente-Hernandez (slafuentehernandez@etui.org), researcher at the ETUI specialising in board-level employees' representation.