Germany: No Works Council for a Non-autonomous Part of a Geographical Unit

In Germany, the Works Constitution Act (Betriebsverfassungsgesetz – BetrVG) governs co-determination in the workplace. It allows employees to elect a works council in companies with at least five employees eligible to vote. This committee represents the interests of the workforce towards the employer and, depending on the matter, has rights to information, consultation, or binding co-determination. The German Works Constitution Act applies to all establishments located in Germany, regardless of whether the company has its headquarters abroad or is part of an international corporate structure.

Prerequisite for the election of a works council is the existence of an establishment within the meaning of the German Works Constitution Act. An establishment is an organizational unit in which the employer pursues operational objectives under unified management. Even an independent division of an establishment requires at least a minimum degree of organizational autonomy as well as institutionalized management that exercises authority to issue instructions and acts as a point of contact for co-determination. Therefore, works councils may also be elected in independent divisions of an establishment.

 

Background

The case decided by the Federal Labor Court concerned so-called “Remote-Cities” of platform-based delivery services. The ruling pertains to business models in which delivery drivers operate across different regions, but operational management is centralized via apps and digital platforms.

In this case, drivers in several regionally defined delivery areas had elected independent works councils. The employer challenged the elections on the grounds that the units in question were neither establishments nor independent parts of an establishment within the meaning of the German Works Constitution Act. The Federal Labor Court upheld the decisions of the lower courts: The Remote-Cities in question did not have their own management level and were therefore not eligible for works councils. The works council elections were therefore contestable and, as a result of the challenge, invalid.

 

Key Issues

Although drivers in the Remote-Cities worked within specific regional delivery areas, they had neither their own offices nor local managers or organizational management structures in those areas. Working time requirements, scheduling, personnel measures, and other decisions relevant to co-determination were managed centrally or through so-called “Hub-Cities”. In the opinion of the Federal Labor Court, the mere geographical demarcation of a delivery area is not sufficient to create an independent unit eligible for a works council.

The decision makes it clear that digital control via apps, algorithms, or AI does not alter the traditional concept of an “establishment” in the meaning of the German Works Constitution Act. What remains decisive is where human management decisions are made and whether an organizationally distinct management unit exists. The Federal Labor Court thus consistently adheres to the so-called “counterpart principle”: A works council requires the existence of an identifiable management unit on the employer’s side with which co-determination can be exercised in practice.

For companies in the platform economy, this also means greater legal certainty when designing centralized organizational models. Regional delivery areas or virtual work structures do not automatically lead to the creation of independent units eligible for a works council. At the same time, however, the decision also highlights the limitations of the current definition of establishment in digital work models. It is the task of the German legislature to further adapt works constitution law to the reality of platform-based work.

Practical Point

• Companies with platform-based or highly digitized work models should review their works council structures and clearly document where management and authority to issue instructions actually reside.
• According to the Federal Labor Court, areas of operation defined purely by geography that lack their own management level generally do not constitute independent establishments or separate parts of an establishment. Works council elections in units that are not organizationally eligible for a works council can be successfully challenged under Section 19 of the German Works Constitution Act.
• For future works council structures, the clear assignment of employees to central hubs or main establishments is becoming significantly more important.
• The ruling could further intensify the discussion regarding legislative reforms on the regional representation of employees in digital platform structures.