Germany: An Organisational Unit Eligible for a Works Council Can Exist Within Companies Headquartered Abroad

The Works Constitution Act (Betriebsverfassungsgesetz – BetrVG) forms the legal basis for employee participation in Germany. In establishments (Betrieben) with at least five employees eligible to vote on a regular basis, employees may elect a Works Council to represent their interests towards the employer and, depending on the matter, exercise rights to information, consultation, and participation. German works constitution law applies to all companies and organisational units eligible for a Works Council located in Germany, regardless of whether the company’s registered office or corporate headquarters is located abroad.

The prerequisite for the election of a Works Council is, in principle, the existence of a company or an organisational unit eligible for a Works Council within the meaning of the German Works Constitution Act. Independent parts of a business may also be considered separate units eligible for a Works Council. While complete organisational independence of the unit in question is not required for this, a minimum degree of organisational autonomy is necessary, as well as an institutionalized management structure that serves as a point of contact for Works Council participation.

 

Background

In the case at hand, the Federal Labour Court had to rule on the classification under works constitution law of an international airline’s stationing location at Berlin-Brandenburg Airport (BER). The employer was headquartered in Malta and had its corporate headquarters in Ireland. It employed approximately 320 flight and cabin crew members at BER. Key personnel decisions, such as hiring, terminations, transfers, or disciplinary actions, were made exclusively by management units in Malta and Ireland. However, a “Base Captain” for the flight crew and a “Base Supervisor” for the cabin crew were stationed on-site in Germany, whose duties and authorities were defined in internal regulations.

After initiatives to elect a Works Council had been launched by the staff, the airline filed a lawsuit seeking a ruling that its stationing location at BER was not an organisational unit eligible for a Works Council. It argued in particular that an independent part of the business could only be considered an “establishment” within the meaning of the German Works Constitution Act if the main business was also located in Germany. The Federal Labour Court did not agree with this view and upheld the corresponding decisions of the lower courts.

 

Key Issues

The Federal Labour Court clarified that Section 4 para. 1 sentence 1 no. 1 of the German Works Constitution Act may apply even if the main place of business is located abroad. A geographically distant part of the business may therefore be considered an independent organisational unit eligible for a Works Council, even though the parent company’s management is located outside of Germany. In the court’s view, this does not conflict with the principle of territoriality, since the organisational unit relevant under works constitution law is itself located within Germany.

In the specific case, the Federal Labour Court considered the requirements for an independent part of the business to be met. The Regional Labour Court had correctly determined that the BER location possessed the required minimum level of organisational independence and was at the same time geographically distant from the main business abroad. Consequently, the location had to be treated as an organisational unit eligible for a Works Council in terms of German law.

Practical Point

• International companies should not assume that having a foreign headquarters precludes the application of German works constitution law to business units located in Germany. The court ruling confirms that German employee representation rights cannot be circumvented by merely relocating central management functions abroad.
• Even organisational units located in Germany without extensive personnel or decision-making authority may qualify for a Works Council as independent operational units if they possess a sufficient degree of organisational autonomy. In consequence, Works Council elections may be initiated by employees of such German unit or a union represented within the unit at any time.