Legal Loopholes Running Away From Workers’ Rights

German trade unions say business executives are changing the legal structures of their companies to circumvent workers' rights to collective decision-making and co-determination.
Reiner Hoffmann (l) and Eric Schweitzer at loggerheads.

A fight between a trade union leader and a chambers of commerce is throwing a spotlight on companies' changing attitudes to employees' co-determination rights.

In Germany, co-determination ensures workers the legal right to participate in decision-making and management at the companies where they work.

A decision to change the legal structure at trash company Alba in Berlin has led to accusations that the firm is trying to avoid participatory decision-making, according to trade union leader Reiner Hoffmann.

Mr. Reitmann is taking on Eric Schweitzer, president of the Association of German Chambers of Commerce and Industry and co-partner of the Berlin waste-disposal firm Alba Group.

At a speech before a trade union conference of 200 members, Mr. Hoffmann said Mr. Schweitzer's move was a “flight from co-determination.”

Alba’s holding company is Alba Group and its liable partner is a British legal structure. The company has 8,000 employees but is not subject to the German requirement for workers' participation.

Usually, a company of that size would be required to have workers' representatives in a third of the seats on the supervisory board. This law applies to firms above 500 employees; workers' representatives hold up to half of the seats on the board at companies of more than 2,000 employees.

Alba rejects the accusation it was trying to escape from co-determination.

The group said the change it made in 2011 was due to growing internationalization of the waste-disposal and recycling group.

German forms of incorporation, whether listed or privately owned, have increasingly been replaced by European legal entities or foreign legal structures.

In response to an inquiry, it stated: “At all levels of the Alba Group, there is an operational co-determination in accordance with the Works Council Constitution Act; we do not have, nor did we ever have, a supervisory board with co-determination.”

The trade union association is concerned because other companies are changing their structures in similar ways.

According to an unpublished study by the Böckler Foundation, an institute associated with the trade union federation, 94 companies in Germany “evade workers' participation in supervisory boards by using foreign legal structures.” Such restructurings have accelerated dramatically since 2011, according to the study obtained by Handelsblatt.

One well-known example is the airline company Air Berlin, which, like Alba, operates as a British public limited company.

Before 2000, only 20 larger German companies had foreign legal structures that otherwise would have been subject to co-determination, according to the Böckler study. Since then, such transformations into foreign firms have picked up speed.

The catalyst for the changes was a verdict by the European Court of Justice concerning the right of establishment. In 1999, the court ruled that it was lawful for E.U. citizens to found a company in any member state with the sole purpose of doing business in their home country, even if the foreign entity did not meet the home country's regulatory requirements.

Since then, German forms of incorporation, whether listed or privately owned, have increasingly been replaced by European legal entities, such as SE, or foreign legal structures registered in the Netherlands, the United Kingdom, Austria or Luxembourg.

DGB’s Mr. Hoffmann considers this development to be an attempt by companies to “deliberately misuse the possibilities offered by the right of establishment in Europe to circumvent co-determination.”

Another legal loophole presents a further threat to worker participation too.

In 2014, the European Commission issued the draft directive for a European single-member company. If the proposal were to be confirmed to its current form, the legal and actual headquarters of a company would no longer have to be the same in the future.

Trade union members fear this will turn out to be another loophole. It would mean that a company manufacturing exclusively in Germany could be managed by a British limited company, for example.

The German government is equally critical of the proposal.

The minister of justice, Heiko Maas, a social democrat, has categorically rejected the E.U. draft directive in its present form.

For 2015, Mr. Hoffmann has launched a “campaign for co-determination.” It seems as if the head of German labor unions will first have to hold the line against entrepreneurs and the European Commission.


Dieter Fockenbrock is Handelsblatt's chief correspondent for the companies and markets desk. To contact the author: [email protected].