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20 May 2017

German codetermination compatible with EU law, states Advocate General while calling for more inclusiveness

Court of Justice of the European Union

A national codetermination law does not breach EU laws on equal treatment or freedom of movement if it excludes workers in foreign subsidiaries from election rights to their parent company board.

This is the Advocate General (AG)’s long-awaited opinion in case C-566/15 Erzberger (TUI), issued on 4 May. His recommendation to the Court of Justice of the European Union (CJEU) is based on the “current state of EU law” and ultimately on sufficient justification on grounds of the general interest. 

According to the AG, the German codetermination law is fully compatible with Articles 18 and 45 of the Treaty of Functioning of the European Union (TFEU), namely equal treatment and workers’ freedom of movement. No legal basis in the treaties, EU law or case law provides for a cross-border element connecting the situation of workers in foreign subsidiaries with Articles 18 or 45. Although these workers may indirectly be affected by parent-board decisions, the AG declares that this is not enough to connect them to the German labour market and rules. 

Article 45 is found applicable as the sole connection with EU law, but applies only to workers employed in Germany, insofar as they would be discouraged to move abroad because they would lose their election rights. The AG emphasizes that Article 45 TFEU does not grant workers the right to ‘export’ their working conditions to another Member State, nor an obligation for Germany to maintain their participatory rights after such a move. Nevertheless, the AG considers that this Article in no way precludes Member States from expanding rights to workers employed outside Germany. He draws an analogy with social security rules, where such an approach has been taken by the CJEU. If the territoriality principle does not per se prevent a country from extending codetermination rights to workers abroad, the AG suggests that it does hinder a Member State from extending obligations to subjects under the jurisdiction of a different Member State. Thus, it is the specificity of the German system (because of its decentralised elections, very elaborate electoral regulations, etc.), and not the territoriality principle as such, that prevents the German codetermination system from being applied outside Germany. The AG states that the choice belongs to the Member State, according to national political, social and economic considerations, to establish the participation rules that best fit their national context. Germany chose a system which involves enforcement at different levels (i.e. at the level of subsidiaries within the group) and works as a consistent whole. Ultimately, if the CJEU determines that there was any restriction on the freedom of workers or infringement of their equal treatment, the AG understands that the general interest would be sufficient justification; the restriction would be proportional and thus compliant with EU law. 

These conclusions support in substance the positions defended by the German government, the company TUI AG and its workers’ representatives, although with some divergence in the reasoning, particularly when it comes to the application and implications of the territoriality principle.

At the same time, the AG expressed a wish for finding more inclusive solutions to workers’ participation within cross-national groups of companies in the future. He stressed that he is “sympathetic to the idea that any worker employed by a group of companies should benefit, within the EU, from the same rights of participation within that group, irrespective of the location of his place of employment”. While he maintains that rules in this regard have so far not been harmonized and remain the choice of the Member States, his support for more inclusive solutions at the EU level could be seen as a nudge for the EU legislator to act. And indeed, we could imagine that under the Social policy Title of the TFEU, more inclusive pan-European solutions could be explored.

The AG’s opinion clarifies certain legal arguments, namely concerning the “cross-border element” for the purpose of Article 45 applicability to different categories of workers affected, or the territoriality principle as justification. But it also leaves several open questions. The exclusion of Article 18 is minimally developed despite seemingly underpinning the whole line of reasoning. Moreover, the AG touches upon the situation of workers in establishments or branches abroad, who are also excluded from electoral rights despite having German employment contracts according to the AG’s interpretation of German codetermination rules. The AG implies Article 45 could be applicable to those cases, but does not develop this point further, on the grounds that no foreign establishments or branches exist in the TUI case. Finally, some issues with potential legal and practical implications are not discussed, such as the distinction between active and passive voting rights or between dependent and non-dependent foreign subsidiaries. 

In general terms, the AG’s opinion highlights relevant discrepancies between the current state of EU labour law and cross-border business realities, suggesting a need for change. However, his recommendations are by no means binding for the Court, and the probability of divergence between the Court and its AG is traditionally greater in cases decided by the Grand Chamber. This opinion should thus be cautiously understood as support for the CJEU’s deliberation, which may still take a different direction in its judgment and/or reasoning.  

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