Case C-566/15, Erzberger – the extra-territorial application of German worker representation law

Where four-fifths of a company’s workforce are employed in other Member States, is it right that worker representatives are elected to the company’s supervisory board from, and by, just the one-fifth who are employed in the company’s home Member State?

Mr Erzberger owns shares in a company. In turn, that company forms part of a corporate group that is commercially active throughout the EU and the world. He has hauled company before the German courts about the way worker representatives to the company’s supervisory board are selected.

Under German labour legislation dating from the 1970s, large companies must have a supervisory board, half of whose members must come from the employees of the company.

Since this particular German company’s supervisory board consists of 20 people, that means 10 must be representatives from the workers. In practice (and by dint of another plank of German labour law), of those ten people, seven are company employees, and there are three people who are representatives of the unions. Furthermore, the worker representatives are selected and elected from the company’s 10 000-strong workforce in Germany.

However, the company does not have a workforce of 10 000 people; it has an EU workforce 50 000 people. As a consequence, there are 40 000 workers employed elsewhere in the EU who are excluded either from standing for election to the company’s supervisory board, or from having the right to vote for those workers who are standing for election to the board.

Furthermore, the German rules are so tight that if a worker-representative who is already on the company’s supervisory board goes to work for the company but in another Member State, then that worker will lose his right to be a member of the board. The worker will also in effect lose his right to vote for worker representatives to the supervisory board.

Curiously, German law operates this way through no fault of German labour law. That is to say, the reason why German law understands the concept of an ’employee’ to mean workers who are employed by companies inside Germany (LG Düsseldorf, 25 AktE 1/78, DB 1979), is the result of the legal principle of ‘territoriality’. It is a principle that the Federal German Labour Law Court has understood to mean that German social law judgments have no legal effect on the territories of other sovereign states.

Mr Erzberger is challenging the way the worker representatives to the company’s supervisory board are selected and elected. He claims that the effect of German law is incompatible with EU Treaty law. Article 18 TFEU bans discrimination on grounds of nationality, and Article 45 TFEU bans barriers to the free movement of workers.

It is a legal challenge that is dismissed by the company. First, it points out that that there is no discrimination on grounds of nationality. Second, it believes there to be no infringement of the principle of free movement because that principle applies to the terms and conditions of work [or working conditions more broadly conceived], and the right to stand for election – and the right to be elected – to the supervisory board does not fall within the terms and conditions of work, as that term is understood in Article 45(2) TFEU.

The company also makes the procedural point that Mr Erzerberger has failed to establish that the loss of election rights would make it less attractive for a worker to get up and go and work for the company in another EU Member State.

At the Landgericht Berlin
At first instance, the Berlin District Court found for the company. First, it took the view that EU law was not infringed by the German laws governing worker co-determination. If there was discrimination, then that was an ‘indirect effect’ (a ‘Reflexwirkung’) which fell outside the scope of EU law. Second, the court took the view that the loss of electoral rights was not a serious barrier to employees working for the company elsewhere in the EU.

At the Kammergericht Berlin
On appeal to the Kammergericht in Berlin, it became apparent that the problem of Germany’s co-determination law was not novel one for the German courts. Two years earlier, the Landgericht Landau in der Pfalz had produced a similar judgment to that taken by the Landgericht Berlin in the present case – namely, there was no infringement of EU law by Germany’s laws. However, that court did acknowledge that even if EU law were to be infringed, then the court was only under a duty to interpret German law to conform with EU law.

Yet the Kammergericht in Berlin was also aware of a more recent decision of the Landgericht in Frankfurt am Main. In 2015, when faced with the same problem the Frankfurt court had taken the opposite view and had held that a worker employed abroad should not be excluded from the right to vote in the election to his company’s supervisory board.

The Kammergericht in Berlin noted it was not only the German courts which were taking diverging approaches to the issue of Germany’s co-determination laws; a similar division of opinion was being expressed in the various practitioner textbooks on German labour law.

The Kammergericht Berlin was also aware that the issue of Germany’s co-determination laws had become a matter of EU concern. That is to say, the issue of discrimination and German co-determination law had been flagged up in the EU’s “Report of the Reflection Group on the Future of European Company Law” dating from 2011.

For these reasons, the Kammergericht Berlin decided to make a preliminary reference to the CJEU. Before it did so, it took the opportunity to inform the CJEU that it could not see any justification for the German restrictions on worker representatives to a company’s supervisory board. It added that the restrictions might even operate contrary to the EU principle of free movement; the loss of voting rights might deter applicants from applying to work within the company elsewhere in the EU.

As for the issue of the duty on the national court to interpret German law in accordance with EU law, the Kammergericht observed that in this case national law could not be read to conform with EU law – it was just not possible to interpret the national provisions in any other way. That said, it was still a matter for the national legislature to decide how co-determination might be organised for those workers who were employed by the company in other Member States.

The duty to interpret national legislation to conform with EU law appears, in the context of Directives, to have been radically changed by a preliminary observation made by the CJEU in Ryanair; see further, “Autonomy, Comparison Websites and Ryanair” (2015) Intellectual Property Quarterly 386-406, now available via Westlaw.

The duty to interpret in conformity with EU law is also at stake in two other labour law references that are currently before the CJEU. The first is Case C-98/15, Espadas – a case which also takes into account the CJEU’s discussion of the duty of conformity of interpretation in the labour law case of AMS. The second case is Case C-216/15, Betriebsrat der Ruhrlandklinik – stopping the sisters of merciless competition.

The duty of ‘conforming interpretation’ in respect of Directives is also at stake in three other cases covered by EU Law Radar which are still pending before the CJEU: see further,
Case C-276/15, Hecht-Pharma – incensed at the competition in Frankincense-extract capsules;
Case C-275/15, ITV Broadcasting [No. 2] – access to cable of broadcasting services; and
Case C-484/14, McFadden – a mere conduit?.

Update – 3 March 2016
A Dutch court has made a reference which also involves labour/insolvency law and the issue of conforming interpretation; see further, Case C-126/16, Federatie Nederlandse Vakvereniging – worker rights, failing firms and pre-pack administration.

Update – 23 January 2017
The Grand Chamber will hear Erzberger on 24 January 2017.

Conforming interpretation and the limit of ‘contra legem’ is now at stake in another social law case originating in Germany; see further, Case C-569/16, Bauer – an heir’s accrued leave rights post-Bollacke but contra legem,