New alliances and collaborations for transformation.

 Labor law and structural change (5): Perils in joint ventures and joint enterprises.

Neue Allianzen und Kooperationen für die Transformation.

Digitalization and implementation of the European Green Deal frequently require cooperative ventures to address complex challenges more quickly. Qualification networks consisting of companies of different sizes may also be effective. What labor law issues arise?

The digital transformation towards Industry 4.0, together with the transformation into a more sustainable economy, not only involve extensive investments, but frequently demand skills that many companies do not possess. In view of this, strategic alliances and collaborations are becoming increasingly important, with old economy and startups collaborating to advance autonomous driving or develop new data-driven business models for the Internet of Things. Elsewhere, companies are combining their efforts throughout the value chain or between industries to pave the way to electromobility or the hydrogen economy.

Training within networks

SMEs can benefit from human resources planning and training networks if they encounter problems getting their technical training for smart factories or e-mobility up and running. Or if they cannot afford skilled workers such as software developers on their own. The Confederation of German Employers’ Associations proposes regional qualification alliances among different sized companies, for example. These could be initiated and supervised by an association or educational organization. Networks of this nature could enable employees at SMEs to obtain further training in the latest technology, not only from recognized educational providers but also the training facilities at major companies. The Federal Ministry of Labor and Social Affairs supports corresponding initiatives with the “Establishing continuing education networks” federal program.

Whether its training or charging infrastructure for fuel cell-powered trucks, achieving a successful collaboration over the long term requires partners to take great care in ensuring that the structure and legal design reflect the shared goals of the collaboration. Labor law often presents certain pitfalls in this regard:

Joint venture for long-term cooperation

When it comes to long-term collaborations, such as advancing innovative hydrogen-base drive technologies, joint ventures could offer one solution for creating stronger strategic alliances. With its own management, employees and processes, a joint venture is generally more agile and operates more efficiently than a merger based on a cooperation agreement for joint research and development, for example. Each company contributes its expertise and employees. These employees receive either a new, individual employment contract or the contract is transferred to the joint venture as part of a transfer of operations pursuant to Section 613a of the German Civil Code (BGB). The joint venture then becomes the new employer. Problems with this approach will arise, in particular, if the working conditions of the companies involved differ. If significant parts of the workforce are affected, this change in operations may also be subject to co-determination in accordance with Section 111 of the Works Constitution Act (BetrVG). We have already described the consequences in Part 2 of our series: Employers have to negotiate a reconciliation of interests with the works council and conclude a social plan.

Joint software development as a joint operation?

Unlike a joint venture, the partners in a joint operation manage the operations together. Employees, the expertise and operating resources formally remain with the existing employer. One key prerequisite for a joint operation is that the companies agree, at least tacitly, that the employees will be managed by a unified management body of the involved partners. In the case of agile software projects, this can occur when the best-qualified employees of an automotive manufacturer and a supplier collaborate with external IT specialists to develop autonomous driving software, for example. As a rule, the threshold for a joint operation is exceeded if the rights to issue instructions are governed between the companies via corresponding authorizations. This raises difficult issues regarding the responsibilities of the works council. Under some circumstances, an employee may be regarded as belonging to both the parent company and the project company. In the case of works council elections, this causes complications when assigning the employees to the lists of the individual companies.

Risk of employee leasing and pseudo self-employment

Furthermore, the situation also creates the risk of concealed employee leasing if managers issue instructions to team members who belong to partner companies. The Federal Labor Court is expected to issue a ruling at the end of May regarding whether a joint operation can provide a suitable structure for excluding the application of the Temporary Employment Act.

Inter-company personnel usage can also be problematic for employers with regard to possible pseudo self-employment. Project managers need to be made aware, that they are only permitted to issue technical instructions and not disciplinary instructions to freelancers and independent programmers, for example. External employees may not use their employer’s operating resources under any circumstances, and they must be able to freely schedule their own working hours.

Regulating exploitation rights and usage rights

Finally, the partners must establish detailed regulations governing the rights to employee inventions, as well as software exploitation and usage rights.

Strategic alliances and cooperations can make a major contribution to the success of digital and green transformations. Companies are advised to follow these three steps in order to find the right form and to avoid labor law pitfalls:

  1. Which organizational structure best achieves the partners’ goals?
  2. How are contractual agreements designed in order to avoid undesired labor law consequences?
  3. Monitoring the actual implementation: The practical implementation of the contracts is the key to preventing concealed employee leasing or pseudo self-employment.