The application of the Works Constitution Act (BetrVG) – in particular, with regard to the question of whether works councils can be elected – presupposes the existence of a domestic establishment. The BetrVG does not define what constitutes an establishment. The decisive factor in determining what constitutes a ‘workplace’ or where it is located is the existence of a unified management body that takes the key decisions (primarily) on social and personnel matters. If this unified management authority is exercised abroad – meaning the workplace is not located in Germany – works council elections would be precluded.
However, under Section 4(1) of the BetrVG, the Act provides for the possibility that even mere parts of an undertaking may be regarded as independent undertakings, in which, as a rule, at least five employees who are permanently eligible to vote are employed, three of whom are eligible for election, and which are either
- are geographically distant from the main establishment, or
- are independent in terms of their remit and organisation.
The rationale behind this provision is that, in addition to the question of where management is exercised, the aim is also to ensure proximity between the workforce and the works council, and vice versa.
For a part of an undertaking to be recognised as such, a minimum degree of organisational autonomy from the main undertaking is sufficient. To this end, it is sufficient that the organisational unit has an institutionalised management structure that determines the deployment of employees and exercises the employer’s authority to issue instructions.
The Federal Labour Court [https://www.bundesarbeitsgericht.de/presse/inlaendischer-stationierungsort-einer-auslaendischen-fluggesellschaft-als-betriebsratsfaehige-organisationseinheit/] has now ruled that works councils may be elected in parts of an undertaking that meet the above requirements, even if the main undertaking is located abroad. This does not contravene the principle of territoriality, i.e. the limited application of the Works Constitution Act (BetrVG) to Germany. According to the Federal Labour Court, if the ‘deemed’ establishment under Section 4(1) of the BetrVG is located in Germany, this is sufficient for the BetrVG to apply.
Conclusion
Companies cannot avoid the formation of a works council simply by ensuring that their registered office is not located in Germany. If a unit within Germany meets the criteria for an independent part of the business, a works council may be established regardless of the location of the main registered office.
Key points in brief
- Works council elections do not necessarily require a main place of business in Germany
- Works councils may also be formed in independent parts of a business within Germany, even if the main place of business is abroad
- However, if there is not even a minimum level of organisational management within Germany, there is no ‘part of the undertaking’, and so the formation of a works council is not possible
