Employer-side attack on the German codetermination system
by Torsten Müller, Fachhochschule Fulda
The peak employers’ organisations, the BDA (Confederation of German Employers’ Associations) and the BDI (Federation of German Industries), have used the debate on the introduction of the SE legislation as an opportunity to launch a renewed attack on the German system of codetermination. They claim that in light of intensified competition in an increasingly globalised economy, EU enlargement and recent European-level developments in company law, there is an urgent need to ‘modernise’ the German codetermination model, in other words, to reduce employee representation rights in order to remain competitive. However, the demand for fundamental changes to German codetermination must be seen in the broader context of other initiatives aiming at more deregulated and flexible industrial relations. In the past, BDA and BDI have repeatedly argued for longer and more flexible working hours, weakening of the law on protection against dismissal, and curtailment of collective bargaining autonomy at sectoral level by demanding stronger bargaining rights for works councils at company level. This most recent initiative to ‘modernise’ the German codetermination system is therefore only one element of a broader campaign to weaken employee – and in particular trade union – rights.
In order to develop proposals for ‘reform’, BDA and BDI set up a so-called ‘Codetermination Commission’ consisting of 72 practitioners and academics. The official justification for this initiative put forward by the employer side was that the German codetermination system represents a hindrance to foreign investment and a competitive disadvantage for ‘Standort Deutschland’ in the global economy, unless it is adapted to the changed legal framework conditions at European level. With respect to the SE directive, the ‘Codetermination Commission’ report argues that in light of the strong codetermination rights retained in the German draft legislation, German companies will practically be excluded from partnership in the establishment of SEs because no foreign company would accept the de facto imposition of German codetermination. Concerning the two EU draft directives on mergers and company relocations, the employers argue that the strong German codetermination rights would cause many companies to seriously consider moving their headquarters to another EU country.
Against this background, the ‘Codetermination Commission’ developed a list of proposals to reform the German codetermination system. The demands put forward by the employer side essentially aim at reducing employee participation rights in two crucial areas:
a. the nature and scope of codetermination rights in supervisory boards at company level;
b. the nature and scope of workplace-level codetermination rights.
a. The employer side’s ‘reform’ proposals concerning company-level codetermination
Inspired by the voluntaristic negotiation procedure laid out in the EWC directive and the SE directive, the ‘Codetermination Commission’ suggests that in future the scope of employee participation in supervisory boards should be subject to negotiations between central management and an employee-side negotiating body whose members should be selected by a ballot of the whole workforce. As regards the outcome of these negotiations, the ‘Codetermination Commission’ suggests three different legal options. (i) Parity codetermination following the existing codetermination law of 1976 which currently applies to companies with more than 2,000 employees. According to this option, the same number of seats on the supervisory board would be allocated to the shareholders and the employee side. However, in the case of a stalemate, the chair of the supervisory board, who is always a shareholder representative, has the casting vote. (ii) The limitation of employee representation to one-third of the seats on the supervisory board, as is common practice today in companies employing more than 500 employees but less than 2,000. (iii) The establishment of a so-called ‘consultation council’ as an employee-side-only body existing alongside the supervisory board, whose functions would be limited to an advisory role.
If the two sides of industry fail to reach an agreement, a legal fall-back option would apply which would limit employee representation to one-third of the seats on the supervisory board. In the case of a monistic corporate governance structure, the legal fall-back option would, according to the ‘Codetermination Commission’ proposals, be the establishment of a ‘consultation council’. The ‘Codetermination Commission’ further suggests reserving a right of veto for the shareholder representatives. This means that the result of negotiations on the nature and scope of codetermination rights would come into force only if the shareholder side approved it by a three-quarters majority. If these proposals were put into practice, this would mean not only the abolition of the so-called ‘Montan Codetermination Act’ which applies to the coal and steel industry and which provides for genuine parity on the supervisory board, but also the de facto end of parity codetermination in Germany.
In an attempt to further weaken the position of the trade unions, the ‘Codetermination Commission’ suggests abolishing the trade unions’ legally guaranteed right to supervisory board representation in larger companies. Instead, all employee-side supervisory board members – including full-time trade union officials – should be elected by all employees of the company in a secret ballot.
b. The employer side’s ‘reform’ proposals concerning workplace-level codetermination
The ‘Codetermination Commission’ demands the repeal of key elements of the 2001 reform of the Works Constitution Act on the grounds that this made workplace-level codetermination more complicated, more bureaucratic and more expensive. More specifically, the ‘Codetermination Commission’ demands: an increase in the legal threshold of the number of employees required to establish a works council; a reduction in the number of works councillors who act as full-time employee representatives; the introduction of a quorum for the establishment of a works council (the ‘Codetermination Commission’ suggests that a works council can be established only if at least one-third of all employees entitled to vote participate in the election); and finally, decentralisation of collective bargaining by granting a stronger negotiating role to works councils at the expense of trade unions. At the same time, the ‘Codetermination Commission’ suggests a reduction of the range of issues on which works councils have codetermination rights.
Trade union and political party responses
The trade unions unanimously rejected the proposals of the ‘Codetermination Commission’ as an ideologically motivated all-out attack on the German codetermination system and German system of industrial relations more generally (for a detailed critique of the employer-side initiative see the DGB’s statement, also published on this website).
The government coalition also rejected the employer-side initiative. In particular, senior SPD representatives emphasised that they viewed the German codetermination system as a competitive advantage in the global economy. Chancellor Schröder himself stressed the valuable contribution the German codetermination system has made to securing industrial peace and economic prosperity and that he therefore sees no need whatsoever for legal changes to the existing system. The largest opposition party, the CDU, is ambivalent: whereas the traditionally labour-friendly ‘social committee’ within the party rejected the proposals of the ‘Codetermination Commission’, the more industry-friendly mainstream, including party chair Angela Merkel, took a more positive stance. The only party which unambiguously welcomed the proposals was the liberal FDP.
The current government’s firm position in favour of the existing codetermination model indicates that the chances of these proposals being implemented are very slim. However, the unprecedented rigour and scale of the employer side’s attack on basic employee representation and trade union rights should serve as a wake-up call for all those who want to retain the existing codetermination system as a central pillar of the German social market economy.
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