On July 18th 2017 the European Court of Justice (ECJ) held, that employees of a subsidiary located in the territory of another member state do not have the right to vote and stand as a candidate in elections of workers’ representatives on the supervisory board of the German parent company of that group and that such an exclusion is not contrary to EU law.

The plaintiff is a shareholder of a company, which is the parent company of a group of companies operating in the tourism sector. In the European Union, that group employs around 50,000 people, of which slightly more than 10,000 work in Germany.

The German Law on employee participation provides that half of the members of the supervisory board must be elected by the employees. Due to the principle of territoriality, which means that the German social order cannot extend to the territory of other states, employees of the group, who are located in another member state outside Germany, cannot vote or stand as a candidate in elections of representatives to the supervisory board. Moreover, any employee who carries out tasks on the supervisory board of the parent company must resign his position where he takes up a post with one of the subsidiaries of that group located in a state other than Germany.

The plaintiff therefore claimed that the supervisory board was not properly constituted. He argued, that the general principle of non-discrimination under European law (article 18 of the Treaty on the Functioning of the European Union (TFEU)) has been breached due to the fact that employees who live and work outside Germany are prevented from participating in the composition of the supervisory board. Furthermore, the loss of membership on the supervisory board in the case of a transfer to another Member State is likely about to dissuade workers from exercising their right to free movement within the EU (article 45 TFEU).

The ECJ distinguishes two situations in that regard. It points out, that with regard to employees employed in a subsidiary established in a Member State other than Germany, article 45 para. 2 TFEU contains a special clause of prohibition against discrimination on basis of nationality in respect of employment conditions relating to the free movement of workers. Therefore, the situation of all employees of the parent company must be examined solely on the basis of article 45 TFEU as a special regulation and therefore article 18 is not applicable. The court concluded, that article 45 para. 2 TFEU is not applicable to the situation of the affected employees, because that regulation does not apply to employees who have never exercised their freedom to move within the EU and who do not intend to do so. The fact that the foreign subsidiary is controlled by the parent company located in Germany is not relevant in order to be covered by that provision.

With regard to the employees in Germany who leave that employment in order to be employed in another entity outside of Germany, the ECJ held that article 45 TFEU is applicable. Any national measure which is suitable to hinder the freedom of movement or makes it less attractive is covered by that provision. However, EU law cannot guarantee, that moving into another member state will be neutral in terms of social security. The employee who decides to leave his state of origin in order to be employed in another member state is not entitled to claim for the working conditions which applied before in the country he was employed. The fact that those employees are required to give up exercising their mandate in Germany is merely the consequence of the application of a national legislation limiting the field of participation within Germany. The EU members are free to set criteria for defining the scope of legislation, as long as there is no harmonisation or coordination measures at union level. The affected national provisions are within the scope of collective labour law as well as company law.

As a consequence, the restriction of the national provisions of the German law on employee participation is in accordance with EU law.

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