The Works Council Modernisation Act and the Green Alliance Initiative in the Bundestag today: What promotes democracy in the workplace?

Several legislative initiatives on employees’ participation are to be debated in the Bundestag today. Taking part as an expert will be Dr Johanna Wenckebach, director of the Hugo-Sinzheimer-Institut (HSI) for Labour and Social Security Law.

17.05.2021

Several legislative initiatives on employees’ participation are to be debated in the Bundestag today. A hearing at the committee for labour and social issues will, among other things, look at the Grand Coalition’s draft Works Council Modernisation Act, as well as a legislative proposal from the Green Party parliamentary group on safeguarding and strengthening company codetermination. Taking part as an expert will be Dr Johanna Wenckebach, director of the Hans-Böckler-Stiftung’s Hugo-Sinzheimer-Institut (HSI) for Labour and Social Security Law. The expert report, on which the Stiftung’s Institute for Codetermination and Corporate Governance (IMU) has also worked, is available on the Bundestag website.

The Works Council Modernisation Act should, among other things, make it easier to establish works councils in smaller firms, enable people to participate in works council elections from 16 years of age, and hinder employers’ efforts to thwart the establishment of workers’ representations. A qualitative study by the Hans-Böckler-Stiftung shows how important this is. It comes to the conclusion that approximately one in six first elections of works councils are impeded. The Greens’ Initiative, in turn, proposes concrete measures to close legal loopholes that to date have been used to thwart the exercise of codetermination rights in the supervisory boards of large companies. There is an urgent need for action here, too: according to an IMU study, at the beginning of 2020 at least 2.1 million people were affected by this in companies with more than 2,000 employees alone.

According to Johanna Wenckebach ‘codetermination is democracy in action in the economy and the world of work. From a labour law perspective, individual employees’ rights can be enforced only if good working conditions and workplaces are safeguarded’. She goes on: ‘Recent research also shows that the company as a whole and society in general benefit if employees participate in making important decisions. For example, companies with codetermination more often implement an innovation-oriented business model. Furthermore, they tend to emerge better from economic crises, invest more and do more for equal opportunities and to reconcile work and family life. In the current period of transformation, characterised by far-reaching technological changes and the resulting strong demand for qualified employees, it is a matter of urgency to safeguard and reinforce codetermination’.

Works Council Modernisation Act: positive steps but only a few go far enough

On a number of important issues the draft Works Council Modernisation Act represents welcome progress for company codetermination. On key points, however, it doesn’t go far enough, according to Wenckebach.

The HSI director unreservedly welcomes the planned lowering of the voting age in works council elections to 16. ‘Actively enabling younger employees to vote is not only keeping up with the times, but also advisable in light of the prohibition on age discrimination’, she writes.

Her view of, for example, extended employment protection for those instigating works council elections, however, is more mixed. The original draft of the Federal Labour Ministry envisaged effective statutory protection, but in the course of voting in the cabinet it was considerably diluted and will thus be implemented in the present draft law in only a ‘fragmentary’ way. The draft law is pointing in the right direction in relation to the issues of qualifications, personnel planning and the deployment of artificial intelligence in the workplace, which need enhanced codetermination, but it doesn’t go far enough. For example, a right of initiative is lacking for works council in matters of qualitative personnel development and planning, writes Wenckebach. A legislative proposal from Die Linke, which is also being discussed in the committee, shows how these loopholes could be closed.

Important Green initiative to strengthen company codetermination

The proposal of the parliamentary group of Bündnis 90/Die Grünen is emphatically welcomed by IMU expert Dr Sebastian Sick, who is also a member of the government commission on the German corporate governance code. ’The democratic design principle of company codetermination is demonstrably being gradually eroded’, writes the company law expert. A key reason is the weaknesses of European company law in combination with loopholes in Germany’s codetermination laws, which have not yet been closed. On top of that, a number of companies ignore codetermination legislation. Although that is illegal it has not been effectively sanctioned thus far. ‘There is therefore an urgent need to close loopholes that enable avoidance, to counteract illegal efforts to ignore the law, and to further develop codetermination for the purposes of the social and environmental transformation. That is the aim of the present proposal’, says Sick.

The Green Alliance’s legislative initiative deals, among other things, with the following points on safeguarding codetermination, which the Hans-Böckler-Stiftung’s expert analysts also consider central:

Legally binding clarification that the codetermination legislation applies to all capitalistically structured firms with more than 500 employees in Germany. Unlike at present, in that case for example codetermination could no longer be bypassed if a commercial company operates in a legal structure with a foundation (like Aldi, Lidl or the Würth group), or chooses a hybrid construction with German and foreign legal forms. At the outset of 2020 more than 60 large German firms were using such exotic constructions, including the Tönnies Group whose holding company operates as ApS & Co. KG, a structure with Danish and German legal forms. For that reason alone the company does not have codetermination, even though across the group there are more than 2,000 employees in Germany. Reform is possible, according to IMU, in conformity with European law.
In the case of European legal forms, such as the European Company or SE, the legislator should ensure that it is not possible to ‘freeze’ a particular status without – or with a lower level of – codetermination by means of a tactical transformation at an early stage at which the company is not yet subject to codetermination legislation. Specifically, that means that if the number of employees goes above the threshold of 500 or 2,000 there must be an opportunity to expand codetermination rights accordingly. Sick’s analysis shows that this is possible under European law. As things stand, however, even prominent DAX companies, such as Vonovia SE or Deutsche Wohnen SE, do not have parity-based supervisory boards with codetermination.
Closure of so-called ‘one-third participation gaps’. This led, for example, to the fact that there were no employee representatives on Wirecard’s supervisory board as a monitoring body. This is based on the fact that in the One-third Participation Act, which regulates workers’ participation in the supervisory boards of companies with between 501 and 2,000 employees, the employees of affiliates are not automatically included as part of the group workforce. A group thus remains without worker participation in the supervisory board if it is divided up into a holding company and various affiliates, none of which has more than 500 employees and which are not linked to one another through formal ‘control agreements’ – even if the various dependent companies taken together have far more than 500 employees, as in the case of Wirecard.
Companies that unlawfully fail to apply codetermination legislation have to be sanctioned effectively. To that end, IMU legal expert Sick mentions a number of options, including financial penalties related to revenues. Furthermore, in response to the control failures at Wirecard, the proper application of codetermination legislation should be introduced as a condition of a stock exchange listing and participation in capital markets.
The European Commission should start work on a framework directive that sets general minimum standards for workers’ participation across Europe. Employees’ involvement must be anchored as a core element of European corporate governance.

Company law expert Sick also takes a positive view of provisions in the Green Alliance legislative initiative aimed at strengthening company codetermination. They are based on regulations that already apply in companies whose employee participation is in accordance with the Act on Codetermination in the Coal, Iron and Steel Industry:

Parity-based codetermination in all companies with at least 1,000 employees in Germany (instead of the 2,000 laid down in the Codetermination Act of 1976) and one-third participation from 250 employees.
Modified conciliation procedures in stalemate situations. Hitherto, in the case of a tie in votes in parity-based supervisory boards, the chair has a casting vote. That in effect gives the shareholders’ side a majority in all disputes, which, for example, in the recent conflict at the Continental tire plant in Aachen led to the closure of the plant. The proposal of Bündnis 90/Greens, by contrast, provides that in such cases ’a conciliation procedure should be mandatory. In such a procedure, with the help of external expertise, an effort should be made to identify prospects for sustainable employment and commercial success against the background of the social-ecological transformation.’ This is important especially in the case of measures concerning the company’s strategic orientation with reference to its workforce.

Further information

Johanna Wenckebach, Thomas Klebe, HSI, Sebastian Sick, Daniel Hay, IMU: Schriftliche Stellungnahme der Hans-Böckler-Stiftung für den Ausschuss für Arbeit und Soziales des Deutschen Bundestages (pdf) [Written opinion of the Hans-Böckler-Stiftung for the Committee on Labour and Social Affairs of the German Bundestag]

Further information on the economic effects of codetermination and its vulnerability: Was Mitbestimmung bewirkt [What codetermination does].

Contact

Dr Johanna Wenckebach
Director HSI

Dr Sebastian Sick
IMU, company law expert

Rainer Jung
Head of the press office