CJEU: German employee participation arrangements may exclude non-German workers

Konrad Erzberger, a shareholder of the German parent company of global tourism operator TUI, had claimed the law discriminated against workers from other TUI companies on the grounds of nationality. He also claimed it breached the EU principle of free movement of workers, as it would discourage German workers who were members of the supervisory board from transferring to another member state.

In its judgment, the CJEU said that preventing non-German workers from voting or participating on the supervisory board was not discriminatory. At the same time, the possibility of a German worker losing the right to vote or to participate was not an impediment to freedom of movement, it said.

"Primary EU law cannot guarantee to a worker that moving to a member state other than his member state of origin will be neutral in terms of social security, since, given the disparities between the member states' social security schemes and legislation, such a move may be more or less advantageous for the person concerned in that regard," the court said in its judgment. "Therefore... [EU law] does not grant to that worker the right to rely, in the host member state, on the conditions of employment which he enjoyed in the member state of origin under the national legislation of the latter state."

"In that context, EU law does not, in the field of representation and collective defence of the interests of workers in the management or supervisory bodies of a company established under national law, a field which, to date, has not been harmonised or even coordinated at Union level, prevent a member state from providing that the legislation it has adopted be applicable only to workers employed by establishments located in its national territory, just as it is open to another member state to rely on a different linking factor for the purposes of the application of its own national legislation," the court said.

Under German law, public limited companies with 2,000 employees or more are required to appoint a supervisory board, half of which must consist of shareholder representatives and the other half of representatives appointed by the "employed workers". For the purposes of the law, "workers" applies only to those employed in Germany.

The TUI Group, of which German company TUI AG is the parent company, is a global operator. Group companies employ around 50,000 people in the EU, of which slightly more than 10,000 work in Germany.

The CJEU quickly dismissed the claims of discrimination on the basis of nationality and breach of freedom of movement rules on behalf of the non-German workers. Quoting the opinion of one of its advocate generals in the case, the court ruled that the fact that a company is owned or controlled by a company established in another EU country was not in itself enough to affect the freedom of movement of workers. The rules "are not applicable to workers who have never exercised their freedom to move within the Union and who do not intend to do so", it said.

For the German workers, although EU law prevents member states from "hindering or rendering less attractive" the right to freedom of movement, this did not mean that workers could rely on the same employment terms if they were to exercise that right. The German employee participation law is subject to both German company law and German labour relations law, and the German government is entitled to limit its scope only to workers employed by German establishments, it said.

"The fact that those workers are required … to give up the exercise of their mandate in Germany is merely the consequence of the Federal Republic of Germany's legitimate choice to limit the application of its national legislation in the field of participation to workers employed by an establishment located in German territory," the CJEU said.

Employment law expert Manfred Schmid of Pinsent Masons, the law firm behind Out-Law.com, said that the judgment "gives us a good insight on the court's opinion towards the German principle of territoriality". This is the principle according to which the German social order cannot be imposed on other member states.

"We appreciate the decision on the legality of Germany's employee participation law," he said.

"Aside from a potential amendment of the relevant laws by the German legislature, any other outcome would probably have generated some struggle with regard to the execution of the legally watertight election process as well as triggered the tough question if such employees then would also have to be taken into consideration for the relevant law's threshold values," he said.