Societas Europaea (SE) – Update on temporary workers and corporate co-determination

A ruling issued by the German Federal Court of Justice (BGH) in June 2019 has implications for the relevant level of co-determination in companies and groups of companies in which temporary workers are employed:

BGH, Order dated June 25, 2019 – II ZB 21/18
Consideration of Temporary Employees in Company Co-Determination – Job-Related Consideration

Initial situation

As soon as the number of employees in a company regularly exceeds the limit of 500 or 2,000 employees, a supervisory board composed of employee representatives must be formed (Sec. 1 (1) One-Third Participation Act and Sec. 1 (1) No. 2 Co-Determination Act). The German Temporary Employment Act (Arbeitnehmerüberlassungsgesetz, AÜG) stipulates that temporary workers must also be taken into account when determining the relevant thresholds (Section 14 (2) sentence 5 AÜG). This shall apply in any case if “the duration of the assignment exceeds six months” (Section 14 (2) sentence 6 AÜG). Up to now, there has been controversial discussion about how the characteristic of “six months’ service” should be interpreted. According to one view in the literature, the decisive factor should be that a specific employee has been deployed in the hirer company for more than six months (employee-related view). The opposing view focused in the abstract on whether temporary workers – even if they are different persons – were deployed at a specific workplace in the company for more than six months (workplace-related consideration).

Decision of the BGH

In its decision of June 25, 2019, the BGH has now ruled on this question, which is relevant for practice. It assumes that the characteristic of “length of service” is to be understood in relation to the workplace. The decisive factor is whether a company fills jobs with temporary workers “for more than six months during a year”. This applies irrespective of whether specific or alternating temporary workers are deployed. According to the resolution, the determination is to proceed as follows: First of all, it must be examined whether and how many jobs the user company occupies with temporary workers during a year and for a period of more than six months (stage 1). If the answer to level 1 is in the affirmative, it is also important whether the use of temporary workers is to be regarded as “regular employment” within the meaning of the co-determination laws (Section 1 (1) No. 2 MitbestG or Section 1 (1) Drit-telbG) (level 2). According to the case law of the Federal Labor Court, this would be negated, for example, if “temporary tasks” (e.g. seasonal orders) require the use of temporary workers that exceed the duration of six months but do not serve “in the longer term as an instrument for covering the personnel requirements in the company”.

Recommendations for practice

In the future, the BGH’s workplace-based approach must be taken into account when determining the threshold values in the co-determination laws. Companies or groups of companies that employ temporary workers and have previously determined the corresponding employee figures on the basis of an “employee-related” consideration must carry out an updated calculation. This is crucial for companies that are currently still below the threshold of 500 or 2,000 employees and would have to set up a supervisory board with employee representatives for the first time. Existing co-determined supervisory boards are to be enlarged if necessary (Sec. 7 (1) Mit-bestG). Since the use of temporary workers must also constitute “regular employment” in order to be taken into account in the threshold values of the right of co-determination, a differentiated consideration of individual cases will always be necessary in the future as well.

Design option Societas Europaea

In view of the tightening in the area of corporate co-determination, the question arises once again for companies and groups of companies as to whether they are better positioned with a Societas Europaea (European Company, or SE for short): As a European legal form, the SE is not subject to the direct application of German co-determination law. In addition, European provisions lead to the fact that the level of co-determination existing at the time of the establishment of the SE can be frozen. This offers options for the formation as well as the design of co-determined supervisory boards.
Not least as a result of this, the SE has developed within a few years into a popular alternative model to the forms of company law provided for in Germany. The SE’s international orientation also makes it attractive. Furthermore, by means of options regarding their organizational structure, characteristics of a stock corporation can be combined with those of a GmbH, which can be interesting, for example, in the case of family-run groups of companies. In Germany in particular, the SE has achieved lasting practical strength. Of approximately 640 SEs currently operating in Europe (as of November 2019), around 350 are headquartered here.