How co-determination gives German employees a say in their companies

Co-determination, or Mitbestimmung, is the German system that gives employees a legal voice in how their employer is run. It works on two levels. In the workplace, employees can elect a works council (Betriebsrat) with rights over working hours, pay structures, monitoring technology and dismissals. In larger companies, employees also elect members of the supervisory board (Aufsichtsrat), which oversees the management and, in a stock corporation, appoints the management board: one third of the seats in companies with more than 500 employees, and half in companies with more than 2,000.

For anyone running, buying or working for a company in Germany, the thresholds matter. They decide whether managers have to agree certain decisions with an elected employee body, and who sits on the board that oversees them.

Works councils: co-determination in the workplace

Under the Works Constitution Act (Betriebsverfassungsgesetz), works councils are elected in businesses that, as a rule, have at least five permanent employees entitled to vote, three of whom are eligible for election. The same applies to a business run jointly by several companies.

Where there is no statutory rule or collective agreement, the works council has a right of co-determination in a long list of matters. They include:

• order in the business and how employees conduct themselves there
• the start and end of daily working hours, including breaks, and how working time is spread over the days of the week
• a temporary reduction or extension of normal working hours, which is why short-time work is agreed with the works council
• when, where and how pay is paid
• general holiday principles and the holiday plan
• the introduction and use of technical devices designed to monitor employees' behaviour or performance
• accident prevention and health protection
• pay structures, new pay methods, and piece rates and bonuses
• how mobile work using information and communication technology is organised

Co-determination here means that the employer cannot decide these matters alone. If the two sides cannot agree, a conciliation committee (Einigungsstelle) decides, and its ruling replaces an agreement between employer and works council.

The works council must also be consulted before every dismissal, and the employer must tell it the reasons. A dismissal made without consulting the works council is invalid. The council has one week to raise concerns about an ordinary dismissal in writing; if it says nothing within that time, it is deemed to have agreed. For an extraordinary dismissal it must raise concerns without delay, and within three days at most. It can object to an ordinary dismissal on specific grounds, for instance that social criteria were not properly considered or that the employee could be kept on in another job. If it has objected and the employee sues, the employer must, at the employee's request, keep them on under unchanged conditions until the case is decided, unless a court releases the employer from that duty.

Supervisory boards: one third or one half

The second level concerns the supervisory board. Under the Stock Corporation Act (Aktiengesetz), the supervisory board monitors the management and appoints the members of the management board (Vorstand) for terms of up to five years. Two laws decide how many of its members the workforce elects.

The One-Third Participation Act (Drittelbeteiligungsgesetz) applies to stock corporations (AG), partnerships limited by shares (KGaA), limited liability companies (GmbH), mutual insurers that have a supervisory board, and cooperatives with, as a rule, more than 500 employees. One third of their supervisory board must be employee representatives. A GmbH of this size must set up a supervisory board.

The Co-determination Act (Mitbestimmungsgesetz) applies to AGs, KGaAs, GmbHs and cooperatives with, as a rule, more than 2,000 employees. Here the supervisory board has equal numbers of shareholder and employee representatives. Some of the employee seats are reserved for representatives of trade unions, and employee members who work for the company must be at least 18 and have been with it for a year.

Parity, with a casting vote

Equal numbers do not mean an equal say in every case. The supervisory board elects its chair and deputy chair by a two-thirds majority of its members. If that majority is not reached, a second round follows in which the shareholder representatives elect the chair and the employee representatives elect the deputy, each by a majority of the votes cast.

Decisions are taken by a majority of the votes cast. If a vote is tied, it can be repeated, and if the second vote on the same matter is also tied, the chair has two votes. The deputy does not. In a deadlock, the side that chose the chair therefore has the last word, which in contested cases is the shareholders' side.

For listed companies covered by the Co-determination Act, there is also a gender rule: if the shareholder and employee sides meet the statutory quota separately, women and men must each make up at least 30% of the employee representatives.

Who is exempt

Neither the Co-determination Act nor the One-Third Participation Act applies to companies that directly and mainly serve political, religious, charitable, educational, scientific or artistic purposes or those of employers' and employees' associations, or reporting and the expression of opinion protected by the Basic Law's guarantee of press freedom and of reporting by broadcast and film. Religious communities and their charitable and educational institutions are also exempt, whatever their legal form.

What it means in practice

The thresholds are counts of employees ‘as a rule’ (in der Regel). When a company grows past 500 or 2,000 employees, the make-up of its supervisory board changes; a GmbH with more than 500 employees has to set one up in the first place. When it grows past 10,000 or 20,000 employees, it has to enlarge the board unless its articles already provide for a bigger one. Day-to-day decisions on rosters, overtime, holiday planning, new software for monitoring performance or a move to short-time work need the works council's agreement, or a ruling by the conciliation committee, where a council exists, and every dismissal must go through it first. Foreign investors buying a German company therefore inherit not just its staff but an employee voice that the law protects.