Permanent Effect of the Employee Resolution on the Election of a Company-Wide Works Council

In its decision of March 24, 2021 (file no.: 7 ABR 16/20), the German Federal Labor Court (Bundesarbeitsgericht – “BAG”) clarified that the resolution to elect a company-wide works council, brought about by a vote within the workforce, applies not only to the first works council election following the vote, but also enables the election of a company-wide works council until the workforce adopts a contrary resolution (“actus contrarius”). 

In the underlying case, the BAG had to assess whether the company’s originally existing organizational structure had been dissolved by a series of restructurings of the original company for which the resolution to elect a company-wide works council had been adopted, so that there was no longer a company-wide organizational unit subject to representation by a works council with respect to the employer.

Specifically, in 2002 the majority of the employees under the present employer’s legal predecessor passed a resolution to establish a company-wide works council. The company-wide works council was then elected for the first time in 2002 – and until the initiation of the resolution proceedings – was subsequently elected on a regular basis. In 2014 and 2019, two (further) companies were merged into the employer (or its legal predecessor).

Two local works councils were of the opinion that the original corporate structure had been dissolved as a result of the mergers, not least because the number of employees had also increased from a total of 2,472 in 2002 to 4,600, and further sites (with already elected works councils) had been added. The participating company-wide works council and the company were of the opposite opinion and applied for a declaration that the company-wide works council continued to exist, as the corporate structure that had existed since 2002 had not been dissolved or changed as a result of the mergers. 

The BAG has now clarified that the resolution passed by the employees continues to have effect (“permanent effect”) until the employees pass a resolution to the contrary. The resolution cannot lose its effect after a certain period of time. Although this is not clear from the relevant statutory provision’s wording (Art. 3 (3) BetrVG (German Works Constitution Act)), however – according to the BAG – legal system considerations would speak in favor of a permanent effect, since even provisions under collective bargaining law do not provide for a restriction to an election period. The Works Constitution Act’s relevant provision is intended to facilitate the formation of a representation of interests in the company and not to make it more difficult or even to regulate it only temporarily. A possible increase in the number of employees could also not serve as criterion and, moreover, had no effect, since the statutory provisions providing for new elections in the event of a change in the number of employees (specifically Art. 13 (2) No. 1 BetrVG) are not applicable to a resolution pursuant to Art. 3 (3) BetrVG.

Even a subsequent change in the operational structures does not result in an annulment of an effective resolution, provided that at least the framework specified by Art. 3 (3) BetrVG remains intact. Restructurings are performed due to the employer’s decisions and, in order to safeguard the employee resolution and the employee representation based on such resolution, may not dissolve such representation if the company continues to consist of several businesses and continues to exist as a whole. If an enterprise in which a company-wide works council has been elected acquires one or more businesses, the acquired businesses shall in future be included in the company-wide operational structure elected by the employee resolution, so that the works council in the acquired business shall cease to exist and the employees shall be represented with immediate effect by the company-wide works council of the acquiring enterprise. In this regard, it is also irrelevant whether the acquired business has been transferred by preserving its legal form or whether it has been integrated into the operational structures.

However, the BAG also clarified that the effect of an employee resolution is lost if restructuring results in a joint operation of the company bound by the resolution with another company.

Practical advice

Until the so-called "actus contrarius", the employee resolution allows for the election of a company-wide works council. The relevant provision of the German Works Constitution Act (Sec. 3 (3)) does not contain any restriction. The fact that the election of a company-wide works council by the employees not only entails advantages for the represented employees, but also (to a considerable extent) for the employer, is clear from the fact that the employer involved in the proceedings fought – side by side – with the company-wide works council for its continued existence.