Structural agreements enable effective business and works council structures to be created both before and after works council elections.
The statutory business and works council structures are rigid and do not always meet practical needs. This is particularly true in view of the ongoing digitalisation and decentralisation of the world of work. In addition, works council elections regularly give rise to disputes over whether a unit constitutes an independent business (that is eligible for works council representation) and where its boundaries lie.
Entering into a structural agreement can be an effective means of optimising structures and creating a secure basis for works council elections. It is important to analyse the status quo at an early stage, define the desired target structure and examine the possible (legal) consequences associated with entering into a structural agreement. Upcoming works council elections can serve as a particular guide in terms of timing.
Section 3 German Works Constitution Act (BetrVG) opens up the possibility of creating business and works council structures that deviate from the law by means of structural agreements
Structural agreements may regulate the formation of a uniform works council for the company (subsection (1) 1. a)), the combination of companies or establishments (subsection (1) 1. b)) and the formation of branch works councils (subsection (1) 2.), other employees' representation structures (subsection (1) 3.), working groups (subsection (1) 4.) and additional employees' representations under works constitution law (subsection (1) 5.).
Since, in practice, the formation of a uniform works council for the company and the combination of companies or establishments are the most common applications of structural agreements, this article focuses on these two variants.
Defining business and works council structures by agreement creates legal certainty
If the organisational structures under works constitution law are determined by law, the definition of an establishment in accordance with section 1 (1) sentence 1 German Works Constitution Act (BetrVG) is decisive. Case law defines an establishment as an organisational unit within which an employer continuously pursues certain work-related objectives with the help of tangible and intangible operating resources together with the employees it employs (established case law of the German Federal Labour Court, decision of 23 September 1982 – 6 ABR 42/81). At first glance, this definition and its requirements do not appear to pose any real difficulties. On closer inspection, however, the Act and case law contain a number of more specific details and distinctions. For example, separate departments of establishments that normally have at least five employees with voting rights, including three who are eligible, are deemed to be independent establishments if they are either situated at a considerable distance from the principal establishment or are independent by reason of their function and organisation (section 4 (1) sentence 1 German Works Constitution Act (BetrVG)). If the above thresholds are not reached in an establishment, the establishment is treated as part of the principal establishment (section 4 (2) German Works Constitution Act (BetrVG)). If two or more companies employ the employees and equipment jointly in order to pursue their working objectives, a joint establishment is assumed to exist (section 1 (1) sentence 1, (2) German Works Constitution Act (BetrVG)).
A generally applicable definition of when a distance is deemed "considerable", when establishments are deemed "independent", when "pursuit of joint objectives" is to be assumed or which establishment of several establishments is deemed the "principal establishment" can neither be found in the Act nor in case law. The question of whether one or more establishments exist and how they are distinguished from one another is therefore often the subject of legal disputes. This also applies in particular in connection with works council elections. The principle is "one establishment, one works council". If an election is held without proper understanding of what an establishment is, there is a risk of the election being contested and, in extreme cases, even declared null and void. This illustrates not only the complexity of the matter, but also the need for legal certainty. In addition, the actual working practice and structure often do not correspond to the schematic and rigid legal definition of an establishment and its boundaries.
Defining business and works council structures by agreement enables the creation of essentially customised solutions that can be used to establish a secure basis for works council elections and day-to-day cooperation in matters relevant to codetermination.
Requirements for a uniform works council for the company/combination of companies or establishments
The formation of a uniform works council for the company and the combination of companies or establishments are essentially subject to the same requirements. In both cases, all works councils concerned must belong to the same company, and the formation or combination must either (effectively) facilitate the establishment of works councils or serve the interests of the employees. If a uniform works council for the company is to be formed, an additional requirement is that the objective, i.e. facilitating the formation of the works council or serving the interests of the employees, cannot be achieved by combining individual establishments as a less drastic measure (German Federal Labour Court, decision of 24 April 2013 – 7 ABR 71/11). In the case of a joint establishment, not all establishments belong to the same company (German Federal Labour Court, decision of 13 March 2013 – 7 ABR 70/11).
Case law has recognised that the formation of works councils is actually facilitated in particular in cases where there is otherwise a risk of non-election in individual establishments (German Federal Labour Court, decision of 24 April 2013 – 7 ABR 71/11) or where the election would involve a disproportionate amount of effort under the structure prescribed by statute (see Dresden Labour Court, decision of 19 June 2008 – 5 BV 25/08). According to the explanatory memorandum on the legislation and the case law, the interests of employees are served, for example, when decisions on matters requiring participation are made centrally (German government printed paper 14/5741, 34) or the participation of employees in units that are not eligible for works council representation is encouraged or a situation without a works council is prevented (see Lower Saxony Regional Labour Court, decision of 22 August 2008 – 12 TaBV 14/08). The parties to the structural agreement have a prerogative of judgement with regard to the question of whether the measures "serve" the interests of the employees (German Federal Labour Court, decision of 24 October 2013 – 7 ABR 71/11). In this context, it is sufficient if the objective is pursued in a comprehensible manner and its achievement is not precluded from the outset; objective success is not required (see German Federal Labour Court, decision of 13 March 2013 – 7 ABR 70/11). The requirements for such agreements are therefore comparatively low (German Federal Labour Court, decision of 18 November 2014 – 1 ABR 21/13).
Defining structural agreement in collective bargaining agreement or works agreement
Depending on their subject matter, structural agreements can be entered into in the form of a collective bargaining agreement or a works agreement. However, the formation of a uniform works council for the company or the combination of companies or establishments by means of a works agreement is only possible if no collective bargaining provisions apply (section 3 (2) German Works Constitution Act (BetrVG)). The blocking effect already applies if any collective bargaining agreement applies. The only prerequisite is that both parties are bound by collective bargaining agreements. This means that any collective bargaining agreement – regardless of whether it is an association-level or company collective bargaining agreement, and regardless of whether it (at least also) concerns the organisational structures under works constitution law – precludes the conclusion of a works agreement (Munich Regional Labour Court, decision of 11 August 2011 – 2 TaBV 5/11; German government printed paper 14/5741, 34).
Evaluating existing structures and defining the target structure
If new business and works council structures are to be created, the first step is to take stock of the existing structures.
- Are the existing business and works council structures in line with the law?
- Or are there structural agreements from the past (which may have been forgotten)?
- Do the current structures reflect individual needs in practice?
- Which structure best suits the actual working practice?
These and many other questions need to be asked and answered. Depending on the answers to the above questions, the target structure must then be defined.
Examination of the legal consequences of the target structure
It is important to examine the possible (legal) consequences of the planned target structure at an early stage and to include them in the assessment of how to proceed. In this respect, particular consideration should be given to the consequences for the establishment, the works council and the works agreements. The main legal consequences of forming a uniform works council for the company and combining establishments can be summarised as follows:
- Legal consequences for the establishment: The organisation units established on the basis of a structural agreement under works constitution law are considered establishments within the meaning of section 3 (5) sentence 1 German Works Constitution Act (BetrVG). The formation of a uniform works council for the company therefore results in the fiction of a (single) uniform establishment. If establishments are combined, the unit(s) formed is/are deemed to be (an) establishment(s). However, it should be noted that the fiction only applies if the definition of an establishment within the meaning of the German Works Constitution Act is decisive (e.g. section 3 German One-Third Participation Act (DrittelbG)/German Codetermination Act (MitbestG)). In this respect, the fiction does not extend in particular to the right of termination and social selection (German Federal Labour Court, judgment of 31 May 2007 – 2 AZR 276/06; on mass dismissal German Federal Labour Court, judgment of 13 February 2020 – 6 AZR 146/19).
- Legal consequences for the works council: The formation of a uniform works council for the company means that a (single) works council is formed for all of the company's establishments. If several establishments are combined, a works council may be formed in each of the business units formed in accordance with the principle of "one establishment, one works council". The rights and obligations of works councils elected in establishments formed by means of structural agreements are determined by the general provisions of the German Works Constitution Act (section 3 (5) sentence 2 German Works Constitution Act (BetrVG)). They thus correspond to those of a "normal" works council. If several business units are formed and works councils are elected, these can form a company works council (sections 47 ff. German Works Constitution Act (BetrVG)). If a uniform works council for the company is formed, the formation of a company works council is precluded due to the fact that there are not several works councils. The question of whether and, if so, which of several works councils is entitled to a transitional mandate when a discretionary structure is introduced must be examined on a case-by-case basis, taking into account the respective overall circumstances, and a distinction must be made between a merger by new formation and a merger by absorption.
- Legal consequences for works agreements: If the previous establishments continue to exist as distinct parts of the business unit formed by way of agreement, the previous works agreements remain unaffected and continue to apply to the part of the business that they previously covered (German Federal Labour Court, decision of 18 March 2008 – 1 ABR 3/07). In all other respects, a case-by-case assessment is also required here, but a distinction must again be made between the different types of merger.
The example of working hours clearly illustrates the considerable importance of taking the legal consequences into account at an early stage in the decision-making process regarding the target structure. If different working hours, working time models and/or shift systems applied in the previous establishments, it must be clear which provisions apply to working hours in the new establishment. In order to create legal certainty with regard to the (non-)applicability of previous works agreements, it is generally advisable to start negotiations on a transition agreement at an early stage. The same applies to the (non-)existence of a transitional mandate for works councils.
Limitations of the structural agreement
The limitations of a structural agreement depend on the specific subject matter it regulates. With regard to the formation of a uniform works council for the company and the combination of companies or establishments, a significant limitation is the broad proviso regarding collective bargaining agreements, which in practice often blocks the path to concluding a structural agreement in the form of a works agreement. Further limitations lie in the individual conditions for effectiveness, e.g. the (actual) facilitation or serving employees' interests. Once a structural agreement has been effectively entered into, its scope ends at the boundaries of the German Works Constitution Act. The definition of an establishment under other legal provisions is not at the disposal of the parties to a structural agreement.
Making targeted use of structural agreements: creating efficient business and works council structures and preparing for upcoming elections with legal certainty
Structural agreements can be an effective means of increasing the efficiency of business and works council structures. At the same time, they offer the opportunity to create a secure basis for works council elections and cooperation under codetermination law in day-to-day practice. It is important to assess the (legal) consequences of the agreement at an early stage and to keep its limitations in mind.
