No making up of negotiations on employee participation when an SE with no employees is activated

The case referred to the ECJ by the Federal Labour Court (BAG) concerned a holding SE founded in 2013 and registered in England and Wales. The founding companies were a German GmbH and a British Ltd. Neither of them had any employees themselves nor any subsidiaries which employed staff. For this reason, no negotiations about employee participation took place before it was registered. On the day after founding, the holding SE became the sole shareholder of a German GmbH. Owing to the number of its employees, this company was subject to the German One-Third Employee Representation Act (Drittelbeteiligungsgesetz – DrittelbG). A third of the GmbH’s supervisory board was made up of employee representatives. After it was transformed into a German limited partnership (Kommanditgesellschaft), code termination ended.

In 2017, the holding SE moved its registered office to Hamburg. In the view of the group works council, the holding SE should have had to subsequently form a special negotiation committee. This would have allowed the employee participation procedure to be subsequently made up. The grounds given for this were that the subsidiaries had employed employees in several member states. The labour court and higher labour court both rejected the case. The Federal Labour Court referred the matter to the ECJ.

Employee participation and SEs

The ECJ’s answer to the main question presented by the Federal Labour Court was convincing. It stated that if a holding SE is registered without carrying out negotiations on the participation of employees, because the companies involved in founding do not employ any employees or do not have any subsidiaries that employ staff, European law does not lay down beginning any such negotiations at a later date if the SE has become the controlling entity of a subsidiary that has employees in one or more member states after it has been founded. In the ECJ’s view, the wording of the European legal provisions that are relevant here shows that appointing the special negotiation committee and conducting the negotiations should take place when the SE is founded, and before it is registered. These provisions are not applicable to an SE that has already been founded.

The SE in practice

The most relevant effect for practice should be that an employee participation procedure is not to be subsequently made up at a shelf SE that has already been founded, except for arrangements made by abuse.  This applies if the shelf SE is activated for business by acquiring an interest in it. Although the judgment relates to the founding of a holding SE, the grounds for the judgment can also be applied to the founding of a shelf SE.  The basis for this is that the companies involved in the founding do not have any employees themselves, nor do subsidiaries employ staff. From the perspective of code termination, the business form of the SE thus remains legally secure. So an important point of the coalition government’s plans to strengthen corporate code termination in Germany has been thrown overboard.