Employee rights also protected by the SE

27 November 2022, Munich. Are the co-determination rights of German employees protected when a company is converted into a SE? Or must changes be made, as the country’s three-party coalition government has announced? The Foundation for Family Businesses had this question addressed in a new legal opinion written by Professor Christoph Teichmann of the University of Würzburg, an expert for both German and European commercial and company law.

High value of co-determination in Germany

Entrepreneurial co-determination is a highly valued right in Germany – more highly valued than in other member countries of the EU. But co-determination law applies only to employees who are employed in Germany. Many family businesses that operate internationally opt for the legal form of a Societas Europaea (SE), i.e. a European stock corporation that also includes employees abroad.

The basis for the SE has existed in European law for about 20 years. Upon converting to the SE form of organisation, a company retains its previous degree of co-determination based on the size of its workforce. This level subsequently remains constant, even if the workforce increases (freezing effect).

Lawmakers in Germany have already limited this freezing effect; employees can cite the status quo and conduct new negotiations if necessary. Germany’s abuse regulations meet European standards. At most they could be made more specific, according to a new legal opinion drawn up on behalf of the Foundation for Family Businesses.

Negotiate first, then apply standard rules

Teichmann describes the widely differing traditions of co-determination in Europe: The process leading to the SE directive and an SE regulation on employee participation took 30 years to complete. From a German perspective, Teichmann sees no way to touch EU law. He approves of the current accord between the social partners and the standard rules that would be used if the partners are unable to reach an agreement. In such instances, the previous co-determination level at the least would be maintained in a SE.

In light of rulings by the European Court of Justice, Teichmann sees only one way that German lawmakers could prevent the freezing effect from being abused – namely, by defining stricter criteria for instances of suspected abuse: the company may not immediately represent itself significantly differently following its conversion into a SE.

Do not make the SE more unwieldy

Professor Rainer Kirchdörfer, Chairman of the Foundation for Family Businesses, said, “Germany’s large family businesses are active around the world and naturally involve the workforce at the operational level – both nationally and internationally. With its international orientation, the SE often suits them very well. For this very reason, it should not be structurally more cumbersome or slower in decision-making than other foreign forms of organisation in which global competitors are organised.”