German companies that are integrated into international corporate structures are often confronted with the challenge that higher-level group companies simply make certain decisions and expect local implementation. But is every ‘global’ decision truly a legal non-issue for the local German organisation? In this article, we show why this is not necessarily the case and where challenges arise from a labour law perspective.
Restructuring and transformations
If restructuring decisions are taken within a global (cross-country and cross-company) matrix organisation, they are broken down to the respective country organisations and companies via the chain of instructions under company law. These organisations in turn have to ensure implementation within their areas of responsibility. From a legal point of view, however, the decisive entrepreneurial decision within the meaning of Section 1 of the German Act on Protection Against Unfair Dismissals (Kündigungsschutzgesetz) is only the (local) implementation decision, not the (global) management decision.
In principle, there is nothing to prevent global organisational decisions motivating a German redundancy. Global decision-makers authorised to issue instructions, for example to the managing director of a German GmbH, can pass instructions down the chain that ultimately lead to a redundancy or reduction in workforce needs in Germany.
In practice, it is often problematic that neither the ‘global’ organisational decision nor the ‘local’ implementation decision are properly documented. This leads to a situation where the entrepreneurial decision cannot be presented clearly in court proceedings, where it is also not necessarily clear how the ‘global’ decision influences local employment needs, and a dismissal for operational reasons (which could in principle be implemented) could fail in court.
Even if there is a global organisation and/or a transnational matrix organisation, nothing changes in terms of protection against dismissal. Where German statutory law requires a review of social selection or other gainful employment opportunities, only the German operation(s) of the company concerned are relevant (unless, for example, further procedural obligations have been provided for by collective regulations).
The fact that certain decisions have been taken ‘globally’ or ‘group-wide’ does not release the German group companies and establishments from co-determination obligations in the implementation of these decisions, which is often overlooked.
For example, if global policies are adopted, software tools rolled out or other similar measures are taken, co-determination issues may arise in individual cases. This can lead to ‘global’ decisions not being implemented (or not being implemented within the intended timeframe) locally until the issue has been clarified. In this respect, early and proactive involvement of the co-determination bodies as well as establishing a generally accepted approach for dealing with such issues is recommended.
This applies in particular if and to the extent that German group companies are sometimes ‘surprised’ by decisions made by the parent company on certain topics that are potentially relevant to co-determination but initiated without their knowledge. Often the German company is confronted with faits accomplis just as much as the employee representatives. It is then important to work out a sensible and practicable solution that does justice to the company’s circumstances.
It is often the case that jobs are advertised within a global organisation, but not necessarily in a particular company. After reviewing incoming applications, the position is then placed with the country and legal entity where it proves to be most ‘practical’, typically in the home country of the applicant ultimately selected. This procedure is different from the one laid down in the German Works Constitution Act (Betriebsverfassungsgesetz), which is based on job planning at company and company level.
It is undisputed that a local works council has a right of participation or co-determination in these processes (at the very latest, immediately before recruitment is executed). Typically, however, issues such as the priority of internal applicants also play a role.
While the employer can in most cases argue that co-determination is not relevant until there is a concrete job opening at the local employing entity, the potential co-determination issues then start from the point at which a candidate is to be identified and the recruitment decision initiated. This can lead to considerable timing issues, which must also be taken into account.
Vacancies that are only advertised ‘globally’ but not yet assigned to a local employment company are likely to become more typical in the future.