Co-determination of works councils within the framework of matrix structures
Judgment of the Federal Labour Court of 12 June 2019 – Case No. 1 ABR 5/18
If an employee, whose regular place of work is at a specific company site and who is regularly active at that site, is appointed as supervisor of company employees at another site an through their management function (also) realises the objects of this second site, this appointment is considered recruitment within the meaning of § 99 (1) first sentence of the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG) (official guiding principle of the case).
Facts of the case
An employee was promoted to division manager. He was already assigned to the division within the central office. The works council for the central office approved his promotion. However, the employee now performed his duties as manager and now had the authority to issue directives to various employees at another company site with its own works council. This works council refused to approve the promotion, referring to the failure to advertise the vacant division manager position internally.
The Court confirmed that this appointment was “recruitment” within the meaning of the Work Constitution Act and thus that the approval of the site works council was required with respect to how the division manager was to be integrated within the site for the fulfilment of his management duties. This alone was decisive for the manager’s integration at the site and thus for the evaluation of the “recruitment” from a legal perspective. Whether the manager carries out his work at the site or within the business does not play a role; a minimum presence at the site is not a requirement. The time that the employee invests specifically in activities for the site is also irrelevant. No quantitative or qualitative stipulations can be deduced from the BetrVG. The assignment of a division manager for the site within the central office is not opposed to the integration within the operations with the employees under the manager’s supervision. Simultaneous integration into more than one site is certainly possible.
In this case, the local works council and not the general works council is responsible for the recruitment of the manager. However, the local works council should not have refused to give its approval for the promotion. The employer did not create a new position nor replace an existing position within the site where the employees to be managed are based. That is why it was not necessary to advertise the division manager position internally.
Consequences for practice
Approximately one-third of German companies now base their internal organisation on a so-called matrix structure. A matrix structure divides the company horizontally into project or project-related divisions (product 1, product 2). It also divides the company vertically into functional areas (e.g. production, sales, administration). This has the advantage that inter-departmental lines of communication are significantly shorter. In addition, it facilitates a close, technical management of employees beyond the borders of the site or company. It increases efficiency and levels of specialisation.
The Works Constitution Act entered into force in 1972 and is not designed for modern matrix structures. Under the Act, a company with more than 20 employees must inform and obtain the approval of the works council before recruiting or transferring employees within operations. But does this also apply to the transfer of a management task in the matrix structure in the site of subordinate employees? And which works council is responsible in such cases? According to this judgment of the Federal Labour Court, where the manager is to be integrated into the site, the site works council will be responsible.
If employees are to follow the directions of a new manager, the works councils for those employees should be immediately involved. For large companies, this can quickly mean that various local works councils will have to be involved. In certain circumstances, the works council can even refuse to grant its approval. However, in such cases, where there is an objectively justified reason, the Works Constitution Act provides a procedure for a preliminary implementation of the recruitment. The works council cannot stop this preliminary implementation, even by interim injunction. In order to avoid the involvement of the works council when transferring management responsibilities, the employer should verify whether the manager is a managerial employee within the meaning of the Act as the Act and its co-determination rights do not apply to executive staff. In the case of doubt, the local works council should be involved in the recruitment process as a precaution. In any case, it is important from a practical perspective that the Court provided some clarity on the exclusive competence of the local works council.
Please note: This article appeared in a different form online on LTO (of 18 September 2019).
Dr Wolfgang Lipinski
Lawyer, Licensed Specialist for Labour Law
Lawyer, Licensed Specialist for Labour Law