- Posted by jbehrendt on July 5, 2009
Some of you may be aware of the extensive rights employees enjoy in Germany. These rights do not only apply to their individual rights as specified in their working contract, and in collective labour agreements between unions and employer's associations, but cover a range of rights regarding worker's participation in relevant management decisions as well.
One institute established for this purpose is a system of works councils. By law, they are to be established on request of employees in every single location with at least five employees. Since this may prove to be to much (the customer runs more than 6,000 supermarkets in Germany alone!), collective labour agreements can be concluded in which these local works councils are replaced by regional works councils. In any case, in addition to it, a central works council is to be established.
The situation in the restructuring project is, in this respect, not easy. Two companies, each of them with numerous locations, are to be managed under consideration of the law governing works councils. In one of the two companies, collective labour agreements could be established according to which local works councils are replaced by a few regional works councils. In the other company, however, this could not be achieved for most of the regions. So one question to be solved is the arrangements for works councils in the new company to be created - shall it follow the already set up regional works councils structure from one company, or rather the - much more costly and difficult to manage - local works council structure of the other company?
A second issue of consideration is, of course, the range of existing collective labour agreements governing the salaries and other remuneration components for the employees. Again, the two companies are different, being members of different employer's association. One of the two companies bases their agreements on the pay scale for the retail sector (which is rather expensive), the other one for the wholesale sector. Which rates are to be applied in the newly founded company?
Of course, there is a clear preference at employer's side. If possible, local works councils should be fully replaced by regional works councils for the new company. But this would mean that a lot of employees currently being active in worker's participation suddenly will not have this special duty (for which a certain amount of worktime, sometimes the full worktime, is to be reserved, and paid for, by the employer) any longer, which is not necessarily in their interest. A similar situation exists for the pay rates to be applied - preferably, from employers point of view, it should be the cheaper wholesale sector pay rates, but this, again, would not be in the interest of the workers currently receiving a higher remuneration - and, besides, it could not be changed for already employed employees anyway, they would keep their rights from the higher-paid contracts even if a new collective labour agreements would be signed.
It may look simple for a non-German to find a solution - simply apply what is best for the employer, and what maximizes profits. This, however, would be different for two reasons: First, the employees could simply go on strike and cause so much damage to the company that the advantages from better works councils structures or slighly lower pay rates would disappear pretty fast. The other reason is even harder to overcome. There is another law governing worker's participation in relevant management decisions, according to which employees are represented directly in the supervisory boards of both companies - and both supervisory boards have to approve the carve-outs with a majority of votes. And - believe it or not - employees in companies with at least 2,000 employees are representing 50% of the members of the supervisory board. So a situation may arise in which the supervisory board members elected by the shareholders approve the carve-out, whereas the representatives of the employees, for whatever reason, do not approve it - a so-called tie vote. In such a situation, the chairman of the supervisory board, who is a representative from the shareholders, may use a second vote to break the tie - but you may imagine what this would mean for the further work and cooperation of both parties.
The work in our restructuring project shows again that the German laws governing workers rights and workers participation in management decisions are working, and that it is not possible to ignore the interests of the employees in such a project. You will understand that it is not possible to outline the strategies developed to get the approval from employee's representatives in both supervisory boards in more detail (and both supervisory boards need to approve the carve-outs!) - but it is easy to imagine that their is a high price to be paid for getting their approvals. Maybe this gives a better understanding why German corporate culture is so much different from the Anglo-Saxon model, why Germans are so "soft" with their workers, and why a lot of compromises is made in business decisions which are hard to understand from a pure management perspective. We hope that the requirements to be considered in our project will not stop it from being successful...