Co-determination - No attribution of employees may take place in a ‘joint establishment’
In Germany, under employment law, co-determination is contingent not just on the legal form of a business, but also on reaching a specific threshold value for the number of employees (500 and 2,000). In this respect, for a long time, it was unclear whether the mutual attribution of employees (for the purposes of size calculation) takes place where several legally independent companies are operating a ‘joint establishment’ (Gemeinschaftsbetrieb). Now, at least the issue of the application of the Act on One-Third Participation of Employees in the Supervisory Board (Gesetz über die Drittelbeteiligung der Arbeitnehmer im Aufsichtsrat, DrittelbG) has been decided by the Federal Court of Justice (Bundesgerichtshof, BGH) in two rulings of 23.6.2026 (case references: II ZB 11/25 and 12/25), in which it was stated that no attribution should take place.
Co-determination under the One-Third Participation Act
The so-called One-Third Participation Act states that for corporations - (GmbH (limited liability company), AG (stock corporation), KGaA (partnership limited by shares)) - with usually more than 500 employees one third of the supervisory board must consist of employee representatives. A GmbH is then obliged to set up a supervisory board, which would otherwise not be required by law, and to fill the positions appropriately. The calculation to determine whether the number of employees meets the 500-person threshold includes all the individuals employed by a domestic (German) business, including the trainees, although excluding the executive employees.
In a corporate group, the attribution of employees only takes place if a domination agreement exists between the companies (a profit and loss transfer agreement is not sufficient) or if the dependent company is integrated into the controlling company. The latter is only possible between stock corporations if the wholly-owned subsidiary decides this pursuant to Section 319 of the German Stock Corporation Act. A de facto group relationship is not enough.
What is a ‘joint establishment’?
Under the Works Constitution Act, several legally independent companies can together have a ‘joint establishment’ (Gemeinschaftsbetrieb). This would be assumed if equipment and employees are deployed jointly in order to pursue working objectives and the work assignment is uniformly managed (“unified leadership structure”). For the ‘joint establishment’ a separate works council would then generally have to be set up and the size of the ‘joint establishment’ would be the crucial factor for the exercise of participation rights.
However, the BGH has now decided that for the 500-employee threshold a mutual attribution of employees cannot take place. To substantiate this, the court essentially pointed out that the wording of the legislation (Section 1(1) DrittelbG) is expressly aimed at the employees of a corporation and not those of a (‘joint) establishment’ or an enterprise.
Relevant provisions in the Co-Determination Act
The Co-Determination Act (Mitbestimmungsgesetz, MitBestG) stipulates that one half of the supervisory board must consist of employee representatives if the corporation employs more than 2,000 workers. Unlike the DrittelbG, executive employees are also included there.
Differences likewise arise as regards the attribution to a corporate group, as the MitBestG refers to the concept of a group under stock corporation legislation. Consequently, employees of controlled subsidiaries are generally attributed to the parent company.
The SE (Societas Europaea) as a structuring option
If there is a risk that the threshold will be crossed even without the attribution of ‘joint establishments’, frequently, the legal form of the SE comes to the fore. This is a European variant of the stock corporation that is available to companies based in Germany, provided that there is a cross-border element involving the EU (e.g., a subsidiary in the EU). The claimants in the respective BGH case had likewise completed the transition to an SE during the course of the proceedings.
As regards co-determination, the situation at the SE is such that, the co-determination status is usually frozen upon formation or conversion into an SE, regardless of the growth in the number of employees. The intention is admittedly for co-determination to be agreed between the employer and a negotiating body to be formed specifically by the employees. However, if no agreement is concluded, then the current co-determination arrangement will remain in place (none in case of doubt).
Example: Therefore, if an AG with, for example, 450 employees wants to avoid a co-determined supervisory board it could change the legal form to an SE and allow the negotiations about co-determination to fail. In such a case, no co-determination obligation would arise even if the 500-employee threshold were to be subsequently crossed.
