Co-determination before the European Court of Justice: No applause for the European Commission, please

On 24 January 2017, the highly-anticipated hearing concerning corporate co-determination (Erzberger vs TUI, C-566/15) took place before the Grand Chamber of the European Court of Justice (ECJ). TUI is a German-based transnational tourism corporate group. The plaintiff in the main proceedings, Mr. Erzberger, holds TUI shares worth 130 Euro and is suing “his” company for purportedly erroneous election of the supervisory board. According to the plaintiff, the co-determination principle restricts the European freedom of movement for workers.

He claims that it does so in the following way: The German co-determination laws can only be applied within German national borders. Anybody who wishes to move to a foreign company in the same group will forfeit their right to vote the employees’ supervisory board representatives. This makes transnational employment moves less attractive. Under European law, such diminution of attractiveness constitutes a restriction of the Single Market. The argument can be summarised as restriction of nationals through discrimination against foreigners. The absurdity of the whole thing is evident – nevertheless, in its written submission to the ECJ dated 9 February 2016, the European Commission took the plaintiff’s side, thus representing the legal opinion that the principle of co-determination contravenes European Union law.

A good three handfuls of observers closely associated with the trade unions were among the approximately 100 viewers following the four-hour public hearing on 24 January. How would the European Commission conduct itself? Would it amend its written submission? The amendments – or more accurately: one amendment – occurred. If, stated the representative of the Commission, the Single Market restriction effected by the election procedures for the employee representatives on the supervisory board could not be rectified by the mandated transnationalisation of the election procedures, then the aims of worker protection would justify the upholding of the restriction.

A partial victory? Applause for the European Commission? That would be a mistake. Even in its corrected version, the Commission’s legal opinion is disastrous and must be resisted. This is because “the restriction can be justified” is, in European law, not at all the same thing as “there are no restrictions”. Point for point, the European Commission’s representative addressed the 15 dubious judges of the Grand Chamber, explaining why the principle of co-determination placed restrictions on the Single Market. So in this regard nothing was cut from the written statement. In view of this, the title and content of the statement published by the Commission at the end of the hearing appear odd: “European Commission defends national laws on co-determination rights at the European Union’s Court of Justice”.

Let’s go through what would happen if the legal opinion of the Commission were to be played out or even if it were indicated that we, as progressive Europeans, could live with it. All conceivable differences between the labour market regulations and social security systems of the member states could then be treated as restrictions that require justification before the ECJ. Couldn’t altered protections against dismissal make switching to a foreign arm of a group less attractive? Or a different Working Time Act, an altered regulation for further training, not to mention entirely different collective agreements? For differences like this to require justification before the ECJ cannot possibly be the purpose of the European fundamental freedoms, nor should it become so.

Imagine a tank rolling over grandma’s flowerbeds: that is roughly how much would remain of the social affairs of the member states if the European Commission were permitted access to those areas into which it is trying to insert itself by force. A Single Market restriction, like the test justification developed in the legal matters of Cassis de Dijon (ECJ, Case 120/78) and Gebhardt (ECJ, C-55/94), may only be permitted to hold if it pursues a compelling case of general interest, actually achieves the aim pursued and does not exceed the parameters necessary to attaining it.

But it is not in the nature of social regulation to be capable of passing this test. Social regulations do not exist because they are necessary and do not go beyond the required parameters; they exist because democratically elected governments in a given historical environment have decided for these solutions and against others. Other governments may pursue other aims and must be allowed to do so differently. All dams would break if a regulation had to be justified just because it places a restriction on the economy that is not in place elsewhere. Those to whom social democracy is important must therefore work to stop the continual over-interpretation of the European fundamental freedoms and of European competition law. Even if this means contradicting the European Commission.

So it was quite a joy to see how the President of the Grand Chamber, the Luxembourgian Judge Koen Lenaerts, repeatedly bombarded the representative of the Commission with questions for several minutes at a time, asking where he might see a transnational situation that would be capable, in the current case, of activating the right to freedom of movement at all.

The Lithuanian rapporteur Egils Levits took a similar approach. It was this interpretation of the legal status quo, not that of the European Commission, that ought to be defended. Unfortunately, however, the Danish Advocate-General did not appear to heed the presiding judge. He rather appeared to share the view that a restriction of the fundamental freedoms was present in the case at hand. And not only that: his questions to the parties involved made it clear that he considered a judicially mandated transnationalisation of the supervisory board elections to be at least conceivable, which draws our attention away from the general implications back to the case concerning corporate co-determination.

Evidently, the Advocate-General had the “Danish solution” in mind. Indeed, §141 Para. 3 Cl. 1 of the Danish Company Act states that the active and passive right to vote can be extended to foreign employee representatives. However, it is to be doubted whether adoption of the Danish model would remedy the alleged restriction. This is because the Danish solution requires a resolution by the shareholders’ meeting and moreover its design allows the group of employee representatives in the governing body to remain dominated by a majority of nationals. Both points suggest that the supposed Danish solution would, in its turn, also be discriminatory.

Furthermore, the practicability of the Danish option has a large question mark attached to it, because to date only one case has arisen in which the general meeting has issued a resolution on transnational extension of elections. Yet these objections should not lull us into a false sense of security. Once the restriction has been approved – as the European Commission would like – everything lies in the hands of (national and European) judges. Nobody knows where their adjudications might lead. A veritable flood of legal uncertainty would be a likely consequence to which corporations would probably react by reaching for loopholes and workarounds (for example, by adopting foreign, codetermination-free legal forms).

And even if the case currently before the ECJ is won in the course of this year, the Erzberger vs. TUI incident calls for political action. Rarely has a case so clearly demonstrated the destructive potential contained within judicially extended fundamental freedoms and their structural hostility toward the institutions and practices of the social market economy. The never-ending enlargement of the reach and scope of the fundamental freedoms is certainly not the way in which progressives should ask for – or even: just tolerate – “more Europe”.

The conclusions of the Advocate-General on the case “Erzberger vs TUI” are scheduled to be announced on 4 May. We will remain on the case.