8.4 Group relations

The principle of “co-determination follows decision-making” is also under pressure in group relations. The policy is usually developed at a higher level in group relations than at the level at which the co-determination bodies operate. When strategic decisions must be implemented by the subsidiary’s management board, the works council’s right to be consulted is reduced to input regarding the implementation, rather than essential influence over all the decision-making aspects, as intended in Section 25 of the Works Councils Act. The same applies to decisions with an immediate effect (which the parent company usually makes on the grounds of its shareholding). The erosion of co-determination in group relations is compensated to some extent by the obligation to set up group co-determination bodies (which must do justice to the organisational structure) and the doctrines of attribution and joint entrepreneurship developed in case law, which mean in exceptional situations, described in sections 4.4.5 to 4.4.10, that a decision or proposal of the parent company must nevertheless be presented to the subsidiary’s works council. This does more justice to the notion that co-determination follows decision-making.

The co-determination regulations in Book 2 of the Civil Code include a specific group provision. With regard to both the two-tier board regime and the right to be heard the powers in group relations are exercised at the level of the parent company, which is in keeping with the balance of control. Those powers are exercised by the works councils of the subsidiaries (dependent companies), unless a central works council has been set up. In the latter case the power passes to the central works council. The right to institute an inquiry does not include a statutory possibility of filing an application for an inquiry with a parent company or other group company, but that possibility is assumed in case law.