The German works council from the perspective of foreign parent companies

What is a works council, and does our German subsidiary have to have one?

The works council represents the interests of a company’s employees vis-à-vis the employer. It ensures compliance with applicable laws, collective agreements and works agreements for the benefit of employees, and is involved in a range of operational decisions. Unlike a trade union, it operates within the company and is not permitted to take industrial action. It is obliged to cooperate with the employer in a spirit of trust, although this does not prevent it from consistently asserting its rights.

In Germany, a works council is not automatically required. There is no law forcing a company to set up a works council, and no employer is obliged to establish one of their own accord. Under Section 1 of the Works Constitution Act (BetrVG), a works council may be elected in any workplace with, as a rule, at least five permanent employees eligible to vote, three of whom are eligible for election. Whether an election actually takes place is decided solely by the workforce. For this reason, a great many small and medium-sized sites in Germany do not have a works council at all.

This gives rise to an often-overlooked issue for foreign parent companies. The employer may neither order nor prevent the formation of a works council. They may neither encourage its formation in order to secure a works council of their choosing, nor may they hinder it. The decision lies with the employees. As soon as the workforce exercises this right, the employer must facilitate the election and bear the costs.

From how many employees onwards, and how large does the works council become?

The size of the works council depends on the number of employees eligible to vote within the company and is set out in a sliding scale in Section 9 of the Works Constitution Act (BetrVG). It is not negotiable.

Where there are between five and 20 employees eligible to vote, the works council consists of one member; where there are between 21 and 50, it consists of three members; and where there are between 51 and 100, it consists of five members. From 101 employees, the works council increases to seven members; from 201, to nine; from 401, to eleven; and from 701, to 13. For more than 1,000 employees, the statutory scale continues to apply.

Once a certain size is reached, the employer must grant works council members full time off from their regular duties so that they can devote themselves to their work on the council. In accordance with Section 38 of the Works Constitution Act (BetrVG), at least one member must be granted time off from work for works council duties where there are 200 or more employees, two where there are 501 or more, and three where there are 901 or more, with further increases as the number of employees rises. This time off is paid. For the German subsidiary’s workforce planning, this means that, from this threshold onwards, labour capacity is permanently tied up in works council work.

If a company has several establishments in Germany, a separate works council is elected for each establishment. These local works councils form a general works council at group level, which is responsible for matters affecting several establishments that cannot be dealt with at the individual establishment level. Where there are several group companies, a group works council may also be formed. This hierarchical structure is significant for a foreign parent company, as group-wide measures must be coordinated with the general or group works council, and the individual sites no longer have jurisdiction in such matters.

How is a works council formed, and what are we not allowed to do in the process?

Foreign employers usually ask how a works council is set up from the opposite perspective: they want to know what to expect and where the red lines are. The procedure is laid down by law.

The initiative must come from the workforce. Three employees eligible to vote, or a trade union represented within the company, must convene a works meeting in accordance with Section 17(3) of the Works Constitution Act (BetrVG). At this meeting, an election committee is first elected, but not yet the works council itself. The election committee then organises and conducts the actual works council election.

If no meeting is held or no election committee is elected, the labour court may appoint an election committee at the request of three employees or a trade union. Regular works council elections take place nationwide every four years between 1 March and 31 May; the last one was in 2026, and the next will be in 2030. However, a workplace where there is a desire for representation may also hold its first election outside this cycle.

For the parent company, the prohibition on obstruction is crucial. Under Section 20 of the Works Constitution Act (BetrVG), no one may obstruct the election or influence it by inflicting or threatening disadvantages, or by granting or promising advantages. Anyone who contravenes this provision commits a criminal offence. Section 119 of the BetrVG provides for a prison sentence of up to one year or a fine for obstructing or unduly influencing the election, as well as for obstructing the activities of the works council. The provision applies to the natural person taking the action – typically the managing director of the German subsidiary or a member of the parent company’s management issuing instructions – rather than to the company as such.

This means that the ‘toolkit’ familiar from the Anglo-Saxon world is largely prohibited in Germany. Acts of obstruction punishable by criminal penalties include election campaigns against the formation of a works council, preventing employees from attending the election meeting, threatening initiators or candidates with transfer or dismissal, and deliberately obstructing the subsequent work of the works council.

Employees who invite colleagues to the election meeting or apply for the court to appoint an election committee also enjoy special protection against dismissal (Section 15(3a) of the German Employment Protection Act (KSchG)). The correct response to the initial stages of works council formation is therefore to maintain documented neutrality and to prepare for future cooperation.

Which co-determination rights can block decisions taken by head office?

The works council’s rights are tiered. On some issues, it has only a right to information or consultation, whilst on others it has a genuine right of co-determination. It is precisely this second category that is critical for the parent company, as the works council can prevent a measure from being implemented until an agreement is reached. This is referred to as enforceable co-determination.

The core provision is Section 87 of the Works Constitution Act (BetrVG). In the social matters specified therein, the works council has the right to co-determination, provided there are no statutory or collective agreement provisions in place. For foreign groups, the following points are, in practice, the most important.

A classic example is working hours under Section 87(1)(2) and (3) of the BetrVG. The start and end of the working day, the distribution of working hours across the days of the week, breaks, and any temporary reduction or extension of working hours may not be determined unilaterally. A shift pattern developed at head office, mandatory overtime or short-time working must therefore be agreed with the works council before implementation.

For international companies, technical monitoring systems under Section 87(1)(6) of the Works Constitution Act (BetrVG) have even more far-reaching implications. According to case law, it is sufficient for a system to be objectively capable of monitoring employees’ behaviour or performance. A specific intention to analyse the data is not required. Consequently, co-determination covers not only traditional time recording but also numerous HR, ERP and CRM systems, collaboration platforms with activity logs, ticketing systems and, in principle, AI-supported analyses as well. A group-wide software roll-out must therefore not simply be technically activated at the German site.

Depending on the specific arrangements, further co-determination rights may apply, for example regarding disciplinary matters, remuneration principles or data protection within the organisation. Behavioural guidelines, a code of conduct of a disciplinary nature, bonus schemes or rules governing the use of IT and email may therefore also necessitate a works agreement.

If no agreement is reached between the employer and the works council on matters subject to mandatory co-determination, the decision is not made by the employer or the labour court, but by the conciliation committee. This consists of a committee with equal representation from both sides, chaired by an impartial chairperson. Its ruling replaces the lack of agreement and is binding on both parties.

This explains why a measure cannot be implemented more quickly in a company subject to co-determination if the works council is bypassed: a system introduced without the works council’s involvement contravenes co-determination rules. The works council can demand its removal, and ultimately the conciliation committee must be called in anyway. The reliably quicker route is through early negotiations and a properly drafted works agreement.

What are the rules regarding recruitment and dismissal?

In addition to social matters, the works council must also be involved in individual personnel decisions. For foreign employers, the two most important cases are recruitment and dismissal, which are handled differently.

In companies with more than 20 employees eligible to vote, the employer is required, under Section 99 of the Works Constitution Act (BetrVG), to obtain the works council’s consent for recruitment, pay grading and transfers. The works council may only refuse consent on the grounds specified in the law, for example in the event of a breach of a statutory provision or a selection policy.

If the works council refuses to give its consent, the employer must have the consent replaced by the employment tribunal before implementing the measure. In urgent cases, the law permits provisional implementation, which must subsequently be upheld by the court. A recruitment freeze or a short-term transfer imposed from abroad can thus be significantly delayed.

The situation is different when it comes to dismissals, and is often misunderstood. Under Section 102 of the Works Constitution Act (BetrVG), the works council must be consulted prior to any dismissal. A dismissal issued without this consultation is invalid – regardless of whether it would have been justified on its merits.

This is the real pitfall for international employers who schedule a termination from their head office: without a proper and comprehensive consultation with the works council, the dismissal is already open to challenge on formal grounds.

However, the works council has no right of veto. It may express concerns or object to the ordinary dismissal within the prescribed time limit and on reasonable grounds. This may entitle the dismissed employee to continued employment until the conclusion of the proceedings in the event of an unfair dismissal claim. The employer may still give notice of dismissal despite the objection. The labour court will then rule on its validity.

What happens in the event of restructuring, site closure or a carve-out?

For parent companies, co-determination is most costly when they wish to restructure, relocate or downsize their German site, or spin it off as part of an M&A transaction. Such projects, as soon as they alter the organisation of the business, constitute a change in operations within the meaning of Section 111 of the Works Constitution Act (BetrVG). These include, amongst other things, the curtailment or closure of the entire business or significant parts thereof, relocation, merger with other businesses, fundamental changes to the organisation and the introduction of fundamentally new working methods. By contrast, a mere sale of shares without organisational consequences for the business does not fall within this category.

In companies with, as a rule, more than 20 employees entitled to vote, the employer must inform the works council of any such planned change in good time and in full, and consult with it on the matter. This gives rise to two separate mechanisms.

The reconciliation of interests (Section 112 of the Works Constitution Act (BetrVG)) governs whether, when and how the measure itself is to be implemented. It is not enforceable, but the employer must have made a genuine attempt to reach an agreement. This also includes recourse to the conciliation committee. A social plan compensates for the financial disadvantages suffered by the employees affected, for example through severance payments. It is, in principle, enforceable. If no agreement is reached, the conciliation committee shall lay it down as binding.

The penalty for failure to comply is specific. If the employer implements a change in operations without having first made sufficient efforts to reach a reconciliation of interests, the affected employees may, pursuant to Section 113 of the BetrVG, demand compensation for the disadvantages suffered in the form of severance payments.

For the timing of a carve-out or site consolidation, this means that the works council’s involvement constitutes a separate procedural step – sometimes lasting several months – which must be integrated into the transaction or restructuring timetable from the outset. If this involvement is overlooked, there is a risk of delays, compensation for disadvantages and, in the worst case, an interim injunction against the implementation.

How much does the works council cost, and who bears the costs?

Work on the works council is unpaid for employees, but not for the employer. Under Section 37 of the Works Councils Act (BetrVG), membership of the works council is an honorary position which members generally carry out during their working hours and without any reduction in their pay. Necessary works council activities therefore constitute paid working time, and members are entitled to the training required for their duties, the costs of which are also borne by the employer.

Under Section 40 of the Works Council Act (BetrVG), the employer is obliged to bear all costs arising from the works council’s activities and to provide the works council, to the extent necessary, with premises, material resources, information and communication technology, and office staff. This may also include the costs of a lawyer or expert commissioned by the works council, provided that their involvement is necessary.

These costs cannot be passed on to the works council nor contractually excluded. It is therefore more realistic for the parent company to treat the works council as a fixed, predictable cost centre rather than as an avoidable expense. A good works agreement that clearly sets out responsibilities, time off work and material resources ultimately reduces friction costs far more effectively than attempts to minimise claims.

Works council or trade union, and what is a European Works Council?

Foreign parent companies often confuse the works council with a trade union, as in their own countries there are often only trade unions representing employees. In Germany, these are two separate systems. A trade union is a cross-company membership organisation established on a voluntary basis which negotiates collective agreements and may call for industrial action, such as a strike.

The works council is the statutory representative body for the entire workforce of a company – regardless of whether individual employees are trade union members. It is not permitted to call for a strike. It is obliged to cooperate in a spirit of trust. A company may have both a works council and a trade union established within the company, or it may have only one or the other.

This is to be distinguished from the European Works Council. This applies to companies and groups of companies operating across the EU with at least 1,000 employees in the EU and the EEA, and with at least 150 employees in each of two Member States.

Its purpose is to inform and consult employees on transnational matters across borders, i.e. at a level where the national works council has no jurisdiction. Its rights are weaker than those of the German works council and are essentially limited to information and consultation. It has no genuine rights of co-determination.

The legal basis was revised with the recast of the EU Directive on European Works Councils (Directive (EU) 2025/2450). Member States must implement the new provisions by 1 January 2028. These tend to strengthen the establishment of the European Works Council and its consultation rights. Groups with a German subsidiary should therefore take this level into account at an early stage, as transnational restructuring can trigger the establishment of both the European Works Council and the national works councils.

What mistakes do foreign parent companies typically make?

These recurring mistakes almost always follow the same pattern: a management practice that is permissible and common in the home country is applied unchanged to the German operation. Four scenarios occur particularly frequently.

Firstly, there is an attempt to prevent or control the formation of a works council. ‘Union-busting’ methods imported from the US are criminal offences in Germany under Section 119 of the Works Constitution Act (BetrVG) and result in personal liability for the managers involved. Secondly, the unilateral roll-out of group-wide software. Introducing a new HR, time-recording or monitoring system at a German site without a works agreement contravenes co-determination rights and is open to challenge – particularly in light of data protection considerations.

Thirdly, redundancies carried out without, or with only an incomplete consultation with, the works council, which fail on formal grounds even though the grounds for dismissal would otherwise be valid. Fourthly, restructurings and carve-outs in which the works council’s involvement is only taken into account at a late stage, thereby throwing the entire timetable into disarray.

The lesson to be learnt is unspectacular but effective. Those who accept the works council as an integral part of German corporate governance, keep it fully informed at an early stage and regulate critical issues in robust works agreements, lose less time and money than those who attempt to circumvent co-determination. Co-determination cannot be negotiated away, but it can be shaped. It is precisely here – between the expectations of the foreign parent company and the mandatory requirements of German law – that legal support comes into play.