European Court of Justice ruling on subsequent SE negotiation procedure

At a glance

• The European Court of Justice (ECJ) handled a request for a preliminary ruling on the obligation to retrospectively conduct a negotiation procedure for a European public limited-liability company (Societas Europaea, (SE)).
• The ECJ held that the EU provisions on the SE negotiation procedure are tailored to implementation prior to registration or formation of the SE and are therefore not transferable to an SE that has already been formed.
• The ECJ clarified that an obligation to open a subsequent negotiation procedure within an SE which is already established, may be required in cases of abuse.

On 16 May 2024, the ECJ handled a request for a preliminary ruling submitted by the German Federal Labour Court (Bundesarbeitsgericht (BAG)) on the obligation to retrospectively conduct a negotiation procedure for an SE (case C‑706/22).

In this case, a Holding SE was established and registered without employees under English jurisdiction and was later converted into a limited partnership called O KG. While the partners of O KG, O Holding SE and O Management SE, did not have any employees, the O KG had around 816 employees and also had several subsidiaries with more than 2,000 employees across the EU. In 2017, the registered office of O Holding SE was relocated to Germany due to Brexit. Shortly afterward, the group works council of O KG requested that O Holding SE be required to initiate the negotiation process to establish a special negotiating body.

The BAG referred the question to the ECJ as to whether Art. 12(2) of Regulation No 2157/2001 (SE Regulation), in conjunction with Art. 3 to 7 of Directive 2001/86 (SE Directive) imposes an obligation to retrospectively conduct the negotiation procedure under where (1) a holding SE was formed by participating companies which do not employ employees, and do not have subsidiaries employing employees, (2) the holding SE was registered in the register of a Member State (‘SE without employees’) without a negotiation procedure for the involvement of employees in the SE having first been conducted, if (3) the SE became the controlling undertaking of subsidiaries in several Member States which employ employees.

The ECJ rejected  a general obligation to subsequently carry out the negotiation procedure in these circumstances. Neither Art. 12(2) of SE Regulation nor Art. 3 to 7 of SE Directive contain such an obligation. The provisions are tailored to implementation prior to registration or formation of the SE and are therefore not transferable to an SE that has already been formed.

However, the ECJ clarified that an obligation to open a subsequent negotiation procedure within an SE which is already established, may be required in cases of abuse. It stated that Art. 11 of the SE Directive (‘Misuse of procedures’) requires Member States to take appropriate measures in conformity with EU law ‘with a view to preventing the misuse of an SE for the purpose of depriving employees of rights to employee involvement or withholding such rights’.

It remains to be seen how the courts will position themselves in future on the question of where the limits to abuse of rights are to be drawn, the crossing of which should trigger an obligation to conduct a subsequent negotiation procedure.