Introduction to Codetermination
Codetermination is a central pillar of German labor law and ensures employee participation in corporate management. The Act on One-Third Employee Representation on Supervisory Boards – briefly the One-Third Participation Act (Drittelbeteiligungsgesetz, DrittelbG) – regulates in which companies employees have a say on the supervisory board. This federal law applies to companies of certain legal forms, such as stock corporations (AG), limited liability companies (GmbH), partnerships limited by shares (KGaA), mutual insurance associations (VVaG), and cooperatives engaged in business and economic activities, provided they generally employ more than 500 employees.
Composition and Purpose of the One-Third Participation
The One-Third Participation Act mandates that the supervisory board of such companies must be staffed one-third with employee representatives. This one-third participation ensures that employees’ interests are represented on the supervisory board without employee representatives holding a majority. Codetermination under the DrittelbG is therefore designed as a minority share, meaning that shareholders retain the majority on the supervisory board while employee representatives hold one-third of the seats.
Election and Rights of Employee Representatives
Employee representatives are elected by the entire workforce of the company through a secret ballot. The elected employee representatives participate in the supervisory board meetings for a term of four years, represent the interests of the employees, and have the right to submit motions as well as oversee the company’s management. Their essential rights and duties include demanding information about corporate management and monitoring compliance with legal and internal company regulations.
The One-Third Participation Act is an important part of German corporate codetermination and complements other labor law regulations such as the Works Constitution Act (BetrVG) and the Codetermination Act (MitbestG). While the DrittelbG applies to companies with 500 or more employees, companies with more than 2,000 employees are subject to extended codetermination rights under the Mitbestimmungsgesetz.
Significance and Scope of the One-Third Participation Act
The application of the One-Third Participation Act depends on the company size and the respective legal form. Companies subject to the law are required to establish a supervisory board consisting of at least three and no more than 21 members. One-third of these supervisory board members must be employee representatives elected by the workforce.
Codetermination under the One-Third Participation Act strengthens social partnership in Germany and promotes close cooperation between employers and employees. It contributes to incorporating employees’ interests into corporate management and ensures greater transparency and control within the company. The DrittelbG is thus a key instrument for employee involvement in important corporate decisions and an example of the proven German codetermination culture.
Number of Employees of the Parent Company Decisive According to the One-Third Participation Act (DrittelbG) – KG Berlin – Case No. 14 W 2/25
From a minimum of 500 employees, a GmbH must establish a supervisory board according to the One-Third Participation Act (DrittelbG), in which employees are represented by one-third. Once the threshold is exceeded, the obligation to form a supervisory board arises according to the law’s provisions. For more than 2,000 employees, the stricter Codetermination Act (MitbestG) with parity composition of the supervisory board applies. The Berlin Regional Court of Appeal clarified in its decision of June 17, 2025, that only the number of employees of the parent company is decisive for calculating the threshold in corporate groups, not the workforce of the entire group (Case No. 14 W 2/25).
Exceeding the threshold has significant effects on the corporate structure and highlights dependency on statutory regulations. Companies may try to comply with legal requirements by changing their structure or composition. The basis for these regulations lies in labor law, with the One-Third Participation Act being particularly relevant for certain company forms such as GmbHs and stock corporations.
Only the number of regularly employed persons is counted. Part-time workers and trainees are included; however, executives within the meaning of the BetrVG are not. Short-term fluctuations in employee numbers are also not considered.
Typical questions concern the exact threshold calculation, the application of the law, and the resulting obligations for companies.
Attribution of Employees of Subsidiaries
Legal Basis for Attribution under the One-Third Participation Act
In corporate group structures, the question regularly arises whether the employees of subsidiaries should be included in the employee count of the parent company. In connection with the legal regulations of the Drittelbeteiligungsgesetz (DrittelbG), it must be noted that the attribution of employees is closely linked to the legal requirements of the law. The scope and applicability of the law particularly extend to capital companies such as stock corporations and limited liability companies (GmbHs), whereby in corporate group structures, attribution only occurs under certain conditions. The dependency of attribution on a control agreement or the integration of the subsidiary into the parent company is decisive. The Drittelbeteiligungsgesetz contains a special provision on this in § 2. Accordingly, attribution only occurs if there is a control agreement between the parent company and its subsidiaries or if the subsidiary is integrated into the parent company. Only then are the employees of the subsidiaries also considered employees of the controlling company, according to the law firm MTR Legal Rechtsanwälte, which, among other areas, advises on corporate law.
The effects of attribution significantly impact the corporate structure and co-determination on the supervisory board. Typical questions and uncertainties often arise regarding the interpretation of the legal requirements and the practical implementation of the attribution. The basis for these regulations is found in labor law, whereby the different company forms play a central role in the application of the Drittelbeteiligungsgesetz. Informing employees about the attribution and its effects is essential for transparency and co-determination within the company.
Decision of the Berlin Higher Regional Court on the Attribution of Employees
The case that the Berlin Higher Regional Court had to decide involved the following constellation: A holding company in the legal form of a GmbH employed only around 290 employees itself. However, its subsidiary and sub-subsidiary companies together had over 900 employees. Employee representatives therefore argued that the holding was subject to the Drittelbeteiligungsgesetz because the group as a whole employed well over 500 employees. The employees of the subsidiaries were to be attributed to the holding because it actually managed the group and determined key strategic and personnel decisions. They therefore applied for the establishment of a supervisory board with employee representatives.
The Berlin Regional Court rejected the application. The Berlin Higher Regional Court confirmed this decision and dismissed the appeal of the employee representatives. The holding company was not subject to the Drittelbeteiligungsgesetz because the conditions required for the attribution of the subsidiary employees were not met, according to the Higher Regional Court.
Control Agreement or Integration Required
Conditions for Attribution of Employees According to § 2 Para. 2 DrittelbG
In its reasoning, the court clarified that § 2 Para. 2 DrittelbG contains a clear regulation. The force and content of the law determine that the attribution of employees from other group companies is only possible under certain conditions. Accordingly, employees of other group companies are only attributed to the controlling company if there is a control agreement or if the dependent company is integrated into the controlling company. The basis for this attribution lies in the statutory regulation and demonstrates the dependency on clearly defined legal conditions. Both conditions were indisputably not met in the present case. There was neither a control agreement nor a corporate integration of the subsidiaries into the holding.
The effects of a missing attribution particularly concern the rights of employees and the composition of the supervisory board, as this limits co-determination. Attribution solely based on actual control or unified management is not legally provided for. The wording of the law is clear in this regard and does not allow for an extended interpretation. Protecting employee representatives on the supervisory board from discrimination and disadvantages is a central concern of the law to secure their rights. Informing employees about the scope and applicability of the law as well as the frequently arising questions on practical implementation is of great importance for legal certainty. In connection with the application of the law, it must be noted that the statutory provisions and their practical implementation are closely linked. The basis in labor law and the role of different company forms, such as stock corporations and GmbHs, significantly determine the scope and applicability of the Drittelbeteiligungsgesetz. Especially noteworthy is the position of supervisory board members, whose protection and rights are strengthened within the framework of the law.
Decision of the Berlin Higher Regional Court: No Extension Beyond the Wording of the Law
The Berlin Higher Regional Court also emphasized that it is not the task of the courts to create a new category of attribution beyond the clear wording. Such a judicial extension would circumvent the legislator’s intent and blur the clear thresholds of codetermination rights. The applicants’ reference to the protective purpose of employee codetermination could not change this. The legislator has consciously decided that employee aggregation only takes place within closely contractually linked corporate group structures — that is, where control agreements or integration exist.
Reviewing Corporate Structures: One-Third Participation Act and Group Obligations
No One-Third Participation Obligation Without Contractual Group Connection
Therefore, a GmbH holding company with fewer than 500 own employees is not obliged to establish a supervisory board with one-third employee participation if no contractual group connection exists with its subsidiaries. In this case, the employees of the subsidiaries are not attributed to the holding company, ruled the Berlin Higher Regional Court. However, a change in corporate structure may be required to comply with the statutory obligation to meet the thresholds of the One-Third Participation Act.
In practice, it is evident that implementing the One-Third Participation Act can have significant effects on corporate structure and internal organization. Labor law, the various corporate forms, and the legal basis of the Act play a central role in the application and interpretation of the provisions. Companies and employees require comprehensive information about the legal requirements and guidance through legal counsel to avoid uncertainties.
Many corporate groups today are organized as holding structures, where operational activities are outsourced to subsidiaries while the holding itself employs only a limited number of staff. The Higher Regional Court has now clarified that these holding companies are to be assessed solely based on their own employee numbers as long as no control agreement or integration exists.
Legal Consequences and Obligations for Companies
The election procedure for appointing employee representatives to the supervisory board, its proper implementation, and the role of the election committee are crucial for practical application of the law. Supervision over compliance with legal requirements, protection of employee representatives from discrimination and disadvantages, as well as safeguarding their rights are central to the statutory regulations. In practical implementation, questions frequently arise concerning the rights of employee representatives and the relationship between shareholders and employees.
However, if control or integration agreements exist, this can trigger the entitlement of employee representatives to participation on the group-level supervisory board. Corporate groups should therefore carefully review their corporate legal structures. The affiliation to the legal bases and the underlying reason for codetermination within the company must be considered. The scope and applicability of the One-Third Participation Act as well as the force of its statutory provisions are of great importance for corporate management.
Differences Between the One-Third Participation Act and the Codetermination Act
The dismissal of supervisory board members is subject to special legal frameworks to protect their position and security in the employment relationship and to prevent disadvantages. Employers must observe the differences between the One-Third Participation Act and the Codetermination Act, as both laws establish different requirements and protection mechanisms for employees and supervisory board members.
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