Concept and Definition of Section of Operation
Ein Section of operation is a legal term in German labor and corporate law that refers to an organizational unit within an operation that is clearly separated. This unit serves a partial purpose of the main operation and is generally separated in terms of location, staff, or function. Sections of operation can have their own work processes and structures, but are integrated within the overall organization of a company and are managed together with the operation as one economic entity.
The precise definition and legal classification of a section of operation is particularly significant in collective labor law, especially in connection with co-determination rights, works council elections, protection against dismissal, and in the application of the Works Constitution Act (BetrVG).
Legal Foundations
Statutory Basis
German law does not provide a uniform definition of the term ‘section of operation’. However, the Works Constitution Act (BetrVG) references sections of operation multiple times and normatively defines their role. The most important legal foundations are found in the following regulations:
- Section 4 BetrVG: This section defines the conditions under which sections of operation can be considered independent operations.
- Section 1 BetrVG: This regulates under which conditions an operation is deemed an organizational unit and what role sections of operation play.
- Section 13 KSchG (Protection Against Unfair Dismissal Act): Sections of operation must be considered when calculating thresholds and for selection on social grounds.
- Section 613a BGB (German Civil Code): The term is also used in the context of business transfers.
Distinction from Operation and Company
A section of operation differs from both the ‘operation’ and the ‘company’. While an operation is regarded as an organizational unit within which work processes are combined to achieve a business purpose, the section of operation is a subordinate organizational form. The company, on the other hand, is the legal entity—that is, the legal or natural person—running one or more operations.
Characteristics of a Section of Operation
Organizational Independence
The central criterion for the existence of a section of operation is its organizational separability from the main operation. This can be demonstrated by having its own premises, special work processes, independent management, or its own personnel structure. However, a section of operation does not necessarily have to be physically separated from the main operation.
Pursuit of a Partial Purpose
A section of operation typically pursues only a subset of the main operation’s objectives—for example, a particular production stage, a regional branch, or a specific administrative function.
Integration into the Overall Operation
Despite its organizational independence, the section of operation remains functionally and economically embedded in the main operation or company. This distinguishes it from an independent operation.
Examples of Sections of Operation
- Production lines within a factory
- Outsourced logistics unit
- Sales office in another city
- IT department as an independent organizational unit
Significance in Labor Law
Works Council Elections and Co-Determination
Sections of operation are particularly significant in terms of works constitution and co-determination rights. Under Section 4 para. 1 BetrVG a separate works council can be elected for a section of operation if it meets the requirements of an independent operation (e.g., permanent personnel and material resources, own management).
Protection Against Dismissal and Thresholds
Under the Protection Against Unfair Dismissal Act the number of employees in the operation, including those in sections of operation, is relevant when determining thresholds, such as for mass dismissals (Section 17 KSchG) or social plan obligations.
Transfer of Operation (Section 613a BGB)
In the context of a transfer of operation under Section 613a BGB, it is decisive whether and which sections of operation undergo a change in economic identity. The legislator here protects the rights of employees of transferred sections of operation when ownership changes.
Special Forms of Section of Operation
Main Operation and Subsidiary Operation
A subsidiary operation is a section of operation that primarily works for a main operation. This is particularly relevant when considering whether several sections of operation should be combined to form an independent operation under Section 4 para. 1 sentence 2 BetrVG.
Vague Distinctions: Branch, Outlet, External Office
Terms such as branch, outlet, or external office cannot be used synonymously with section of operation. While they often constitute sections of operation, this must be assessed based on actual organizational independence and integration into the company’s overall structure.
Works Constitution and Co-Determination
Independent Works Council Elections in the Section of Operation
If a section of operation meets the requirements of an independent operation as per Section 4 BetrVG, separate works council elections are possible. The organizational separability and the existence of an independent management structure are decisive. This is the case, for example, if a section of operation has permanent personnel and material resource management.
Combination of Several Sections of Operation
According to Section 4 para. 1 sentence 2 BetrVG, several nearby sections of operation can be combined into a single independent operation if there is unified management or an economic connection.
Case Law and Distinction Criteria
The interpretation of the term ‘section of operation’ is largely guided by the case law of the labor courts, especially the Federal Labor Court (BAG). Important criteria for distinction include:
- Degree of organizational independence of the section of operation
- Independent management, authority to issue instructions
- Specific areas of responsibility (‘partial purpose’)
- Permanence of the organizational unit
- Economic integration into the company
The classification as a section of operation has immediate effects on collective rights and on individual legal matters within the employment relationship.
Conclusion
The section of operation is a fundamental organizational concept in German labor and corporate law. Its precise definition and distinction are decisive for numerous employment law issues, especially in the areas of co-determination and protection against dismissal. The legal requirements for a section of operation are specified by statute and case law and occupy a central place in organizational design within companies. Careful examination of whether an organizational unit qualifies as a section of operation is essential for legally compliant structuring of corporate organizations.
Frequently Asked Questions
Is the outsourcing of a section of operation subject to the co-determination rights of the works council?
Yes, the outsourcing of a section of operation may affect the co-determination rights of the works council under the Works Constitution Act (BetrVG). In particular, Section 111 BetrVG must be considered, as the outsourcing of a section of operation can constitute a change in operation. Such measures may entail significant disadvantages for the workforce (e.g. transfers or dismissals), which is why early and comprehensive information and consultation of the works council is required by law. In the event of relocation, closure, or merger of sections of operation, a reconciliation of interests must be negotiated and, if necessary, a social plan created to mitigate economic disadvantages for the affected employees. Additionally, the works council has co-determination rights in matters such as working hours, transfers, or the social selection process during personnel measures. If these participation rights are disregarded, the legality of labor law measures may be called into question.
What legal consequences does the transfer of a section of operation to a new owner have?
The transfer of a section of operation to a new owner in Germany is subject to the mandatory provisions of Section 613a BGB. This section regulates the so-called transfer of business and has the effect that all employment relationships that are clearly allocated to the affected section of operation are transferred to the acquirer with all rights and obligations. This is done automatically by law, regardless of the will of the employees, although they have a right of objection. For at least one year after the transfer, existing terms of employment may not be changed to the detriment of the employees, unless there is a change in the applicable collective instruments. Furthermore, the previous and new employers have extensive information obligations towards the affected employees, on the basis of which they can exercise their right of objection. If these information duties are breached, the objection period may be extended. A transfer of business may also affect protection against dismissal, as dismissals due to the transfer are invalid.
In what cases must a section of operation be considered independent?
A section of operation is legally considered independent if it is organizationally separated and fulfills an independent economic function. Case law, particularly of the Federal Labor Court, requires a minimum organization with its own equipment, a certain degree of management authority, and, if applicable, its own staff. What is decisive is that the section of operation performs a permanent task within the overall operation, which could also continue after being spun off or integrated. Whether independence exists legally or economically is always determined on a case-by-case basis and depends on the actual circumstances. Factors such as an independent operational purpose, separate spatial or organizational structures, as well as independent management and decision-making powers, play a special role. The classification as an independent section of operation is particularly relevant for the existence of a transfer of business and for the structure of the works council.
What impact does the closure of a section of operation have on the employment relationship?
The closure of a section of operation is legally considered a change in operation (Section 111 BetrVG), which can have far-reaching consequences. As a rule, this constitutes an important reason for redundancies due to operational requirements, since the need for employment of the affected employees ceases. However, before such dismissals are issued, all social and collective law requirements must be observed, in particular a selection on social grounds (Section 1 para. 3 KSchG) and the co-determination rights of the works council. Affected employees may have claims under a social plan and, where applicable, claims for continued employment elsewhere in the group if vacancies exist. Closure requires a complete and permanent cessation of the economic activity in this part of the operation; mere organizational restructuring is insufficient. Furthermore, special information obligations towards the Federal Employment Agency must be observed if collective redundancies occur.
How is protection against dismissal regulated in the case of a partial closure of an operation?
In the event of a partial closure, i.e., the closure of a section of operation, redundancies due to operational requirements must be carried out strictly in accordance with the provisions of the Protection Against Unfair Dismissal Act (KSchG). The entrepreneurial decision to permanently shut down a section of operation constitutes a ground for redundancy within the meaning of Section 1 para. 2 KSchG, but does not exempt the employer from the duty to conduct a proper social selection. It must be carefully examined whether alternative employment opportunities exist elsewhere in the operation or company. Works councils must pay particular attention to compliance with the regulations on transfers and the selection of employees to be dismissed. Special protection against dismissal may also apply, e.g., for pregnant employees or severely disabled persons, whose protection remains irrespective of the closure. If the employer fails to comply with these requirements, the dismissals are highly likely to be invalid.
From when does the acquirer’s right to terminate take effect after a section of operation has been transferred?
After the transfer of a section of operation to a new owner, the acquirer is generally not permitted to terminate employment due to the transfer itself (Section 613a para. 4 BGB). Dismissals that are solely because the transfer has taken place are invalid. The acquirer’s right to terminate exists, however, if there are operational, personal, or conduct-related reasons that arise independently of the transfer or already existed before. This applies, for example, if it turns out after the transfer that, due to internal restructuring, there is in fact no longer a need for certain employees. However, the acquirer must prove that the reason for termination exists independently of the transfer; otherwise, the dismissal will be overturned by a court. The protection under Section 613a BGB thereby applies only in part and is not an absolute prohibition on dismissal.
What tax and social security law specifics apply to sections of operation?
In tax law, sections of operation are particularly relevant in the context of the splitting of operations, the determination of trade earnings, and the possibility of separate profit determination. If a section of operation is split off or transferred, tax consequences such as the realization of hidden reserves or limits for tax provisions can arise. In terms of social security law, it must be ensured during restructuring that insurance obligations remain in place and that social security numbers are correctly transferred or adjusted. In cases of operation transfers, it is also important to ensure that mandatory insurances continue and that pay statements are issued to the new employer; accident insurance (DGUV) is also affected, as relevant reporting and insurance numbers must be promptly updated. Inaccuracies or omissions can result in considerable back payment or liability risks.
