Concept and Definition of Company Arbitration
Company arbitration refers to internal company regulatory and conciliation mechanisms for resolving disputes that may arise within a company between employees, between employees and the employer, or between employee representatives and the employer. In Germany, company arbitration as a system of workplace dispute resolution is closely linked to the provisions of the Works Constitution Act (BetrVG) and other employment law regulations. The term covers all institutional and procedural mechanisms designed to resolve employment-related conflicts at company level before recourse is made to state courts.
Historical Development of Company Arbitration
Origins and Development
Company arbitration developed in the 19th and 20th centuries out of operational needs. In the early industrial age, the first conciliation bodies were created to absorb social tensions between employees and employers and to secure industrial peace. Workplace dispute resolution was comprehensively regulated by law for the first time in the Weimar Republic. In particular, with the Labour Court Act of 1926 and later within the framework of the Works Constitution Act, institutionalized company arbitration was given its statutory framework.
Company Arbitration in the Federal Republic of Germany
Since the Works Constitution Act came into force in 1952, company arbitration has been an essential part of German employment law. Over the years, the regulatory options, competencies, and procedures have been further developed and adapted to current employment law and social requirements.
Legal Basis and Statutory Framework
Company arbitration in Germany is based on a variety of legal sources, in particular:
- Works Constitution Act (BetrVG)
- Collective Agreements Act (TVG)
- German Civil Code (BGB), especially the provisions relating to employment contracts
- Labour Court Act (ArbGG)
- General Equal Treatment Act (AGG)
Works Constitution Act (BetrVG)
The Works Constitution Act is the central regulatory framework for company arbitration. In particular, it establishes cooperation between the employer and works council as well as the participation and co-determination rights of employee representatives. The most important provisions for company arbitration are:
- Sections 74 et seq. BetrVG (Cooperation between employer and works council)
- Section 80 BetrVG (General tasks of the works council)
- Sections 86, 86a BetrVG (Dispute resolution for differences of opinion)
- Sections 87 et seq. BetrVG (Co-determination rights)
- Sections 76, 77 BetrVG (Conciliation committee)
Conciliation Committee
One of the most important institutions of company arbitration is the conciliation committee (Sections 76, 76a BetrVG). It is an internal company arbitration body that can be called upon in the event of disagreements relating to co-determination rights. The conciliation committee consists of an equal number of assessors appointed by the employer and the works council, and an impartial chairperson. Decisions of the conciliation committee have the effect of a works agreement.
Informal Arrangement and Works Agreement
Within the scope of company arbitration, informal arrangements are often made or binding works agreements are concluded. These serve to resolve internal company conflicts and are legally binding for employers and employees.
Procedures of Company Arbitration
Internal Company Conciliation and Mediation
In addition to the formal conciliation committee, there are also less formalized procedures such as internal company conciliation boards or mediations. These are aimed at achieving a consensus-based settlement and are conducted on a voluntary basis. They may be regulated in works agreements and form part of self-administration at company level.
Involvement of the Labour Court
If no agreement is reached in company arbitration, it is possible to refer the matter to the labour court (Section 2 ArbGG). Judicial proceedings are subsidiary to the internal company regulation and require that these have failed. The courts may be called upon, inter alia, for the interpretation of works agreements, co-determination rights, or issues concerning employee representation.
Functions and Importance of Company Arbitration
Securing Industrial Peace
Company arbitration makes an important contribution to securing industrial peace within the company. It enables prompt and direct conflict resolution without lengthy court proceedings.
Self-Determination and Participation
By involving both employees and employer in the conciliation mechanisms, company arbitration promotes workplace democracy and self-determination. Employee representatives actively participate in conflict resolution.
Relief for Labour Courts
Company arbitration helps to relieve the labour courts by resolving numerous conflicts internally before judicial proceedings become necessary.
Legal Consequences of Workplace Dispute Resolution
Binding Effect of Settlements
Decisions of a conciliation committee have the effect of a works agreement, provided that the law so stipulates. Informal arrangements such as informal agreements also have legal effect if they are formulated clearly and definitively.
Subsequent Review
Conciliation results or works agreements may be subject to judicial review, in particular with regard to their validity as well as compliance with mandatory employment laws or collective bargaining provisions.
Rights and Obligations of the Parties
The outcome of a company conciliation process establishes rights and obligations for employers and employees. Breaches may have consequences under employment law.
Limits of Company Arbitration
Statutory and Collective Bargaining Limitations
Company arbitration is limited by statutory requirements, collective agreements, and the primacy of mandatory law. Works agreements or internal company regulations may not contravene higher-ranking laws.
Exclusion of Individual Rights
Not all employment law disputes are suitable for resolution through company arbitration. To protect certain individual rights (for example, in discrimination cases), recourse to the state courts is required.
International References
Forms of workplace dispute resolution are also known in other legal systems, for example through Joint Consultation Committees in the Anglo-Saxon context or internal company arbitration bodies in France. However, their design varies considerably according to national employment law.
Conclusion
Company arbitration is a central instrument of workplace co-determination and conflict resolution in German employment law. It allows for the amicable settlement of disputes at the company level, serves industrial peace, and relieves the state courts. Its legal basis is mainly found in the Works Constitution Act. However, company arbitration is bound by the limits of applicable law—its effectiveness and legal binding force depend on compliance with statutory and collective bargaining requirements.
Frequently Asked Questions
What legal requirements must be met to establish company arbitration within a business?
To establish company arbitration within a company, there must first be a clear statutory or collective legal basis. In Germany, there is no separate law governing classic “company arbitration,” but it is usually implemented on the basis of works agreements or collective bargaining provisions. It is essential that the rights of employees in accordance with the Works Constitution Act (BetrVG), particularly the participation and co-determination rights of the works council, are preserved. In order for internal conciliation bodies or similar committees to make effective decisions, a detailed regulation of their jurisdiction, procedural flow, and composition is necessary. The principles of impartiality, fairness, right to be heard, and transparency must also be comprehensively safeguarded. In sensitive areas, it is advisable to stipulate binding provisions on data protection and confidentiality. The inclusion of an arbitration or conciliation committee system under the BetrVG (§76 BetrVG) may also supplement the legal requirements.
What is the legal binding force of decisions made by a company conciliation committee or a conciliation board?
The legal binding effect of decisions by a company conciliation committee differs depending on whether it is a conciliation committee under the BetrVG, or an internal company conciliation body established by voluntary agreement. Decisions of conciliation committees pursuant to § 76 BetrVG generally have the status of a collective agreement and are binding for both parties, insofar as they remain within the scope of mandatory labour laws. Internal company conciliation bodies, which operate on a voluntary contractual basis, are only binding if the parties have previously agreed in writing to accept their decisions. If a conciliation committee exceeds statutory limits—for example with terminations or warnings—affected employees may have such decisions reviewed by courts; in this respect, there is no final binding effect vis-à-vis the state courts.
To what extent is there a statutory obligation to establish company arbitration?
There is in principle no statutory obligation to establish institutionalized company arbitration. It only becomes mandatory if collective agreements or works agreements stipulate the regular implementation of such procedures. Under the BetrVG, however, the conciliation committee is statutorily provided for certain disputes between employer and works council (§ 76 BetrVG). For individual legal protection in employer-employee relations (e.g. unfair dismissal disputes), the ordinary courts of employment jurisdiction always remain open; it is not permitted to impose a requirement to first use internal company bodies in a way that unlawfully impedes or delays court protection.
What are the legal limits for sanctions imposed by company arbitration?
Sanctions imposed as part of company arbitration must strictly comply with the statutory provisions of labour law and general principles of the rule of law. Any disciplinary measures—such as warnings, transfers, or even terminations—are subject to review by the labour courts and must not unlawfully infringe constitutionally protected rights or violate contractual or collective bargaining regulations. Sanctions that infringe upon employees’ personal rights or exceed appropriate measures are invalid, even if decided by company arbitration. In addition, it is not permitted to block or restrict access to the labour court via company arbitration.
How is the relationship between company arbitration and state employment jurisdiction legally structured?
Company arbitration does not replace but merely supplements state employment jurisdiction. While internal company conciliation committees are intended to facilitate low-barrier, rapid conflict resolution in the company, access to the employment courts remains guaranteed by Art. 19(4) of the Basic Law. In particular, works agreements or company policies cannot require employees exclusively to refer to internal bodies and permanently exclude legal action in court. The binding force of internal company decisions is always limited to matters that do not mandatorily require judicial or statutory determination.
What data protection requirements must be observed in company arbitration?
Internal company procedures regularly involve the processing of personal data, including particularly sensitive information. The relevant provisions of the General Data Protection Regulation (GDPR) and the Federal Data Protection Act (BDSG) must be observed. This means that data collected may only be used for the specified purpose of the procedure. Affected employees must be fully informed about the type, scope, and purpose of data collection, as well as their rights to information, erasure, rectification, and objection. Sensitive data may only be processed if contractually, collectively (e.g. by works agreement), or on the basis of a statutory provision. Furthermore, the confidentiality of the procedures must be secured through technical and organizational measures (e.g. encryption, access restrictions). Works councils are also obliged to maintain data secrecy.
How can a decision of company arbitration be contested or reviewed?
The review and appeal of decisions made by company arbitration depend on the respective regulatory framework: For regulations through works agreements, the employee may usually refer the respective conciliation or arbitration committees and, where applicable, the labour court. For collectively bargained agreements, the collectively agreed arbitration boards apply, whose course of appeal procedures often only allow recourse to the state courts after all internal remedies have been exhausted. In principle, however, state courts always have the final say on the legal admissibility and effectiveness of internal employment measures; this applies in particular to the protection of fundamental employee rights and the principle of proportionality in disciplinary or sanction cases.
