Hiring of Intra-Group Executives in Matrix Organisations – Limits of the Works Council's Co-Determination Rights

Federal Labor Court (BAG), Decision of 23 September 2025 – 1 ABR 25/24

Internationally structured corporate groups frequently employ cross-entity matrix structures in which executives of a foreign group company exercise supervisory functions vis-à-vis employees of a German subsidiary – not uncommonly exclusively by videoconference from abroad. 

In practice, the question frequently arises as to whether and when the deployment of foreign group executives constitutes a co-determination-relevant "hiring" (Einstellung) within the meaning of Section 99(1) sentence 1 of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG), thereby triggering the works council's right of consent. In a recent decision, the Federal Labour Court (BAG) has, for the first time, addressed a cross-entity and simultaneously cross-border matrix organisation and has specified the requirements for a hiring under works constitution law in this context.

Facts of the Case

The employer manufactures and distributes mass spectrometers and employs approximately 500 employees at its sole establishment in Germany. The company is part of a US-based corporate group which operates cross-entity matrix structures. 

Four individuals were active in the German establishment who did not have an employment relationship with the employer but were employed by a group company domiciled abroad. They performed their duties for the employer's establishment exclusively by way of videoconferences. In relation to certain employees of the employer, they held supervisory functions and the right to issue instructions. 

The works council took the view that the engagement of these four individuals constituted hirings within the meaning of Section 99 (1) sentence 1 BetrVG by virtue of their integration into the establishment, and applied for the judicial reversal of the personnel measures. The employer objected, arguing that the requisite right to issue instructions was lacking, as was sufficient collaboration between the four individuals and the employees working in the establishment. 

The Labour Court of Bremen-Bremerhaven initially ruled in favour of the works council, and the Higher Labour Court (Landesarbeitsgericht, LAG) of Bremen also dismissed the employer's appeal. 

Decision

The BAG overturned the decision of the LAG and remanded the case for a new hearing and decision. The key findings of the BAG can be summarised as follows: 

First, the BAG confirmed that the scope of application of the BetrVG is open. Pursuant to the territoriality principle, Sections 99 et seq. BetrVG apply to all domestic establishments, irrespective of the employer's registered office, the registered office of the group parent company, or the legal system applicable to the individual employment relationship. The only relevant question is whether the person concerned is integrated into the establishment located in Germany. 

At its core, however, the BAG held that the LAG had incorrectly assumed that, for the integration of executives employed by another group company (so-called matrix managers), it was irrelevant whether they themselves were subject to the instructions of the establishment owner (Betriebsinhaber). The BAG made unequivocally clear: a hiring within the meaning of Section 99(1) sentence 1 BetrVG always requires that the person concerned performs work subject to instructions and that the establishment owner holds at least a partial right to issue instructions – typical of an employment relationship – with respect to the content, place and time of the activity. This applies expressly also to executives in matrix structures. 

The requisite personnel authority (Personalhoheit) of the establishment owner cannot be substituted merely by appointing intra-group executives as supervisors of the employees already belonging to the establishment. 

Furthermore, the BAG criticised the LAG for having failed to make sufficient findings regarding the joint realisation of the establishment's operational purpose (arbeitstechnischer Betriebszweck). The mere finding that an executive holds a "right to issue professional instructions" (fachliches Weisungsrecht) is insufficient, as this is not a defined legal term and does not, in itself, establish whether the executive is in fact involved in the operational tasks and work processes of the establishment. Specifically, the executives must regularly collaborate with the employees working in the establishment in order to carry out the tasks assigned to them, thereby actually exercising their professional instructional authority. Conducting target agreement discussions or mere coordination of leave alone does not, in itself, permit the conclusion that the individual is integrated into the establishment.

At the same time, the BAG provided the LAG with several important guidelines for the new proceedings: for the question of integration, it is generally irrelevant how frequently or to what temporal extent the activities carried out in furtherance of the establishment's purpose take place. Neither quantitative nor qualitative minimum requirements can be derived from the statute. Likewise, it is not necessary for the person concerned to perform their work on the premises of the establishment or to be physically present to any minimum extent. The fact that the four executives reside abroad and work from there does not, in principle, preclude a hiring. Finally, simultaneous integration into multiple establishments is possible, as the BetrVG contains no provision that would preclude this.

Practical Implications

The decision is of far-reaching significance for the day-to-day advisory practice of internationally structured corporate groups with matrix organisations. 

It is now established that the principles of works constitution law regarding integration also apply to matrix executives based abroad who are employed by a foreign group company. Employers deploying intra-group executives in a German establishment should therefore carefully assess whether and to what extent the German company, as the establishment owner, holds the employer-typical right to issue instructions vis-à-vis these executives that is required for integration.

Where the German subsidiary lacks at least partial personnel authority – which is frequently the case in practice where the management level of the German company is hierarchically positioned below the foreign executives – a co-determination-relevant hiring is precluded on this ground alone. The mere coexistence of employee groups of different group companies within a single establishment does not, in itself, give rise to a co-determination right of the works council under Section 99 BetrVG. 

On the other hand, the BAG deliberately sets a low threshold for affirming integration: neither a minimum temporal extent of the activity nor physical presence in the establishment is required. Even an activity carried out exclusively by videoconference from abroad may constitute a hiring, provided the remaining requirements are met. 

The decisive factor remains the overall assessment of all circumstances of the individual case, focusing on the specific involvement in the operational tasks and work processes of the establishment. 

Questions that remain open after the decision include, among others, what degree of subordination to instructions is sufficient in the individual case and whether, in addition to the right to issue professional instructions, the establishment owner must also hold a disciplinary right to issue instructions vis-à-vis the executive. 

Employers with matrix structures should closely monitor the further development of case law and review their intra-group personnel organisation in light of these new principles.