News on the SE: current case law helps in corporate law structuring practice

published on 16 July 2025 | reading time approx. 3 minutes

The SE (short for Societas Europaea, the European Company) is a popular and frequently used legal form, not least because it enables the individual structuring of co-determination. The German Federal Labor Court has now provided more clarity in corporate practice on a previously unresolved issue.

The SE is not subject to German co-determination laws (Recht der unternehmerischen Mitbestimmung). Instead, co-determination in the SE is governed by an agreement to be negotiated with a specially established employee committee. This means that an established co-determination status can be “frozen” without further company growth changing anything. In addition, with the various possible management structures (dualistic and monistic), the SE offers a further lever for the best possible alignment with individual company needs. In addition, the choice of the legal form of the SE reflects a European internationality that is becoming increasingly popular.

Milestone employee involvement procedure

However, there are a number of special issues to consider when establishing an SE. For example, the so-called employee involvement procedure is regularly a central point on the way to the SE. The aim of this procedure is to reach an amicable agreement between employees and the company on the involvement of employees in the SE that is individually tailored to the needs of the company. For these negotiations, a special body, the Special Negotiating Body (Besonderes Verhandlungsgremium - BVG), must be formed on the employee side. This alone raises a variety of questions: How is this body to be formed and staffed and who can be a member of the BVG? How do the negotiations proceed and are there deadlines to be observed? And what happens if the company does not have any employees at the beginning, but later gains employees - does this negotiation procedure have to be repeated?

The last question has - at least in broad outline - reached the German Federal Labor Court (Bundesarbeitsgericht - BAG) and was recently decided there (decision of 26.11.2024, file number 1 ABR 37/20). The decision was based on a holding SE that was founded without conducting an employee participation procedure because the founding companies did not have any employees and did not have any subsidiaries with employees. The holding SE became the sole shareholder of a holding limited liability company (Gesellschaft mit beschränkter Haftung - GmbH), which in turn was converted into a limited partnership (Kommanditgesellschaft – KG) through a change of legal form. The KG employed several hundred employees and had subsidiaries in several EU member states with a total of several thousand employees. The personally liable partner of the KG was a management SE - its sole shareholder was the holding SE, which was also the sole limited partner of the KG. The group works council of the company had taken the view that the holding SE held a controlling position vis-à-vis the KG and that the employees of the KG and its subsidiaries were therefore attributable to it and that the employee involvement procedure - which generally had to be carried out upon registration of the SE - therefore had to be repeated.

In this case, the BAG refused to make up for an employee involvement procedure. The Federal Labor Court thus agrees with the European Court of Justice (ECJ) (judgment of 16.05.2024, file no. C-706/22) and creates further legal certainty in the area of the diverse SE issues at national level. In response to the question referred by the BAG, the ECJ already ruled that the employee involvement procedure does not have to be repeated at a later date simply because the holding SE has become a controlling company of subsidiaries employing workers in one or more EU member states.

Sec. 18 para. 3 SEBG – Go back to Go?

Once the small milestone of the employee involvement procedure has been mastered and successfully completed, sec. 18 para. 3 German European Company Employee Involvement Act (Gesetz über die Beteiligung der Arbeitnehmer in einer Europäischen Gesellschaft – SEBG) should nevertheless not be lost sight of. This provision also became relevant in the aforementioned BAG decision. Pursuant to sec. 18 para. 3 SEBG, negotiations with the employees must be resumed if structural changes are planned that are likely to reduce the employees' participation rights. The law does not define in detail when such changes occur. Is it the relocation of the company's registered office? What about corporate restructuring and acquisitions? Does a change in the management structure (dualistic/monistic), which is possible at any time by amending the articles of association, constitute such a structural change?

The BAG discussed whether sec. 18 para. 3 SEBG is to be applied analogously in order to justify the subsequent negotiation procedure in the case described and came to the conclusion that there was no unintended loophole that would be necessary for such an analogous application. There were no indications that the legislator would have wanted to regulate an obligation to hold subsequent negotiations in the event of the formation of an SE without employees. The BAG thus assesses the existing provisions in the SEBG as a deliberate and seamless decision by the legislator.