Thuesen: Labor law in Germany vs. United States

I have had the wonderful opportunity to spend the fall of my 3L year studying at Bucerius Law School in Hamburg, Germany. One of my reasons for studying in Germany was that I wanted to experience a different country’s approach to labor and employment law, a field that I have found fascinating since before I started law school.

A few days ago, a German Ph.D. student was nice enough to take me to a hearing in Hamburg’s labor law court and give me a blow-by-blow explanation of the proceedings. The judge, flanked to his left by a lay representative of employees and to his right by a lay representative of management, questioned witnesses in a case involving a senior employee who was fired for allegedly insulting his supervisor.

These proceedings are a good illustration of the differences between the German and American approaches to labor law. First, Germany has a separate court system for labor and employment disputes. This allows for judges with expertise in labor and employment matters, and also for the participation of lay representatives who help balance the competing interests of management and employees. Second, this sort of case would likely not be heard at all in America, where most employees are subject to the “at-will” doctrine under which they can be fired for any reason (with some limited statutory and common-law exceptions).

German employees, by contrast, are subject to numerous protections from termination, provided they make it past an initial six-month probationary period. For example, under a law that applies to German employers with five or more employees, an employer may dismiss an employee for economic reasons, but only if there is no possibility of reassignment and only after it conducts an analysis known as “social selection,” where it considers factors such as the employee’s seniority and age. Notably, an employee’s inability to perform their job is not by itself sufficient grounds to fire that employee unless the employee’s performance is significantly worse than that of their co-workers.

The differences between German and United States labor law do not end there. Section 1 of the German Works Constitution Act gives employees at any company with more than five employees the right to form “works councils,” organizations of one or more employees who are chosen by their colleagues to represent them in discussions with management. Works councils have input on matters such as how and when work hours will be distributed throughout the week, use of technology to monitor employees’ output and more.

In addition to works councils, Germany’s 1976 Co-Determination Act empowers employees of companies with between 500 and 2,000 employees to elect one-third of the employees’ corporate directors, and employees of companies with over 2,000 employees to elect half of the company’s corporate directors. German companies have recently begun to try to escape this requirement by classifying themselves as “European Companies,” which are not subject to co-determination. However, despite co-determination’s unpopularity with management, empirical analysis of its economic effects has shown it may not hurt firms’ profitability.

Germany’s differing approach to labor law could offer lessons amid a tumultuous time for organized labor in the United States. Unionization efforts at Amazon warehouses and Starbucks stores across the United States helped earn the labor movement a higher approval rating than it has had in decades, according to data gathered in August 2022. In the months since, organized labor has enjoyed only further publicity from the Hollywood writers’ strike and United Automobile Workers’ strike. In a clear acknowledgement of the political power of organized labor, President Biden and former President Trump have both courted the striking autoworkers, with the former taking the unprecedented step of actually joining workers on the picket line.

At the same time, America’s CEOs have shown at least a surface-level receptivity to employees’ interests. In 2019, the Business Roundtable, an organization comprised of the United States’ most prominent CEOs, released a startling statement, which contradicted decades of legal and economic orthodoxy by calling on companies to protect the interests not just of shareholders but of “stakeholders,” including “employees and communities.” Among the signatories to the statement were Jeff Bezos, Tim Cook and Larry Fink.

The resurgence of interest in organized labor, coupled with United States CEOs’ new willingness to consider the interests of employees, marks an opportunity to reevaluate the United States’ labor law regime. Sens. Bernie Sanders and Elizabeth Warren have both proposed legislation that would institute co-determination in the United States. Yet despite their professed eagerness to protect employees’ rights, the Business Roundtable has not thrown its weight behind these or any other American labor law reforms, aside from a vague call to raise the minimum wage and expand employee benefits.

A couple weeks ago, I visited the Museum of Work in Hamburg, where I browsed the collection of colorful vintage posters warning against workplace hazards. These posters were released in the early days of workers’ compensation, a legal regime pioneered by Germany and later adopted by the United States, which economically benefited both companies and employees by shielding the former from tort liability and guaranteeing the latter compensation for a broad range of work-related injuries. As organized labor enters a renaissance in the United States, the time is ripe to again look to Germany for labor law inspiration•

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Isaac Thuesen is a 3L at Indiana University Maurer School of Law. Opinions expressed are those of the author.