Is there a Social Plan obligation for small businesses?

In our view, when several circumstances are considered, a SocialPlan obligation for small businesses cannot be assumed. Even if the exception in § 112a section 1 sentence 1 BetrVG does not apply, the minimum number of at least 20 employees must be exceeded. If an employer undertakes operational changes (which are described in detail in § 111 sentence 3 BetrVG), the Works Council cannot demand, let alone enforce, a Social Plan if it is a small business (§ 111 sentence 1 BetrVG).

Problem: is the small business limit from the definition of the operational changes according to § 111 sentence 1 BetrVG transferable to §§ 112, 112a BetrVG?

When an employer is planning operational changes, he is obliged to inform the works council and consult with it. However, this obligation only exists if the business has at least 20 employees and is therefore not a small business according to § 111 sentence 1 BetrVG.

The aim of the cooperation between employer and works council is to conclude on a Balance of Interests and a Social Plan to describe the measure of the operational changes transparently, and to mitigate or compensate for the social consequences of such changes. If an agreement between the company and the works council fails, mediators such as the German Employment Agency or the Conciliation Committee can become involved. If a compromise still cannot be reached between the parties following this, the company carrying out the operational changes is in principle, according to § 112 section 1 sentence 2, sections 4, 5 BetrVG, obliged to mitigate the social consequences anyway, irrespective of the presence of the conditions of § 112a BetrVG.

It is unclear whether the limit in § 111 sentence 1 BetrVG, that it must be a business with usually more than 20 employees entitled to vote, also applies to the Social Plan Obligation. The wording of § 112 section 1 sentence 2 BetrVG is not clear in this regard. Otherwise, there would be a general Social Plan Obligation for every business that carries out operational changes, regardless of its size.

After examining this question, there are good arguments in favour of the view that a Social Plan is not required to be agreed, let alone that it could be enforced, when there are operational changes in small businesses.

First reason: explanation of the law

The reference point of the threshold value from § 111 sentence 1 BetrVG was originally the business (on a low scale) and was only changed to the company (on a larger, more inclusive scale) by the reform of the German Works Council Constitution Act (BetrVG) in 2001. It is clear from the German Bundestag's printed matter 14/5741 that small businesses in larger companies were excluded from co-determination under §§ 111 ff. BetrVG, and that this was increasingly seen as a violation of Article 3 section 1 of the German Constitution (Grundgesetz/GG). That is why the German Constitutional Court's case law on small company clauses in the Protection Against Unfair Dismissals Act (Kündigungsschutzgesetz/KSchG) should be applied to the Works Council's participation rights under §§ 111 ff. BetrVG. The application of the threshold in companies with several businesses can only be considered as constitutionally compliant if the threshold of the number of employees is related to the company.

The aim of the reform was to ensure that the purpose of § 111 sentence 1 BetrVG - to protect small businesses from an excessive financial burden of Social Plans - is not frustrated, and that the privilege is in fact only granted to small businesses. The legislator thus interprets the purpose of the threshold in § 111 sentence 1 BetrVG in a way that is similar to the Social Plan obligation in § 112 section 4 BetrVG.

Second reason: interaction between § 111 and § 112 BetrVG

The legal systematics of §§ 111 to 112a BetrVG are relevant as well. The term of operational changes is mentioned in § 111 sentence 1 BetrVG for the first time and is detailly defined by individual cases in § 111 sentence 3 nos. 1 to 5 BetrVG.

§§ 112, 112a BetrVG refer to the provision of § 111 BetrVG either by naming the norm or the term. Therefore, it is obvious that the limit standardised in § 111 sentence 1 BetrVG also applies to the subsequent §§ 112, 112a BetrVG.

Third reason: “more than ever” argument

Another argument against the general Social Plan obligation is that the obligations of a company to inform and consult in the case of operational changes already do not apply to small businesses. That is why the same restriction must apply to the obligatory agreement of a Social Plan, which as such is even more intensive and intrusive as a right of co-determination.

Fourth reason: supporting academic literature

The view that the limit in § 111 sentence 1 BetrVG also applies for §§ 112, 112a BetrVG is supported by clear academic literature: as soon as the threshold of 20 employees is undercut, none of the works council's participation rights under §§ 111 ff. BetrVG would hold. The Social Plan obligation would not apply to small businesses as well. Only voluntary written works agreements under § 88 BetrVG could be considered in such cases. Social Plans in small businesses are to be classified as such agreements. Thus, an insolvency administrator could only conclude a Social Plan with the consent of the creditors’ meeting in such companies, and would otherwise be liable to pay.

Conclusion

If operational changes according to § 111 sentence 3 BetrVG are carried out in a small business, there is no obligation to negotiate and agree on a Social Plan according to § 112 section 1 sentence 2, sections 4, 5 BetrVG.