Matrix structures

The practice

"I don't know whether I'm coming or going. I can barely deal with the large number of tasks and don’t even know which team I've been assigned to or who my boss is. This is also constantly changing and, on top of that, I have a disciplinary superior..." - it often sounds like this if you listen to employees in companies with a matrix organisation. This heartfelt groan is the complexity and the difficulty of the organisational form "matrix" in a nutshell. This can lead to stress and overload with all the consequences.

This situation has probably been reinforced by virtual working from home. Often employees only know their superior from phone calls or via videoconferencing. In international companies, it is now common practice to establish a global team for a project or product. Here, as a rule, the instruction and management activity only exists as a "virtual" possibility. Social commitment can therefore only emerge or be invested to a small extent.

The organisational form

The matrix organisation has its origin in the 1950s to 70s and is characterised by increasing internationalisation and technological change. The first matrix organisation is attributed to a US aerospace company which wanted to bring together product-specific and functional know-how without any dominance. The matrix experienced a renaissance during the second half of the 1980s with the trend towards flatter hierarchies and increasing project business. Subsequently, the matrix has established itself in many sectors and companies with strong development pressure and/or project business, i.e. for instance in IT and software companies.

The matrix organisation is characterised by the fact that expert or project teams come together for defined tasks or products on a cross-company basis at horizontal level while reporting lines are established vertically so that the employees are usually connected twofold, namely professionally and disciplinarily. Furthermore, the matrix becomes more complex if employees are located across various sites within organisations with many establishments, or even where employees exercise rights to issue instructions across companies and establishments within various companies of a group, often internationally.

Legal issues

One of the primary legal problems was the question of whether managers, of a company, who exercise rights to issue instructions in several establishments are subject to co-determination in all establishments in which they are active, i.e. whether proceedings pursuant to § 99 of the German Works Constitution Act (Betriebsverfassungsgesetz, BetrVG) have to be conducted for the appointment of the manager in all establishments with works councils.

Appointment

The Federal Labour Court meanwhile assumes that there is already integration into the unknown establishment under works constitution law if an actual integration into the establish-ment takes place and the employer exercises essential rights to issue instructions (Judgment of the Federal Labour Court (BAG) of 17 May 2017 in Case No 7 ABR 21/15). The Federal Labour Court has continued this approach in 2019 (Judgment of the BAG of 12 June 2019 in Case No 1 ABR 5/18) and confirmed that it constitutes an appointment of a manager pursuant to § 99 of the BetrVG if one or several employees are subject to instructions of the manager in the unknown establishment in a professional or disciplinary manner. A further requirement was that the manager herself or himself was bound by instructions of the owner of the establish-ment or the employer under the employment agreement. The labour courts at all instances even make this assessment where the manager gives disciplinary or professional instructions to other employees across companies and establishments of the group (for instance, according to the Regional Labour Court (LAG) of Düsseldorf of 20 December 2017 in Case No 12 TaBV 66/17). These decisions are of great practical importance, since they imply that managers possibly trigger a large number of co-determination proceedings pursuant to § 99 of the BetrVG, which in practice triggers the necessity, in case of refusal, to give consent to initiate the procedure pursuant to § 100 of the BetrVG to enforce provisional appointments, if neces-sary, with judicial replacement of the consent of the works councils taking into consideration the short deadlines of the third sentence of § 100 (2) of the BetrVG. This is a great bureaucrat-ic and legal effort, which ultimately is also reflected in the cost and time involved.

Work agreements

So far, it has not been decided under collective bargaining law, which works agreements apply to a so-called matrix manager. It is therefore conceivable that the appointment of a matrix manager in several establishments implies the applicability of divergent works agreements in the various establishments. In legal literature, this is rejected especially by reference to problems with regulations on remuneration claims or claims for compensation under the social plan (Barbara Reinhard, ArbRB 2019, 369-37).

Termination

Furthermore, problems arise when it comes to questions concerning the dismissal of matrix managers, which result from the multiple assignment of managers to various establishments. Specifically, do all works councils need to be consulted in the event of a dismissal of a matrix manager pursuant to § 102 of the BetrVG, for works into which the manager is integrated and therefore appointed? This has - as far as can be seen – not been decided by a higher court nor has the question of how the Protection Against Unfair Dismissals Act (Kündigungsschutzge-setz, KSchG) applies in cases in which the matrix manager is employed in a (parent) company which falls below the significant thresholds pursuant to § 23 KSchG. The Regional Labour Court of Hesse (Judgment of the Landesgericht (LAG) of Hesse of 26 August 2020 in Case No 2 Sa 119/20) is of the opinion that the appointment under § 99 of the BetrVG also affects integration pursuant to § 23 of the KSchG, consequently, that the employment figures of the other establishments need to be attributed to the matrix manager and he or she thus enjoys protection against unfair dismissal.

Social selection

The presentation of the problem then further leads to the issue of social selection. According to previous case law, the social selection has to be implemented in relation to the specific establishment, namely in the establishment, in which the employment needs cease to exist. However, the BAG has indicated in obiter dicta that a social selection across establishments could be possible, e.g. in the case of a rotating employment of employees in several estab-lishments of a company.

Continued employment

The development of the possibility of continued employment could be similar. The possibility of continued employment is - unlike social selection - in principle company-related anyway. In this respect, the discussion runs along the lines of whether the continued employment has to be referred to the group level in cases in which the matrix managers become active in several establishments across companies in a group, which is the order of the day in major groups.

Conclusion

It remains an open question, whether the courts have gained a complete view of the implica-tions and lasting consequences of the BetrVG and the KSchG when hastily assessing the matrix structure for an appointment within the meaning of § 99 of the BetrVG. It also becomes evident that the BetrVG and the KSchG urgently require an adjustment to modern forms of work and organisational structures.

Dr Thomas Drosdeck