Labor dispute

Spanish fashion retailer Zara is losing a powerful partner in Germany as the Hamburg-based Otto Group has reportedly jumped ship, offloading its 22-percent stake in Zara Germany in the process.

German news magazine Der Spiegel reports Otto is worried about the possible damage its association with the Inditex subsidiary could do to its image. That's because the Zara Germany wants to change its legal form from a German "GmbH" to a Dutch "BV & Co KG."

While both legal forms essentially describe a private company with limited liability, there is an important difference: the Dutch form would see Zara Germany's works council lose the right of co-determination it enjoyed under the German form.

Zara insiders told Der Spiegel that it was likely Otto Group did not want to be seen by the German public as impinging on works council rights.

Union alarmed by switch

On Monday, Germany's powerful Verdi union told news agency AFP that it viewed Zara's formal transition as a "breach of trust." The switch to the Dutch form was "alarming," a spokesperson said, because it allowed the co-determination to be circumvented.

However, an official Zara spokesperson said that the transition in the company's legal form was a shareholder decision, and denied that the issue of works council rights had played a role.

By moving to the Dutch form, Zara is following in the footsteps of other clothing chains with German subsidiaries, such as H&M and Esprit.

Otto has had a strategic partnership with Zara since 1999, using its influence to help build up the chain's strong presence in Germany. Zara currently operates 64 branches across the country, employing around 2,800 people.

Author: Deanne Corbett (AFP/dpa)
Editor: Sam Edmonds