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Collective Bargaining

Collective bargaining at industry level between individual trade unions and employers' organisations is still the most important mechanisms for setting pay and conditions in Germany. However, the system is under pressure as employers leave or never join employers’ organisations, and the agreements themselves provide for greater flexibility at company level.

The framework

 

There is no bargaining at national level covering the whole of the economy in Germany and the main union confederation, the DGB, does not generally have a mandate to negotiate. (One exception was in 2003, when the DGB negotiated an agreement on agency staff on behalf of the individual unions. This has subsequently been renewed on a number of occasions, and it has also been supplemented by separate industry-level agreements signed by the individual unions.)

 

Instead it is collective bargaining at industry level between individual trade unions and employers' organisations that remains the central arena for setting pay and conditions in Germany. Separate agreements between trade unions and specific companies are less common, although there are some exceptions (such as the agreement covering the motor company Volkswagen), and they are found more frequently in the former East Germany (see below).

 

Figures from the government-backed Institute of Employment Research (IAB) show that, in 2018, almost half (46%) of employees in Germany were covered by industry-level collective agreements, with another 8% covered by agreements signed at company level – meaning overall collective bargaining coverage was 54%. This left 46% of employees whose terms and conditions were not set by collective bargaining, although the managers who completed the survey, on which the figures are based, said that the terms and conditions for half (51%) the employees not covered were oriented on industry-level agreements. It is also noticeable that the proportion of employees covered by collective bargaining is 11 percentage points higher in West than in East Germany (see table).[1]

 

Proportion of employees covered by collective agreements: 2018

Level of bargaining

Germany

West Germany

East Germany

Industry

46%

56%

45%

Company

8%

Not covered

46%

44%

55%

  * of which oriented on industry-level

51%

52%

44%

Total

100%

100%

!00%

Source: IAB-Betriebspanel 2018, Tabelle 1: Beschäftigte nach Tarifbindung ihres Betriebes

 

The IAB figures also provide details on the proportion of workplaces, as well as the proportion of employees, covered by collective agreements. These show that 25% of workplaces are covered by industry-level agreements and 2% covered by company agreements. These figures are lower than those for employees, because larger workplaces are more likely to be covered by collective bargaining than smaller ones. In West Germany, only 22% of workplaces with up to nine employees are covered by a collective agreement, either at industry or at company level, compared with 80% of workplaces with 500 or more employees. The parallel figures for in East Germany  are 13% (up to nine employees) and 76% (500 and over).

 

One other difference is that company-level agreements are more common in the East than in the West.  Overall 3% of workplaces in East German have company agreements compared with 2% in West Germany.

 

A separate study by the official statistics office (Statistisches Bundesamt) used the results of the 2014 structure of earnings survey to calculate the degree to which employees are bound by collective agreements. It produced findings which were similar to the IAB figures, although generally lower. It found that, in 2014, 46% of employees and 15% of workplaces were bound by collective agreements. As with the IAB figures, they show that industry-level agreements, covering 41% of employees and 13% of workplaces, have by far the widest coverage.[2]

 

Both sets of figures indicate the wide variations between industries in the extent of bargaining coverage. Public administration has the highest proportion of employees covered by collective agreements (98% based on the IAB figures and 99% on the structure of earnings figures), while information and communication has the lowest (20% on both sets of figures). In manufacturing, a key area for German unions, collective bargaining coverage is between these two extremes, with 56% of manufacturing employees covered by collective bargaining on the IAB figures and 43% on the structure of earnings figures.

 

Industry agreements are typically negotiated at regional rather than national level. As a result there are slight variations between regions. However, the main elements of the agreements, in particular the size of the pay increase, will normally be the same across all regions.  The main exception is the former East Germany where negotiated pay and/or conditions in some industries are still inferior to those in the former West Germany, although the gap has closed over time. The pay specialists at the Economic and Social Institute (WSI), which is close to the unions and regularly monitors developments, estimates that, at the end of 2017, the average level of negotiated rates in the East was 97.5% of those in the West. However, although there were some industries, like banking or printing where there was no difference, there were others where the difference was still substantial. One is example is provided by the agreements for hotels and restaurants, where the main rate in the agreement for Saxony (East) was only 77.7% of the equivalent rate in the agreement for Bavaria (West).[3]

 

This system, with collective bargaining primarily taking place at industry level rather than at the workplace, has traditionally been seen as one of the strengths of the German system. It has the potential to keep conflicts on pay and conditions at industry level, between the unions and the employers’ associations, while at workplace level, individual employers and workplace employee representatives – the works councils (see section on workplace representation) – can develop more cooperative relations.

 

Works councils are not legally able to negotiate collective agreements. They can, however, reach agreements with individual employers on issues not covered by collective agreements, and there are a whole range of topics such as employment security, the organisation of working time, rules on internet use or working from home, where works councils have reached agreements with local employers. These include some aspects linked to earning, such as bonus rates, performance-related pay and pay supplements, like long-service payments (see section on workplace representation). 

 

Works councils are also able to negotiate over areas covered by collective agreements where the agreement itself contains a so-called “opening clause”, specifically allowing the works council to negotiate on the issue.

 

Opening clauses that allow the works council to negotiate arrangements which are less favourable than those set out in the industry-level agreement, to take account of the particular circumstances of their employer, are seen as important way of providing flexibility to the system. One well known example was the Pforzheimer accord signed by IG Metall in 2004, which was subsequently integrated into a more general collective agreement on job security. This permits the works council to agree reductions in hours and pay on a temporary basis in order to avoid redundancies.

 

Many pay agreements include opening clauses to allow works councils, often with the approval of the unions, to take account of the particular circumstances of their company. For example, the 2018 metal industry settlement, covering 3.5 million employees, allowed the a €400 cash payment due in 2019 to be delayed, reduced or completely eliminated in individual companies facing severe difficulties. And the 2018 settlement for the chemical industry allowed companies to omit a lump sum payment of €280 where they could show that they were facing particular economic difficulties

 

Figures from the IAB show that in 2011 23% of workplaces covered by collective agreements said that there were opening clauses in the agreements that applied to them. They were most common in manufacturing industry, where 35% of workplaces reported that their agreements included them. Where they were present, they were often used. Overall, 59% of workplaces, whose agreements included opening clauses on pay, said that they had used them, and 73% of workplaces with opening clauses on working time said that they had used the flexibility they provided.[4]

 

There are two legal mechanisms for extending the results of collective agreements beyond the signatory parties to all employers in an industry, although the rules for doing this have changed significantly in recent years, with the original extension mechanism being almost completely superseded.

 

The traditional mechanism for making existing collective agreements generally binding is subject to a number of conditions. These include that the agreement to be extended should cover at least 50% of employees in the industry and that both employers and the union should call for its extension beyond those directly covered. With levels of bargaining coverage dropping (see below), this mechanism has become less widely used. In summer 2019 the website of the labour ministry (BMAS) indicated that at that point only 443 (0.6%) of the approximately 73,000 registered collective agreements, which cover a wide range of issues other than pay, were currently generally binding ,[5] and that the list of generally binding agreements was being revised. 

 

However, since the late 1990s legislation has been introduced which provides a different route to setting generally binding minimum rates for specific industries. One reason for this was to deal with the low wages often paid by non-German firms employing their own nationals in Germany (posted workers). This Posted Workers’ Act (Arbeitnehmer-Entsendegesetz) gives the labour minister the power to extend collective agreements which do not cover 50% of an industry’s workforce, and to set minimum rates in industries where there are no collective agreements if a specially appointed commission decides this is appropriate. Minimum rates had been set on the basis of collective agreements in nine industries, including construction, postal deliveries, cleaning, refuse collection, security and meat processing. In social care, they are set by the ministry on the basis of recommendations from a commission. The government also sets minimum rates for agency workers using other legislation. (This is in addition to the national minimum wage, which was introduced in January 2015 – see below.)

 

 

The German collective bargaining system has come under pressure as the coverage of industry-level agreements has fallen. The IAB figures show that the proportion of all employees in West Germany covered by industry-level agreements fell from 70% in 1996 to 49% in 2018. Looking at just the private sector, the percentage fell from 66% to 44%. In East Germany over the same period, the situation is considerably worse, down from 56% to 35% for all employees, and from 48% to 28% for those in the private sector.[6]

 

This downward trend is in part a result of employers leaving employers’ federations, or alternatively staying in them without being bound by the agreements they sign (so-called OT membership), as well as by the fact that new companies emerge and existing ones disappear. (New companies are less likely to be bound by industry-level agreements than existing ones.) The fall in coverage appears to have halted in East Germany, where it has remained broadly stable since 2012, but it has continued in West Germany, where overall bargaining coverage was 4 percentage points lower in 2018 than in 2012.[7]

 

Who negotiates and when?

 

Negotiations normally take place between the unions and the employers' federations. The agreements are legally binding in respect of trade union members (in practice normally for all employees) and the members of the employers' organisations who sign them.

 

There are no specific rules on union representativeness in Germany, unlike other countries, but in order to be a party to an agreement the union must have the capacity to negotiate (be “tariffähig”). As well as meeting more formal conditions such as having a constitution which allows them to negotiate, unions must also show that they can be effective and put the other side under pressure, as indicated by membership and organisational strength. In the past the courts have found that some of the unions in the Christian CGB do not have this capacity and that agreements they have signed are invalid. The best known example of this was the Christian union for agency workers, CGZP, which was found not to have the capacity to negotiate in December 2010.

 

Until fairly recently one of the basic principles of bargaining was that an employer could only be covered by one agreement. Only in a few exceptional cases, were specific occupational groups, such as doctors, pilots or locomotive drivers, with substantial bargaining power, able to negotiate separate agreements just for them. However, in a judgment in June 2010 the labour court ruled that while an individual could only be covered by one agreement, several agreements could coexist within the same company. Fearing that this could lead to a greater fragmentation of bargaining, the government introduced new legislation in 2015, which provided that where there was a conflict between competing unions, it would be the agreement signed with the larger union at the workplace that would be valid.

 

This legislation was challenged in the constitutional court by some of the non-DGB unions, who argued that it breached the right of freedom of association. The court ruled in 2017 that the legislation broadly complied with the constitution but needed some amendments. Changes were therefore introduced at the end of 2018, which provided some protection where the interests of the group represented by the minority union were not “seriously and effectively addressed”. However, it is not clear that this will be a final settlement, and this issue may again be taken to the constitutional court.

 

Agreements are signed throughout the year and those covering pay normally last for around one or sometimes two years or more. Agreements covering other issues have a longer life – perhaps five years or longer, while some go on until one side wishes to change them and gives the required period of notice.

 

The subject of the negotiations

 

German collective agreements regulate a wide range of issues. Apart from pay, agreements also deal with issues such as shiftwork payments or pay structures, working time, the treatment of part-timers and training.

 

Typically in any industry there will be an agreement dealing with pay and a framework agreement which deals with issues such as working time, appointment and dismissal, premium payments for night and shift work, holidays and sick pay. There may also be separate agreements on topics such as the treatment of older workers. All of these are likely to be present in several regional variants, although, as already stated, other than between East and West, the differences between them are likely to be small.

 

Following sustained pressure from the unions, Germany has had a minimum wage since 1 January 2015, although industry-level collective agreements paying less than the minimum wage continued to be valid until 1 January 2017.

 

A minimum wage commission, made up of representatives of the unions and employers, with external experts in an advisory capacity, makes proposals for increases in the rate, taking account of increases in collectively negotiated pay rates.  These proposals are presented to the government which takes the final decision.

 

In 2017, some 1.4 million jobs were paid at the rate of the national minimum wage. In West Germany they accounted for around 3.0% of all jobs and in East Germany 6.0%.[8] The figures are expressed in jobs rather than employees, as many individuals being paid the national minimum wage work very few hours and may have several jobs.

[1] Tarifbindung und betriebliche Interessenvertretung: Ergebnisse aus dem IAB-Betriebspanel 2018, Tabelle 1 by Peter Ellguth and Susanne Kohaut, May 2019

[2] Tarifbindung 2014, Statistisches Bundesamt 2019

[3] Statistisches Taschenbuch Tarifpolitik: WSI-Tarifarchiv 2018, by Thorsten Schulten June 2018

[4] Entwicklung der Tarifbindung, Peter Ellguth, presentation to 9. Hans-Böckler-Forum zum Arbeits- und Sozial Recht, March 2013 http://www.boeckler.de/pdf/v_2013_03_21_ellguth.pdf

[5] https://www.bmas.de/DE/Themen/Arbeitsrecht/arbeitsrecht.html (Accessed 14.07.2019)

[6] Tarifbindung und betriebliche Interessenvertretung: Ergebnisse aus dem IAB-Betriebspanel 2018,Tabelle 4 by Peter Ellguth and Susanne Kohaut, May 2019

[7] Tarifbindung: Weiterhin deutliche Unterschiede zwischen Ost- und Westdeutschland by Susanne Kohaut, IAB-FORUM, May 2109  https://www.iab-forum.de/tarifbindung-weiterhin-deutliche-unterschiede-zwischen-ost-und-westdeutschland/ (Accessed 14.07.2019)

 

[8] Statistisches Bundesamt: Pressemitteilung Nr. 231 26. Juni 2018

L. Fulton (2020) National Industrial Relations, an update. Labour Research Department and ETUI (online publication). Online publication available at http://www.worker-participation.eu/National-Industrial-Relations.