Dispute over extension of collective agreements in the building industry

In August 1999, the German Federal Ministry of Labour and Social Affairs issued a directive which declares new collectively agreed minimum wages for construction workers to be "generally binding" - ie applying also to non-organised and to foreign employees and employers in the industry. The Confederation of German Employers' Associations regards this move as unconstitutional, because it circumvents the traditional legal procedure for the extension of collective agreements.

In Germany, collective agreements are directly binding only for the members of the trade union and the members of the employers' association (or the individual company) signing the agreement. By means of an official procedure called an "order imposing extension" (Allgemeinverbindlicherklärung), however, the applicability of an existing collective agreement can be extended to include employees and employers not bound by the agreement. Such a generally applicable agreement then has the same direct and mandatory force for these employees and employers as it has for the employment relationships already bound by the agreement by virtue of membership of a signatory organisation. The rationale behind this incorporation of non-union members and non-organised employers is that otherwise there could be a situation where many employees were not covered by any collective agreement, especially in sectors such as the building industry or retail trade with a large number of small enterprises whose owners are not members of any association.

According to § 5 of the Collective Agreements Act (Tarifvertragsgesetz), the Minister of Labour and Social Affairs may issue an order imposing extension only if several preconditions are met:

• the trade union or the employers' association signing the agreement, or both, must have applied for such an order;

• the employers bound by the collective agreement in question must together employ at least 50% of all employees working within the occupational and geographical area covered by the agreement;

• the procedure must be deemed to be "in the public interest; and"

• a committee consisting of three trade union and three employers' representatives (from other industries) must have approved the application by a majority of at least four votes.

According to the Federal Ministry of Labour and Social Affairs, of the more than 30,000 association-level agreement s in force in 1998, only 588 were made generally applicable by extension. The largest number of extensions - 202 cases - were found in the building industry, followed by the retail trade (72 cases). Most of the agreements extended were framework agreements on working conditions, and only 89 extensions referred to pay agreements. Of the 588 agreements extended, 163 covered eastern Germany.

Extension of minimum wages in construction

In order to limit low-wage competition and to secure employment of German workers, the Posted Workers Act (Arbeitnehmer-Entsendegesetz) of 1996 stipulates that the norms of extended collective agreements in the building industry also apply to foreign employers and employees doing construction work in Germany (DE9702202F). An important collective agreement concluded and extended in 1997 set minimum wages for construction workers at DEM 16.00 per hour in western Germany and DEM 15.14 per hour in eastern Germany. In April 1999, the collective bargaining parties in the building industry - the construction workers' union IG Bauen-Agrar-Umwelt (IG BAU) and the two employers' associations, Hauptverband der Deutschen Bauindustrie (HDB) and Zentralverband des Deutschen Baugewerbes (ZDB) - agreed to raise these hourly minimum rates to DEM 18.50 in western Germany and DEM 16.28 in eastern Germany from 1 September 1999 (DE9905109N).

This move provoked substantial opposition from employers in other industries. They criticised what they saw as the excessive increase in wages, which meant that the new hourly minimum wage of DEM 18.50 in the western German building industry would be much higher than, for instance, that in metalworking (DEM 17.20) or in the textile industry (DEM 15.04). This, it was claimed, could hardly be in the public interest. The Confederation of German Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA) and the three employer representatives on the committee on orders imposing extensions made clear that they would not approve an application for extension of the construction wage agreements.

As a consequence, the Federal Ministry of Labour and Social Affairs decided to make use of a new provision introduced by the Posted Workers Act in December 1998. This states that, instead of issuing an order imposing extension, the Ministry may also declare wages and working conditions to be generally binding by a ministerial directive. Following an application by IG BAU, the Ministry issued such a directive in August 1999, stipulating that the collectively agreed minimum wages would be extended to cover all construction workers in Germany with effect from 1 September 1999. BDA, however, has criticised this move as unconstitutional on the grounds that it circumvents the traditional legal procedure for extensions of collective agreements, violates freedom of association and does not give adequate room for legal objections and parliamentary control. Although several legal experts have also been quite critical of this procedure, the Ministry regards its directive as constitutional and as legally binding.

Commentary

From an economic point of view, an order imposing extension can be interpreted as an instrument for eliminating labour market competition. Therefore most economists, including the Council of Economic Experts (Sachverständigenrat), have for years demanded restraint in issuing such orders. In particular, they have criticised the Posted Workers Act and the extension of the relatively high minimum wages in the building industry as being protectionist measures. In contrast to this view and in order to circumvent opposition from the employers' side, however, the Federal Ministry of Labour and Social Affairs has decided to make use of a new procedure for extending collective agreements in the building industry. As this procedure does not take account of the legal prerequisites laid down in the Collective Agreements Act, it remains to be seen whether it is constitutional. Since the increased minimum wages cannot be expected to have positive employment effects, but may well push up construction prices and stimulate "moonlighting", their extension should be revoked. (Claus Schnabel, IW Köln)