Main employers' and business associations demand changes in Collective Agreement Act

In February 1999, Germany's main employers' and business associations made demands for a redefinition of the "favourability principle" set out in the Collective Agreement Act. According to the employers, it should be legally possible for companies to diverge from collective agreements in order to safeguard or promote employment. At the same time, the liberal FDP party presented a comprehensive draft for an amendment of the Collective Agreement Act to the German parliament. Trade unions, however, have sharply rejected any attempts to change the legal foundations of the German system of collective bargaining.

On 2 February 2000, the presidents of Germany's four main top-level employers' and business associations sent a joint letter to the federal Chancellor, Gerhard Schröder, in which they called for changes in the Collective Agreement Act (Tarifvertragsgesetz) (DE9905200F). The letter was signed by the presidents of:

• the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbänd e, BDA), Dieter Hundt;
• the Confederation of German Industries (Bundesvereinigung der deutschen Industrie, BDI), Hans-Olaf Henkel;
• the German Association of Chambers of Commerce (Deutscher Industrie- und Handelstag, DIHT), Hans Peter Stihl; and
• the Central Association of German Crafts (Zentralverband des deutschen Handwerks, ZHD), Dieter Philipp;

They demanded, in particular, a legal redefinition of the so-called favourability principle (Günstigkeitsprinzip), according to which departures from regulations laid down in collective agreements are possible only when they are in favour of the employee. This means that, for example, a works agreement can provide better employment conditions than a collective agreement, but not the other way round. In recent years, however, Germany has seen a growing number of "employment pacts" at establishment level, in which the employees have made concessions on working conditions in exchange for limited job guarantees given by the employers (DE9902293F). Sometimes, these employment pacts have contained provisions on cuts in payments or on working time extensions which more or less openly contravene the relevant collective agreements in force. In a recent judgment, the Federal Labour Court (Bundesarbeitsgericht) stated that such arrangements could not be justified by referring to the favourability principle (DE9908214F). According to the Labour Court, it is not accurate to compare job security on the one hand with working time or payments on the other, since such a comparison of "apples and pears" does not allow an estimation of what is more in favour of the employees.

The employers' and business associations which sharply criticised the Federal Labour Court's judgment have now demanded that the government change the Collective Agreement Act in order to create possibilities for a legal deviation from collectively agreed standards at company level. According to the employers, the recent crisis of the German-owned construction group Philipp Holzmann has proved that under the current legislation it is almost impossible for employees to contribute to a company's rescue plan without contravening collective agreements (DE0001226F). Therefore, employees should have the right to disclaim certain collectively agreed payments or employment conditions in exchange for the safeguarding of employment or the creation of new jobs. The employers propose that such company arrangements would need to be supported by the works council but not by the collective bargaining parties, namely the trade unions and the employers' associations. In companies where there is no works council, the employers suggest that at least two-thirds of the workforce would have to give their consent to a deviation from collective agreements.

FDP initiative for change of collective agreement law

A few days before the employers' initiative, on 28 January 1999, the opposition Free Democratic Party (Freie Demokratische Partei, FDP) presented an even more comprehensive application for a change to the Collective Agreement Act to the to the Federal Parliament (Bundestag). In the explanation accompanying this application, the FDP claimed that the German system of collective bargaining provides insufficient flexibility and differentiation and, therefore, has to be seen as one of the major sources for the persistently high level of unemployment in Germany. The FDP draft contains six points of proposed change in the current legislation on collective bargaining.

1. There should be a clear provision in Article 1 of the Collective Agreement Act that collective agreements have to consider the aim of safeguarding and promoting employment.
2. There should be a change to Article 77, Para. 3 of the Works Constitution Act (Betriebsverfassungsgesetz) in order to allow works councils to conclude collective agreements if they have the support of 75% of the workforce (under the current legislation, works councils are not allowed to conclude any collective agreements).
3. The so-called "after-effect" (Nachwirkungseffekt) of collective agreements, which applies to employers which have left their employers' associations, should be limited to a maximum of six months for wage agreements and a maximum of one year for framework collective agreements (currently, a collective agreement is valid for such employers until a new agreements is concluded).
4. The favourability principle in Article 4, Para. 3 of the Collective Agreement Act should be changed in order to clarify that lower payments or longer working time in exchange for job security should be interpreted a being "in favour" of employees. Such an "employment pact" at company level should receive the support of at least 75% of the employees.
5. The possibility for the state to extend collective agreements should be completely abolished.
6. There should be no "association-level right" (Verbandsklagerecht) to bring cases against companies accused of contravening collective agreements.

Although it is currently not very likely that the FDP application will find a majority in parliament, it has received various positive comments within the employers' camp. For example, the president of BDI, Mr Henkel, welcomed the FDP initiative and declared that the "the current collective agreements law is neither appropriate nor does it fit with the need for international competitiveness." Since the Collective Agreement Act is de facto "destroying jobs", a reform of that law is urgently needed.

In contrast, the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) sharply rejected all attempts to change the legal foundations of the German collective bargaining system. A member of the DGB executive board, Heinz Putzhammer, said that, as a result of the FDP initiative, collective agreements would be reduced to "non-binding guidelines". DGB accused the employers of promoting a fundamental change in the German system of collective bargaining which would lead to the destruction of branch-level agreements and a shift towards company bargaining. Instead, DGB demanded that the employers return to the path of a joint modernisation of the German bargaining system. Despite these criticisms, the employers have announced that they will come forward with concrete proposals for changes in the collective agreements law in the next round of top-level talks within the tripartite "Alliance for Jobs" (DE0001232F).

Commentary

In the 1990s, disputes over the system of collective bargaining became a permanent phenomenon in German industrial relations. The recent initiatives, however, seem to bring a new quality into the debate, since it is the first time that all German peak employers' and business associations have jointly demanded some fundamental changes in collective agreements law.

For the unions, the recent employers' initiative is an open attack on the German system of collective bargaining. Indeed, some business representatives, such as the BDI president, Mr Henkel, have never made a secret out of the fact that they would like to see Germany following the British path towards purely company bargaining. In contrast, the actual employers' associations, such as BDA, have always argued that they want to see further changes, but based on a system of branch-level collective agreements.

Since Germany has seen a continued process of decentralisation and flexibilisation of collective bargaining during the 1990s, it becomes more and more questionable whether bargaining can fulfil its basic function of placing wages outside competition at branch level. A redefinition of the favourability principle, as now requested by the employers, runs a clear risk of creating a "general loophole" to contravene branch-level agreements in the name of employment. (Thorsten Schulten, Institute for Economic and Social Research, WSI)