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In August 2001, the German-based car producer Volkswagen (VW) and the IG Metall metalworkers' trade union concluded a set of company agreements for the new VW subsidiary, Auto 5000 GmbH. The new pay and working time provisions are below the level set by the main VW company agreement, but are equivalent to the level of the sectoral collective agreement for metalworking. Furthermore, the agreements include some innovative provisions on continuing training, work organisation and co-determination rights.
On 28 August 2001, the German-based car producer Volkswagen (VW) and the IG Metall metalworkers' trade union concluded a package of company agreements for the new VW subsidiary, Auto 5000 GmbH. The company agreements will be effective for 3,500 newly hired employees at the VW Wolfsburg plant and potentially also for another 1,500 newly hired employees at the VW Hanover plant.
In November 1999, VW management announced its plans to start the production of new van models at two production sites in Lower-Saxony. The new investments, however, were to depend on VW's ability to organise production at the same levels of costs as found, for example, in Portugal. If this target could not be reached, VW announced that it would not make new investments in Germany.
Against this background, the VW employee director (the member of the management board responsible for personnel matters), Peter Hartz, proposed the so-called '5000 x 5000' project, which included a promise to create 5,000 new jobs, with the employees concerned receiving fixed monthly pay of DEM 5,000 (DE0003251F). Furthermore, VW personnel management proposed new working time arrangements whereby working time would not be fixed but employees would be obliged to work as long as necessary (up to the statutory maximum working week of 48 hours) to reach a certain production target without any overtime or other extra pay. Moreover, Saturdays were to become a regular working day. Finally, the whole work process was to be organised through teamwork, with the teams having a far-reaching autonomy in organising operational matters.
The implementation of the '5000 x 5000' plan would mean that the newly hired employees would not be covered by the normal company agreement at VW (DE0010286N), but by a special company agreement for the newly established VW subsidiary, Auto 5000 GmbH. IG Metall welcomed VW's announcement of the creation of new jobs and signalled its readiness to negotiate a special agreement for the new production lines. Right from the start, however, the union also criticised some core elements of the proposed project as unacceptable. IG Metall rejected in particular the idea of so-called 'programme pay' (Programmentgelt), whereby a fixed rate of pay is linked to performance and not the working time which is necessary to reach the production target. The union also criticised the fact that working time could to be extended up to 48 hours a week. Under the original proposal from management, the pay and working time provisions would not only be below the level of the more generous VW company agreements, but also below the level of the branch-level agreements covering the German metalworking industry.
Although both sides made concessions during several rounds of negotiations, in June 2001 they failed for the time being to reach an agreement (DE0107235F). The union sharply criticised VW management for following a strategy of 'pay and social dumping' which might threaten core collectively agreed standards in German metalworking. Strong criticism came in particular from works councillors and trade union representatives at other automobile companies in Germany, who were afraid that the VW project might set in motion a downward spiral of pay and working conditions in the whole industry.
Public opinion and leading politicians, however, expressed strong expectations that both bargaining parties should find a compromise which would lead to the creation of 5,000 new jobs. Therefore, VW management and IG Metall soon restarted the negotiations and finally reached an agreement in late August 2001.
The new collective bargaining package at VW Auto 5000 GmbH contains four company agreements:
The preamble to the 'project agreement' describes the basic aim of the '5000 x 5000' project as the production and distribution of a new van model (known as A-MPV) under 'competitive conditions' at the VW Wolfsburg plant, with the employment of about 3,500 unemployed people. Whether or not the agreement will become effective for about 1,500 potentially newly hired employees at the VW Hanover plant has still to be decided and is not determined in the agreement.
Since the newly hired employees need comprehensive training, the company agreement foresees the following procedure. First, the selection of the applicants is to be organised in cooperation with the local employment services, which will also organise general training for a period of three months. Thereafter, VW will hire the employees for a period of six months, during which time they will receive basic training in automobile production. After this training period, VW will normally take on the employees in a open-ended employment relationship. Originally, VW management demanded fixed-term contracts for all employees, but later agreed to open-ended employment contracts.
During the first six months of the in-company training period, all employees will receive monthly pay of DEM 4,000. After the six months are completed, all employees will receive basic monthly pay of DEM 4,500, plus an annual bonus of DEM 6,000 - which together guarantees the employees a monthly income of DEM 5,000. In addition, all employees will receive a personal performance bonus and a 'participation' bonus depending on the company's results. Finally, a special clause in the agreement provides that every employee will receive a minimum annual income which must be at least as high as the equivalent income paid under the terms of the branch-level collective agreement for metalworking. The latter has been a central demand of the trade unions, in order to avoid any undercutting of the metalworking agreement.
On annual average, the working time for all employees will be 35 hours a week, which corresponds with the collectively agreed weekly working time in metalworking, but is higher than the 28.8-hour week set out in the VW company agreement. Moreover, the new agreement allows for very flexible working time arrangements, including
If a certain shift is not able to fulfil the product and quality targets, the employees are obliged to work overtime. The overtime will be paid only if the reasons for the performance shortfall are the responsibility of the employer. The latter can be seen as one of the core compromises between the bargaining parties. While originally the VW concept of 'programme pay' aimed to achieve a total decoupling of pay and working time, this has now been limited to those cases where the performance shortfall is the responsibility of the employees.
The new agreement states that every employee has 'the right to a human-oriented organisation of work'. Consequently, the work process should be organised in such a way that 'each employee should be neither over- nor understretched and should have varied and comprehensive work which promotes his or her individual knowledge and capability.' All work should be organised in teams and there should be a flat hierarchy with a maximum of three hierarchic levels. The teams should be allowed far-reaching competencies in organising the operational part of the work and training measures. All teams will also receive special training to develop their social skills.
The concrete performance targets, as well as the number of employees necessary to fulfil these targets, should be jointly determined by management and the works council, with the participation of the work teams. The determination of the number of employees should equally take into account economic, ergonomic and social factors.
In a special VW Auto 5000 GmbH company agreement on continuing training, it is provided that every employee should receive on average three hours per week of training, with half of the training time paid by VW and the other half in the employees' own time. Every employee should have the right to an individual training plan which combines work process-related training (training on the job) with broader training (training off the job), including training in social skills. Furthermore, every trained employee should receive a certificate as a 'specialist of automobile production' in order to improve their employability.
Since the newly hired employees of Auto 5000 GmbH and the employees of Volkswagen AG will be working at the same plant in Wolfsburg, a special agreement determines that both groups of employees will be represented by the same works council.
A special agreement determines that the Auto 5000 GmbH will have a supervisory board with 12 members, of which six must be employee representatives. If the company wants to create or close potential subsidiaries or to buy shares in other companies, it needs a majority of two-thirds of the supervisory board members. This provision means that the employees' co-determination rights have been extended far beyond the statutory co-determination rights as provided by the Co-Determination Act.
The agreement also extends the co-determination rights of the works council regarding the determination of the content and methods of training, the definition of the performance targets and the number of employees, and the determination of the individual performance bonus. These provisions also go beyond the rights provided by the new Works Constitution Act (DE0107234F).
Overall, the announcement of the new company agreements received positive comments from various quarters. The Chancellor, Gerhard Schröder, praised the agreement as a 'ground-breaking' deal and urged other companies and trade unions 'to follow the example of VW and IG Metall and come up with similar innovative solutions to create new jobs in Germany'. The general secretary of the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), Reinhard Göhner, called the Volkswagen agreement a good example of a necessary decentralisation and flexibilisation of German branch-level collective agreements in order to improve competitiveness. The president of the Gesamtmetall metalworking employers' association, Manfred Kannegiesser, was of the opinion that elements of the Volkswagen deal - such as the flexible working time arrangements, the new forms of work organisation and the performance-related pay components - could be taken over by other companies in the metalworking industry. Finally, the chief negotiator for Volkswagen, Josef-Fidelis Senn, stated that, although not all the ideas in the original '5000 x 5000' project could be realised, the new agreements will allow the company to save 20% in labour costs compared with the regular VW company agreement.
On the trade union side, the president of IG Metall, Klaus Zwickel, emphasised that the union was able to reach an agreement which did not undercut the collectively agreed basic standards in German metalworking. Mr. Zwickel called the VW deal a good illustration of the fact that, besides its social and labour standards, Germany is still an attractive location for industrial production. Furthermore, an IG Metall spokesperson praised the more innovative aspects of the VW agreements, such as the provisions on continued training, modern work organisation and extended co-determination rights. However, there have also been some more critical comments, in particular from employees at Volkswagen who are now afraid that in future the company might question the higher pay levels in the VW company agreement. IG Metall therefore made clear that the regular company agreement will continue to be the basis for collective bargaining at Volkswagen.
Against the background of nearly 4 million unemployed people in Germany, it is of course always good news when a leading manufacturer makes new investments and creates new jobs. Since mass unemployment has significantly strengthened their bargaining position, however, more and more companies have started to ask their workforce for concessions on pay and working conditions in return for new investment.
In this situation, the trade unions are faced with a fundamental dilemma. On the one hand, they could not simply reject such demands, because they would be strongly accused of preventing the creation of new employment. On the other hand, they could not simply accept all kinds of concessions since this would, in the end, undermine the system of collectively agreed standards.
The recent bargaining at Volkswagen reflects in many respects this basic dilemma. If IG Metall, which still has a very powerful position at VW, organising more than 90% of the employees, had accepted the original proposal of management, this would have had far-reaching consequences for the German system of branch-level collective agreements, since it would have introduced a radical new way of regulating pay and working time.
Against this background, it seems that IG Metall reached an acceptable compromise. The '5000 x 5000' deal basically sticks to the collectively agreed standards of the branch-level agreements in metalworking, while in some respects (continuing training, work organisation, co-determination rights) it genuinely creates innovative new arrangements in favour of the employees. In comparison with the normal VW company agreement, however, it also means a deterioration in pay and working time conditions which in the long run might also have negative consequences for the VW company agreement itself. (Thorsten Schulten, Institute for Economic and Social Research, WSI)