Out-of-court deal allows unpaid extension of weekly hours at Viessmann

On 9 March 1998, the Hessen regional metalworking employers' association and the IG Metall trade union reached an out-of-court arrangement in a case relating to the Viessmann company. The company agreement struck by the associations includes an "opening clause" which permits the unpaid extension of weekly working hours at the firm through individual employment contracts.

Viessmann, a family-owned heating equipment business which employs roughly 6,500 employees, is a member of the Hessen regional metalworking employers' association, Verband der Metall- und Elektro-unternehmen Hessen eV. After 450 employees were made redundant in 1995, Viessmann did not plan further workforce reductions. However, management discussed the production of a new product line in the Czech Republic. According to the company, the proposal to produce the new line abroad was mainly due to cost advantages in production. In comparison with the Czech Republic, production costs in Germany would not have allowed for production at competitive prices.

After intense negotiations between management and the works council - the majority of Viessmann works councillors are not trade union members (according to information provided by IG Metall, roughly 10% of the Viessmann employees are trade union members) - Viessmann and its employees agreed on an "employment pact" in April 1996. This pact took the form of individual employment contracts which included the provision that the regular weekly working time should be extended from 35 to 38 hours without compensation. In exchange, Viessmann promised that it would produce the new product line in its main German production location and would guarantee the jobs of its 3,700 employees as well as their existing benefits. These provisions were to cover the period from 1 May 1996 to 31 March 1999. More than 97% of employees agreed to the pact. The resulting savings in personnel costs offset the Czech cost advantage. According to Viessmann, the production of the new product line resulted in the hiring of an additional 167 employees in the period until March 1998.

IG Metall vs. Viessmann before the Labour Courts

In 1996, after the implementation of the employment pact, the IG Metall metalworkers' trade union took legal action against Viessmann in the Labour Courts of Marburg and Frankfurt. IG Metall made the following demands.

  1. The court should stop Viessmann from letting its employees work more than the collectively agreed 35 hours per week without compensation. This suit was dismissed by the court. It argued that IG Metall was not entitled to bring the issue of the unpaid extra hours to the court since they were fixed in individual employment contracts. Furthermore, the court confirmed the legality of the individual contracts of the non-union employees. However, the court stated that in the case of union members the deviation from the collective agreement had not been completely lawful. The court remarked explicitly that its decision would have been different, had there been a works agreement with the same provisions. Moreover, management had acted unlawfully: the roughly 10% of the workforce who were trade union members and were bound by collective agreements, should not have been allowed to dispense with their rights. However, without an action brought by the workers affected, the court was not entitled to intervene. In addition, the court dismissed the argument that the new regulation was relatively more advantageous for the union members than the provisions of the collective agreement.
  2. The 14 works councillors who were not trade union members should be expelled from the works council due to a breach of their duties. The Marburg Labour Court stated that by taking part in the negotiations between works council and management, the non-union works councillors had participated in the breach of law by the employer in relation to the unionised employees. Their most grave breach of duty had been to shift the decision on employment conditions from the collective level to the individual level. Given the economic and human issues involved, this decision was too demanding for the employees. Since, however, the guilt of the works councillors had not been grave enough, the court dismissed the second suit.
  3. The employment pact should be declared unlawful, because it did not conform with the basic rights to form coalitions, to act collectively and to bargain collectively and autonomously (Tarifautonomie). This suit was also dismissed by the Frankfurt Labour Court.

IG Metall made use of its right to appeal. In September 1997, the Land(federal state) Labour Court in Frankfurt proposed that both sides should settle out of court. This should take place in the form of a company agreement on the disputed issue, which would complement the valid industry-level agreement.

The out-of-court deal

On 9 March 1998, both sides agreed on an out-of-court deal which included a collective company agreement and an out-of-court settlement. The collective agreement signed by Verband der Metal- und Elektro-Unternehmen Hessen eV, on behalf of Viessmann, and IG Metall provides that:

  1. an "opening clause" for the collective agreement which permits regular weekly working time to be extended by two unpaid hours by voluntary individual agreement between Viessmann and its employees; and
  2. in return, there will be a job guarantee for the employees.

The agreement expires on 30 June 2000. Viessmann and IG Metall also settled their legal dispute through an out-of-court settlement. Although, as a matter of principle, only the (members of) parties to the agreement are bound by collective agreements, clause 3 of the settlement contains the provision that Viessmann will conclude individual contracts only on the basis of the substantive provisions of the company agreement, independently of the trade union membership of the employee.

Commentary

The Viessmann case and the subsequent out-of-court settlement attracted wide public and academic attention. This was not only because the case was perceived as an example of (apparently successful) resistance by management and works council against the mighty IG Metall, and therefore pushed as model case by some commentators, but for at least two other sets of reasons.

The first addresses the issues of process and structure of the regulation of employment and labour relations, as well as the conduct of the actors involved. The Viessmann case shows how a company and its employees can try to escape the ties of regulation by a collective bargaining system which are perceived as inadequate and rigid by management and most of the employees alike. It highlights what industrial relations forces are at work in speeding up or slowing down the processes of finding company-specific solutions. The case also shows how different types of regulation may be used as substitutes in governing the individual employment relationship.

Second, as regards the substantive issue of working time extension, the case highlights the question of the legal interpretation of the favourability principle (Günstigkeitsprinzip) in German labour law. In Germany, collective agreements have the function of establishing minimum working conditions for the employees bound by the agreement. According to § 77 III of the Works Constitution Act, provisions in works agreements and individual contracts which deviate from collectively agreed norms are permitted only if: (1) the situation of the employee is improved by the deviation (favourability principle); or (2) these deviations are permitted by the collective agreement (opening clause). In legal practice, however, it is often difficult to decide on which provision is relatively more beneficial for the employee. This is especially difficult in cases where deviations allow for companies to maintain production and thus avoid redundancies. In the Viessmann case, management and employees initially fixed working time on the basis of individual employment contracts in order to conform with §77 III of the Act. However, the Labour Courts made clear that this was acceptable for the non-union employees, but not permissible for the remaining union members without an opening clause (allowing for unpaid extensions of working time in individual employment contracts) in the industry agreement.

Although management agreed with IG Metall that it would also apply the provisions of the company agreement to all non-union employees (90% of the workforce) in the out-of-court settlement, the Viessmann case is widely regarded as an important step towards the reform of industry bargaining in the metalworking sector. (Stefan Zagelmeyer, IW)

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