Court acknowledges unions' right to bring cases against companies accused of contravening collective agreements

In July 1999, the German Federal Labour Court published a comprehensive statement setting out the reasons for its judgment of 20 April 1999 regarding the right of trade unions to bring cases against companies accused of contravening collective agreements. The background to this recent judgment is a growing number of establishment-level "employment pacts" which provide for the exchange of limited employment guarantees from employers for employees' concessions on payments and working conditions, with the latter often contravening collective agreements. While previously it was only individual employees who could bring such cases to court, the Federal Labour Court has now extended this right to trade unions.

On 20 April 1999, the first senate of the German Federal Labour Court (Bundesarbeitsgericht, BAG) issued a judgment (1 ABR 72/98) which acknowledged the right of trade unions to bring court cases against employers which they accuse of operating a company arrangement that contravenes a collective agreement in force. In July 1999, the BAG published a comprehensive written statement in which it sets out the reasons for its judgment. According to the statement, trade unions have the right to ask that employers cease an unlawful company arrangement in order to safeguard the unions' constitutional right to freedom of association (Koalitionsfreiheit).

Background and rationale of the BAG judgment

In recent years, Germany has seen a growing number of "employment pacts" concluded at establishment level between management and works councils (DE9902293F). Although these agreements have shown a great variety in detail, they almost all follow a similar basic pattern: employers give limited job guarantees and employees make concessions on payments and working conditions. However, sometimes these concessions contravene the collective agreements which apply to the company and workers concerned.

A prominent example of an establishment-level "employment pact" which allegedly contravenes collective agreements relates to the printing company Burda Druck GmbH in Offenburg, and it was this case which was at the centre of the April 1999 ruling. In 1996, Burda management and works council concluded a company arrangement which contains the following provisions:

  • a four-hour extension of working time from the collectively agreed 35-hour week to a 39 hour-week. The first two additional hours are unpaid while the second two hours are paid, but without overtime bonuses;
  • a reduction in collectively agreed bonuses for night work, Sunday and holiday work, overtime etc;
  • a job guarantee lasting until 31 December 2000.

Since the German Works Constitution Act (Betriebsverfassungsgesetz) forbids the conclusion of works agreement s on topics which are normally regulated by collective agreements, Burda management and the works council adopted instead a "company arrangement" (betriebliche Regelungsabrede) which is not automatically legally binding. Therefore the company asked all of its 1,200 or so employees to accept the new working conditions through a change to their individual employment contracts. According to company information, more than 95% of the workforce were ready to accept these inferior working conditions in exchange for job security.

When Burda adopted its so-called "employment pact", the German Media Trade Union (IG Medien) accused the company of breaching major provisions of the branch-level agreements for the German printing industry. Burda management, however, rejected this accusation by using two arguments:

  • first, the company relied on the "favourability principle" (Günstigkeitsprinzip) according to which departures from regulations laid down in collective agreements are possible when they are in favour of the employees (DE9905200F). According to Burda's interpretation of this principle, it is always more in employees' favour for them to keep their jobs rather than to lose them; and
  • second, the company argued that it was not bound by the relevant sectoral collective agreements because it had not been a member of the printing industry employers' association since Burda Druck GmbH was outsourced as an independent company by Burda GmbH in 1995 (Burda GmbH itself was a member of the Bundesverband Druck employers' association).

When IG Medien took Burda to the court, both the first instance Labour Court (Arbeitsgericht, ArbG) and the Baden-Würtemberg Federal State (Land) Labour Court (Landesarbeitsgericht, LAG) rejected the unions' petition on "formal" grounds, arguing that only the individual employee, and not a trade union, has the right to bring court cases against company arrangements alleged to contravene collective agreements. The BAG, however, has now taken a different view and has acknowledged a union's right to take legal action when it suspects employers of violation of collective agreements, in order to defend the unions' constitutional right to "freedom of association".

The BAG also has rejected Burda's argumentation regarding the "favourability principle". According to the BAG, it is not accurate to compare job security on the one hand with working time and other working conditions on the other. When comparing "apples with pears", it cannot be said which is more favourable for the employees. According to the BAG, the "favourability principle" can be used only in relation to comparable topics, such as longer or shorter working time. Therefore, the Burda "company arrangement" definitively contravenes collective agreements. It is still disputed, however, whether or not Burda Druck GmbH is a member of the relevant employers' association and, therefore, bound by the branch-level agreements in question. The BAG did not take a decision on this point and referred the matter back to the Land Labour Court of Baden-Würtemberg.

Social partner reactions to the judgment

The BAG judgment was immediately sharply criticised by employers' organisations. The general secretary of the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA), Reinhard Göhner, declared that the BAG judgment makes the creation of "employment pacts" at establishment level "nearly impossible". For BDA, it is not acceptable that "trade unions might become able to forbid a company arrangement against the will of the employer, the works council and the majority of the workforce." BDA has also strongly criticised the Federal Labour Court's "unrealistic" interpretation of the favourability principle. Against the background of persistently high unemployment, employees must be allowed to renounce some benefits in order to contribute to a reduction of labour costs and the safeguarding of employment, say the employers. As a consequence of the BAG judgment, German employers' associations demanded more flexibility within collective agreements and a new legal regulation of the favourability principle. Otherwise, they claimed, there would be a further erosion of Germany's branch-level collective agreement system.

In contrast with the employers' comments, the trade unions very much welcomed the Federal Labour Court's decision. According to the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB), the BAG judgment underlines the necessity that unions should be able to safeguard their members against employers contravening collective agreements. In this light, DGB renewed its demand for a new collective "association-level right" (Verbandsklagerecht) to take to the courts any company practices suspected of offending against collective agreements (DE9901290N). Finally, DGB rejected BDA's criticism of the BAG judgment and accused the employers of misusing the term "employment pact" in order to undermine collectively agreed standards.

Commentary

In the 1990s, the German system of collective bargaining has seen a continued process of decentralisation and flexibilisation. This process has a "regulated" and an "unregulated" dimension. The regulated dimension has found expression in the widespread introduction of "opening clauses" into branch-level agreements, which under certain conditions allow companies to diverge from collectively agreed standards with the support of both trade unions and employers' associations (DE9709229F). German bargaining has become an extremely flexible system of regulation.

However, all the new forms of "regulated decentralisation" have not been able to prevent the development of a second dimension of decentralisation, which might be called "unregulated" or even "unlawful" decentralisation. The latter refers to companies which more or less openly contravene collective agreements. Judging by the public debate in Germany, one might receive the impression that these offences are seen more and more as merely a peccadillo. Using the framework of an "employment pact", companies can almost be sure that their violation of collective agreements will gain broad acceptance, even among employees who might otherwise be afraid of losing their jobs.

Against this background, the BAG judgment is of particular importance at least for three reasons: it has pointed out that not all violations of collective agreements can be justified in the name of employment; it has strengthened the power of the trade unions to defend agreements in force; and it has indirectly made clear that the future of German branch-level bargaining depends not only on the extent of decentralisation but also on its limits. (Thorsten Schulten, Institute for Economic and Social Research (WSI))

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