New coalition agreement changes labour market rules

Elections in Germany have resulted in a new coalition agreement between the country’s two leading parties. The results of the elections, in September 2013, saw the Christian Democrats fall short of a majority. After tense negotiations, a deal was agreed with the Social Democrats. The agreement included proposals for major changes to the German labour market, including the introduction of a national minimum wage. The deal was welcomed by the unions but employers were less happy.

Background

Elections were held in Germany on 22 September 2013, with Chancellor Angela Merkel’s party, the Christian Democrats (CDU), winning by a clear margin. The CDU secured 41.5% of the vote, a gain of 7.7 percentage points compared to 2009. The Social Democrats (SPD) were in second place with 25.7%, up 2.7 percentage points on 2009.

The CDU’s former coalition partner, the Liberals (FDP), failed to secure the minimum 5% of votes necessary to be allowed to enter the Bundestag, the lower house of the German parliamentary system. The CDU, without an absolute majority, needed to find a new coalition partner.

A new coalition agreement (1.65 MB PDF) with the SPD was finally agreed, after tense negotiations, on 27 November 2013. The new deal includes a full chapter on employment and social security with major implications for the labour market.

Coalition agrees to bring in minimum wage

As part of the new agreement, the coalition partners decided to pursue a number of new goals in their labour market policy. One major plank of the deal was the introduction of a national statutory minimum wage.

The coalition partners said it was important all employees must be able to earn a proper living wage. Decreasing collective bargaining coverage was also given as a reason for bringing in the new national minimum wage. It will be set at €8.50 per hour, and will be introduced by 1 January 2015.

Those sectors already covered by minimum wages stipulated in the Posted Workers Act are exempt from the new regulation.

Until the end of 2016, social partners can agree to deviate from the national minimum wage in sectoral collective agreements, but it will apply to all sectors from the beginning of 2017.

A commission will review the level of the national minimum wage, with the first review starting on 10 June 2017. The commission will include three representatives from employer organisations and three from the unions. Leadership of the commission will alternate between the two sides. The details of its operation will be regulated by a new law drawn up in close cooperation with employer and union representatives.

Posted workers

The Posted Workers Act will cover more sectors as a result of the new coalition agreement. To make this possible, the conditions for an Order of Extension – which makes a collective agreement binding for the whole sector – will be changed. The current requirement that employers bound by the collective agreement in question must employ at least 50% of all workers in the sector will be removed. The only precondition that needs to be met in the future is that an extension is needed for a matter of ‘general interest’. This will be deemed to be the case if:

• the social partners provide satisfactory evidence that the relevant collective agreement covers 50% of employees;
• mutual institutions need to be upheld – for example, for social protection;
• it is deemed necessary to protect collectively agreed norms against negative economic developments.

Other changes

To better combat the illegal use of service contracts, the Tax Enforcement Unit for Undeclared Work (FKS) will take on all control and monitoring powers. In order that officers are able to differentiate between legal and illegal usage, criteria already developed by case law will be laid down in legislation.

For temporary agency work, the maximum period for hiring out labour will be set at 18 months for a single employer. Exemptions can be made through a collective agreement or an internal agreement. In addition, the coalition partners agreed to introduce an equal pay guarantee for temporary agency workers from the tenth month of their service onwards. Codetermination rights of works councils will also be improved.

The exclusive applicability of collective agreements is to be regulated by law. This decision follows a ruling by the Federal Labour Court in 2010 which declared unlawful the practice of not allowing different wage agreements at the establishment level (DE1007039I). The social partners are to be closely involved in setting up new regulations.

Gender equality controls

New rules to ensure gender equality are also being introduced. The coalition partners agreed that when companies are filling vacancies on their boards of directors, they must work towards filling at least 30% of seats with women from 2016 onwards. If this quota is not met and no female candidate can be found, seats are to be left empty. In addition, companies will be required to publish targets for a higher share of women on their supervisory boards from 2015 onwards.

Companies with 500 or more employees will also be obliged to report on gender equality in their workforce and report on steps taken to reduce any inequalities between male and female staff members on pay or other issues.

The coalition partners intend to legislate to give employees who reduce their working time to care for children or other relatives a legal right to return to their former working hours.

Union reaction

At the end of November 2013, the Confederation of German Trade Unions (DGB) published its first assessment (in German, 226 KB PDF) of the new coalition agreement, welcoming many parts of it. A number of proposals put forward by the union confederation, such as the female quota for supervisory boards, had been taken into account. DGB also welcomed the changes to the Posted Workers Act, the Order of Extension, and the legal right for employees to resume their previous working hours after a period of care leave.

However, DGB has also highlighted several areas where it believes more action is needed. It says that although it welcomes the introduction of a national minimum wage, it has already announced its decision to fight for an earlier increase. And while it also supports equal pay for temporary agency workers, it does not think the accord struck by the coalition partners is strict enough, and equal pay from the tenth month onwards is not good enough in the service sector. DGB also wants to have a binding agreement for companies on pay differentials between the sexes.

The confederation has also called for improved protection against dismissals, a reform of mini-job and fixed-term contract legislation, extended co-determination rights for works councils, higher pensions and the introduction of a so-called ‘citizen insurance’.

Employer reaction

The employers hold different views, outlined in a press release (in German) published on 27 November 2013.

In it, the new Chair of the German Confederation of Employers’ Associations (BDA), Ingo Kramer, said he acknowledged the need for compromises and approved of the CDU and SPD commitment not to introduce any tax increases and to avoid new debts from 2015 onwards.

However, BDA has warned against the introduction of a national minimum wage. In the employer organisation’s view, bringing in a minimum wage will diminish labour market entry prospects for the long-term unemployed and low-skilled.

Kramer added that the legal implementation of a national minimum wage will require scope for deviations and flexibility and emphasised the need to protect the current collective agreements on temporary agency work. The maximum period for hiring temporary agency workers of 18 months was acceptable, he said, as long as works agreements could make variations to the new rule.

Further legislation on equal pay or co-determination rights was not needed, he said, since these issues were already covered either by sectoral collective agreements or current legislation.

Mr Kramer agreed with the assessment of the German Council of Economic Experts which argued in its report on the outcome of the coalition negotiations, Against a backward-looking economic policy (194 KB PDF), that the agreement sacrifices the flexibility achieved over the past decade through Agenda 2010 (DE0303105F, DE0311101N).

Commentary

Economic researchers from the Cologne Institute for Economic Research criticised the new coalition agreement in a press statement (in German, 111 KB PDF). They said it had ‘negative implications’ for the German labour market. The statement emphasised the fact that changes to the Posted Workers Act or the Order of Extension were an unnecessary interference in the current labour market structure.

The institute experts say that the gender pay gap falls to 1.9% if criteria such as parental leave and educational attainment are taken into account. They say there is no need for any further gender equality legislation and it will only place unnecessary bureaucratic burdens on large companies. They believe a female quota for supervisory boards will be inefficient and will not deal with the structural reasons for the gap in gender representation on boards such as choice of occupation and career breaks.

The introduction of a minimum wage of €8.50 per hour will affect around six million employees in Germany. The Cologne researchers say not only jobs are threatened by the minimum wage, but also labour market entry for unskilled and low-qualified workers. The low-wage sector also represents a chance for these workers to improve their qualifications. Researchers conclude that a national minimum wage is not an effective tool to tackle poverty, and could lead to job losses and actually remove income opportunities.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)