The capacity of a collective industrial organization , with the agreement of its social counterparts, to regulate matters such as terms and conditions of employment with direct and mandatory effect for the individuals bound by a collective agreement, i.e. in the form of a collective agreement . On the employees' side this capacity is possessed only by trade unions and their "Spitzenorganisationen" or central organizations (Collective Agreements Act § 2(1.2)); on the employers' side, in addition to the employers' associations an individual employer is also able to conclude a collective agreement (Collective Agreements Act § 2(1)). Craft trades associations and guilds also possess the capacity to conclude collective agreements (Craft Trades Code § 54(3) 1, § 82(3)).

The concept is of crucial importance in deciding whether an association of employees possesses trade union status, since the Federal Labour Court has ruled that only collective industrial organizations which fulfil the eligibility criteria for the capacity to conclude collective agreements are trade unions within the meaning of the law.

The Federal Labour Court has established the following minimum criteria which an association of employees must fulfil in order to possess the capacity to conclude collective agreements. Its standing rules must state one of its functions to be the safeguarding of its members' interests in their capacity as employees, and it must have the intention of concluding collective agreements. It must be freely formed, not subject to influence from the opposing side, independent and organized on a basis above individual establishment level, must recognize current law on collective agreements as binding and must possess a measure of social power in terms of its organizational strength and its ability to exert pressure on its social counterpart.

Willingness to resort to industrial action is a common but not essential characteristic of the capacity to conclude collective agreements.

The collective industrial organizations have a special procedure before the labour courts available to them ( "Beschluss" procedure , Labour Courts Act §§ 2a (1.3), 97) for declaratory judgments on the capacity to conclude collective agreements. The procedure is initiated at the request of any trade union, association of employees or employers' association provided that they are responsible in terms of the geographical area and occupations concerned.

Please note: the European industrial relations glossaries were compiled between 1991 and 2003 and are not updated. For current material see the European industrial relations dictionary.