(The term Tarifvertrag is also used.) Defined by the Labour Constitution Act (Arbeitsverfassungsgesetz) as a written agreement concluded between collective bodies of employers and collective bodies of employees which possess the capacity to conclude collective agreements (Kollektivvertragsfähigkeit). There is a distinction between these and works agreements in terms of both legal status and the parties involved. This means that collective agreements may be concluded only by bodies directly invested with that capacity by the Act or granted recognition as possessing it in accordance with a procedure regulated by the Act. Those automatically invested with the capacity to conclude agreements are the representative bodies established by statute law for which membership is obligatory in Austria (gesetzliche Interessenvertretungen), i.e. on the employers' side the various Economic Chambers and their sectoral subunits at federal and Land level, and on the employees' side the Chambers for manual and white-collar workers (see Chambers of Labour); and also legal persons governed by public law such as the social insurance institutions. On the other hand, trade unions and employers' organizations, for which membership is voluntary (freiwillige Berufsverbände), possess such capacity only if they are independent of the opposing side and if the Federal Arbitration Board (Bundeseinigungsamt), a joint body established within the Federal Ministry of Employment, Health and Social Security (BMAGS), has granted them recognition as possessing it by virtue of their extensive occupational and territorial coverage and major economic importance. In other words, the Act restricts the capacity to conclude collective agreements to collective interest organizations which, whether established by statute law or on a voluntary basis, are independent of the opposing side, representative, operative above company level and in a position to wield effective bargaining power. Individual employers may conclude collective agreements only by way of exception in the case of legal persons governed by public law, major associations (such as political parties), or specifically identified employers such as the Austrian Broadcasting Company (Österreichischer Rundfunk).
A collective agreement has two parts: one consisting in provisions regulating the legal relationship between the collective parties to the agreement, and the other in provisions regulating the rights and obligations of individual employers and employees arising from the contract of employment. The provisions concerning the signatory parties relate solely to their mutual rights and obligations and implied duties such as the peace obligation and form what is called the obligational part of the agreement (schuldrechtlicher Teil des Kollektivvertrages), while those provisions relating to the individual contract of employment form what is called the normative part of the agreement (normativer Teil des Kollektivvertrages) and have direct mandatory effect in one direction: they operate on the employment relationship from outside, as if laid down by statute, and any individually agreed contradictory arrangements are valid only if they are more favourable to the employee, in accordance with the so-called favourability principle (Günstigkeitsprinzip). By way of exception, the parties to a collective agreement may also agree on clauses which are mandatory in both directions (i.e. absolute), such as maximum terms and conditions of employment, although the unions have scarcely ever exercised this right.
However, clauses in a collective agreement which regulate employees' personal conduct or provide for forms of employee representation in the workplace or workforce co-determination rights which depart from those laid down by law are null and void, since they do not fall within the parties' regulatory powers (see limits of bargaining powers). In certain circumstances they may, nevertheless, have contractually obligational effect.
A collective agreement is binding on all employers who were members of the signatory party on the employers' side when it was signed or who become members later, and on all employees working in establishments where the employer is bound by the agreement (this applies whether they are union members or not, and is referred to as the non-member effect). Since in Austria collective agreements are normally signed, on the employers' side, by the representative bodies for which membership is obligatory by law for all firms within a given branch of economic activity (see Chambers), in most areas of industry and small-scale craft production there is virtually blanket coverage by collective agreements.
Also, although in areas of employment where no employers' representative body exists or for which no collective agreement has been signed the employees concerned are excluded from such protection and, in particular, have no claim to collectively agreed rates of pay, the legislators have provided for an official procedure called Satzungserklärung (extension order) whereby a collective agreement (or part of it) can be extended to include employment relationships of essentially the same nature which are not covered by an agreement. Even in sectors where collective agreements are concluded by voluntary employers' organizations (newspapers, printing, etc.), there is a mechanism for the agreement to be extended to non-affiliated employers, as a form of this extension procedure (Satzung). An extension order is issued by the Federal Arbitration Board on application from an employers' or employees' organization possessing the capacity to conclude agreements. However, if the reason for the absence of collective agreement protection is the non-existence in the area of employment concerned of any employers' organization possessing such bargaining capacity, at the request of an employees' organization which does possess bargaining capacity the Board may issue a minimum pay scale (Mindestlohntarif) regulating minimum rates of pay in the area of employment concerned. Both extension orders and minimum pay scales are (like a collective agreement) directly applicable to the employment relationship with mandatory effect in one direction.
The Act also contains further rules relating, in particular, to the preconditions for the valid conclusion of a collective agreement, its registration and publication, and its period of validity.