A works agreement is a written agreement between the employer and the works council which has a direct and compulsory effect on individual employment relationships and labour relations within the establishment (Works Constitution Act § 77(4)). In terms of personnel, its scope refers only to those employees in an establishment who are covered by the works constitution ; executive staff are therefore excluded.

Works agreements may regulate all matters relating to the establishment, provided that there are no statutory or collectively agreed provisions to the contrary. In addition to the fundamental regulation of formal and standard conditions of employment, they can also include agreed arrangements on practical matters concerning the content of the employment relationship, in so far as they are matters where there is a co-determination right of the works council . In these cases, precedence as between the works agreement and the collective agreement is not governed by the usual system of hierarchical ranking, but by the favourability principle . For these matters covered by co-determination a works agreement is in fact mandatory: failing voluntary agreement, a decision is reached by the establishment-level arbitration committee.

In order to protect collective bargaining autonomy , however, it is unlawful for works agreements to contain provisions on remuneration and other employment conditions which are regulated, or usually regulated, by collective agreement (Works Constitution Act § 77(3)). A collective agreement can, nevertheless, expressly permit the conclusion of works agreements to supplement it.

Precedence as between the works agreement and the contract of employment is governed by the favourability principle. A works agreement cannot, therefore, "spoil" rights that employees have acquired by virtue of a contract of employment. If entitlements exist which are based on rules applying to the entire establishment, particularly a custom or general undertaking by employer , the courts have ruled that employees' entitlements may be reduced only if, in the event of restructuring, the agreement is in the form of a collective arrangement which is no less favourable overall, or if the commercial basis for the entitlements no longer exists.

Works agreements concluded by company works councils and group works councils on matters falling within their areas of responsibility apply respectively to the company and to the company group according to these same principles.

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.