Union agrees to more working hours to safeguard jobs at Volkswagen

In September 2006, the bargaining parties at German car manufacturer Volkswagen (VW) agreed on a package of measures aimed at helping the company to save costs and to safeguard employment. Central to the agreement is an extension of the current standard weekly working time of 28.8 hours in exchange for a company commitment to agreed production volumes at the six German sites of VW.

On 29 September 2006, the German Metalworkers Union (Industriegewerkschaft Metall, IG Metall) and representatives of Volkswagen AG (VW) agreed on a package of measures concerning working time, pay and production volumes, aimed at helping the company to save costs and to safeguard employment in the future.

Background

The new agreement is the latest in a series of similar agreements at Volkswagen in recent years. In 1994, the bargaining parties agreed on a significant reduction of the average weekly working time down to 28.8 hours and a four-day week with only partial pay compensation in order to avoid job cuts. The most recent agreement – prior to the latest deal – to improve the company’s competitiveness dates back to November 2004 (DE0411203F). IG Metall and VW had agreed on a cost-cutting package, which was estimated to save the company about €1 billion per year in labour costs in exchange for a company promise to safeguard employment until 2011 and to make further investments to secure the future of its German manufacturing plants.

Volkswagen is traditionally not covered by sector-level collective bargaining, but has a company-level collective agreement. On average, the wages at Volkswagen have been above those paid in companies covered by the sectoral collective agreement for the metalworking industry of Lower Saxony. For many years, the company has sought to close that gap. Part of the 2004 agreement was a new pay grading system for all employees and apprentices who entered into employment with the company after 31 December 2004 (Haustarif II), thereby providing lower wages for these new recruits.

In June 2006, Volkswagen demanded a general return to the 35-hour week without pay compensation and a further wage freeze, threatening to cut 20,000 jobs. Up to the end of September 2006, about 13,000 employees had agreed to early retirement or individual termination agreements.

Provisions of new agreement

Working time

The average weekly working time may be extended up to 33 hours a week for production workers and up to 34 hours a week for administrative employees, without an increase in monthly wages. In any week, the working time can vary within a timeframe of 24 hours to 33 hours for production workers, and between 25 hours and 34 hours for other employees, without affecting the monthly wage.

Working time can be further extended to 35 hours a week but in this case the company has to pay the additional hours. For 5% of employees, weekly working time can be extended to up to 40 hours a week with a special pay arrangement.

To partly compensate for the unpaid extra hours, the company agreed to make a one-off payment to the company pension fund of €6,279 for each employee. The company also agreed to introduce an improved profit-sharing bonus.

Pay

Instead of a general pay increase in 2007, employees hired before 31 December 2004 will receive a one-off payment of €1,000 in November 2006. On 1 February 2008, there will be a general pay increase equivalent to that agreed in the spring of 2007 in the sectoral collective agreement for Lower Saxony. For those employed after 31 December 2004, a general pay increase of 3% will apply from 1 February 2007, with a further increase on 1 February 2008 equivalent to that agreed at sectoral level in the spring of 2007 for Lower Saxony.

The existing 30% bonus for work on Saturdays will be cancelled.

Production targets

VW and the works councils at the six German production sites of Volkswagen signed work agreements about future production volumes at these sites for the forthcoming years. VW agreed to continue to produce the Golf model and one additional model at the company’s main site in Wolfsburg in Lower Saxony. These agreements were a precondition for the final consent of IG Metall’s bargaining commission on 6 October 2006. The parties also collectively agreed that VW will provide 1,250 apprenticeships and training places per year.

Reaction to agreement

The Chair of IG Metall in Lower Saxony, Hartmut Meine, described the outcome of the negotiations as a compromise, with strengths and weaknesses. He also affirmed that employees had once more made their contribution towards securing the future of the company. The VW Labour Director, Horst Neumann, stated that the agreement was a milestone and major step forward in restructuring VW.

Heiner Dribbusch, Institute of Economic and Social Research (WSI)