Agreement ends dispute over employee relocation at Deutsche Telekom

In June 2007, after six weeks of strike action, the United Services Union and the telecommunications company Deutsche Telekom agreed on a package of collective agreements to regulate pay and conditions for 50,000 employees who are to be transferred to three new service companies in July 2007. Collectively-agreed pay levels will be reduced for workers in these spin-off companies and the weekly working time will be extended from 34 to 38 hours without pay compensation.

On 20 June 2007, following six weeks of strike action, the United Services Union (Vereinte Dienstleistungsgewerkschaft, ver.di) and the German telecommunications company Deutsche Telekom AG agreed on a package of collective agreements which regulate pay and conditions for some 50,000 Deutsche Telekom employees. These workers are to be transferred to three new service companies under the umbrella name T-Service with effect from 1 July 2007. Key points of the agreement include the extension of weekly working hours from 34 to 38 hours without pay compensation and a reduction of wage levels by 6.5% stretched over a period of 42 months. In exchange for these concessions, the company agreed that there would be no compulsory redundancies until the end of 2012.

Background to restructuring

Deutsche Telekom was set up in 1995 following the privatisation of the German Federal Postal Service (Deutsche Bundespost) and currently employs some 160,000 employees in Germany (as at 31 December 2006). About 40% of employees still have the employment status of civil servants. This implies that they are protected against dismissal but also that they are excluded from collective bargaining as their pay and conditions are fixed by law. About 32% of shares are still directly or indirectly controlled by the German state. Since its privatisation, the company has been restructured several times. In March 2004, ver.di and Deutsche Telekom concluded a so-called ‘employment pact’ representing a framework collective agreement by which the union made concessions in exchange for limited job guarantees (DE0405205F). In this regard, weekly working time was cut from 38 to 34 hours with only partial wage compensation for employees. The company in return agreed that employment would remain stable throughout 2004–2005 and that there would be no forced redundancies before 31 December 2008.

Despite this agreement, in September 2006, the management of Deutsche Telekom announced its intention to restructure the company. In February 2007, the company’s supervisory board of agreed, against the votes of the employee representatives, to set up three new spin-off organisations under the name of T-Service. The company also announced its intention to transfer some 50,000 employees, including 20,000 civil servants, from Deutsche Telekom to these service companies and demanded that these employees should accept a 12% wage cut and an extension of the standard weekly working time without pay compensation. Ver.di rejected these demands and entered into negotiations with the intention of safeguarding pay and conditions for the employees to be outsourced. On 26 April 2007, negotiations to conclude a new collective agreement failed. Following a series of short warning strikes, ver.di called some 22,000 members to vote in a strike ballot. Even though career civil servants are exempt from the right to strike, ver.di did not challenge this in the course of the dispute.

On 10 May 2007, 96.5% of ver.di members at Deutsche Telekom – a stronghold of the union in the telecommunications sector – voted in a secret ballot in favour of strike action. Thus, on 11 May, the first strike in the history of the company took place. The company countered the implications of the strike by hiring temporary agency workers as strike breakers. The dispute escalated when Deutsche Telekom’s Chief Executive, René Obermann, announced that the company would not refrain from selling the service division if the dispute could not be solved and that the employees would be transferred to the new companies by 1 July 2007 whether the union consented or not. After three weeks of strike action, the company announced that it was open to talks. Finally, ver.di also agreed to return to the negotiation table not least because it considered that it would not be able to legally prevent the company from outsourcing and transferring employees to the three service companies even without any agreement.

Content of new agreement

Under the new agreement, wage levels of the employees being transferred to T-Service will be reduced by 6.5%. This reduction will be stretched over a period of 42 months. Within this period of time, employees will receive gradually reduced compensation payments to secure the existing nominal monthly income. The compensation payments will cover 100% of the 6.5% cut in the first 18 months, 66% for the next 12 months, and 33% for the subsequent 12 months. The compensatory payments will cease on 31 December 2010. Collectively-agreed wage increases approved within this period will be balanced out according to the agreed reduction of wage levels. Ver.di and Deutsche Telekom also agreed on new pay scales for future employees of T-Service. Wage levels will be substantially lower than those currently in place at the company. As new entrants will receive lower wages than existing staff, this measure will lead to a further reduction of overall pay levels in the long run. Up to 15% of pay will be variable and related to workers’ performance.

The standard weekly working time at T-Service will be increased by four hours from 34 to 38 hours without any pay compensation. Of the additional four hours, each employee will invest half an hour a week in service training offered by the company. Saturday is to become a regular working day for employees in customer service operations. Christmas Day and New Year’s Eve will also become regular working days.

The parties also agreed that the bulk of the provisions defined in the collective agreements in place at Deutsche Telekom will be taken over by the new service companies. In particular, this concerns certain provisions related to seniority, wage guarantees in the case of restructuring, company pensions, partial retirement and annual holidays.

The company agreed that the new service companies will not be sold until the end of 2010. Moreover, the company will also refrain from introducing forced redundancies until the end of 2012. Any reduction of employment shall be based on mutual consent. Until the end of 2009, the company will offer 4,150 permanent jobs at the new service companies to Deutsche Telekom apprentices who have finished their training. This means, however, that only about a third of all 12,000 of those apprentices at the company will receive a job offer.

Employees remaining at Deutsche Telekom will face a pay freeze in 2008 in exchange for protection from forced redundancies up until the end of 2009.

The dispute finally ended on 29 June 2006 when 73% of the ver.di members concerned agreed by ballot to accept the outcome.

Reactions of bargaining parties

On 20 June 2007, in a press statement, Deutsche Telekom welcomed the agreement as a major step towards improving its competitiveness. The company’s management expressed satisfaction with the fact that it will achieve cost savings within its target range of €0.5 billion to €0.9 billion in 2010. This will enable Deutsche Telekom to secure the 50,000 jobs in the new service companies.

On 29 June 2007, the chief negotiator of ver.di, Lothar Schröder, highlighted in a press release (in German) that the trade union had been able to safeguard nominal wages for existing staff and that the protection against forced redundancies had been extended. At the same time, Mr Schröder admitted that the extension of weekly working time was a bitter concession. However, he considered that Deutsche Telekom’s threat to relocate employees even without any prior agreement had to be taken seriously; in this case, the trade union feared that the company would have imposed even worse conditions on the employees concerned.

Commentary

Deutsche Telekom’s plans to set up new service companies outside the scope of the current collective agreements must be considered against the background of an absence of a sectoral collective agreement in the communications sector. As a consequence of the fragmented bargaining situation and a lack of union strength, several of the company’s competitors have either decided not to conclude any collective agreement or only agreed to collective agreements providing comparatively low pay levels. This has put ver.di in a difficult position in the course of the dispute with Deutsche Telekom. It remains to be seen whether the outcome is perceived by employers in other sectors, such as in postal services, as a signal to pursue similar strategies in order to increase profitability by lowering pay levels and extending working time.

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