Reform of Works Constitution Act proposed

In December 2000, the German Federal Ministry of Labour presented the first draft of a proposed reform of the Works Constitution Act (BetrVG). The BetrVG, which governs the operation of works councils, has remained almost unchanged for nearly three decades, and the government now aims to bring it into line with modern company and work organisation. The draft foresees an improvement in works councils' operating conditions as well as an extension of their responsibility into new areas such as employment security, qualifications, environmental protection and fighting xenophobia at the workplace. While the trade unions mainly welcomed the government's initiative, employers' associations sharply rejected the draft and announced strong resistance.

On 6 December 2000, the Federal Ministry of Labour presented a first draft of legislation to reform the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG) - the law which determines the legal framework for co-determination at the level of the establishment in the private sector, through works council s. Since the last comprehensive revision of the BetrVG was made in 1972, it has remained almost unchanged for nearly three decades. However, since the 1980s there have been various demands and proposals for a reform of the Act from the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and Alliance 90/The Greens (Bündnis 90/Die Grünen) as well as from the trade unions (DE9808273F). The coalition government of the Christian Democratic Party (Christlich Demokratische Union, CDU)/Christian Social Union (Christlich Soziale Union, CSU) and Free Democratic Party (Freie Demokratische Partei, FDP) which was in power until 1998 saw no need to change the law in this area, but the new "red-green" government which came to power in October of that year identified a reform of the 1972 Act as one of its core projects for a modernisation of German industrial relations (DE9811281F).

Reasons for a new Works Constitution Act

Along with the draft of a new BetrVG, the Ministry of Labour presented a comprehensivebackground paper in which it gives reasons for the new Act and explains the proposed new provisions. According to this document, the government sees a great need for a reform of the current Act because of the fundamental changes which have taken place in the economy and at the workplace during the past decades. Increased international competition has led to permanent changes in companies' organisational structures through various forms of restructuring, including: an increasing number of mergers and acquisitions; a concentration on core business activities and outsourcing of peripheral activities; the splitting of companies into various business units and profit centres; and the introduction of new forms of "lean" production and administration.

In addition, there have been fundamental changes in some aspects of the organisation of work (DE9903288F) - for example, through the introduction of different forms of group or team work, the establishment of new flexible working time arrangements and the increased use of "peripheral" workers such as temporary agency workers, subcontracted workers or teleworkers.

The non-compatibility between the current BetrVG and the changes in company and work organisation is seen as a major reason for the declining spread of works councils in Germany. According to the 1998 report of the Commission on Co-Determination of the Hans Böckler Foundation and the Bertelsmann Foundation, the proportion of all employees who work in an establishment with a works council declined from 50.6% in 1981 to 39.5% in 1994 (DE9806267F). Works councils (which must be established in establishments with at least five employees) are particularly rare in small and medium-sized companies: according to figures from the establishment panel of the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung der Bundesanstalt für Arbeit, IAB), only 4% of establishments with five to 20 employees and 30% of establishments with 21-100 employees had a works council in 1999 - see table 1 below. On average, only 10.5% of establishments in the private sector, employing 48% of all employees, have a works council.

* Considering all establishments in private sector with at least five employees.

Source: IAB Establishment Panel 1999.

The proposed new Act in detail

The Ministry of Labour's various proposals for a reform of the BetrVG can be categorised under 10 principal aims, as follows:

1. creation of modern and flexible structures for works councils;
2. facilitation of the creation and election of works councils;
3. improvement and modernisation of the operation of works councils;
4. integration of new groups of employees;
5. strengthening of individual employees' participation;
6. promotion of women;
7. strengthening representation for young employees and trainees;
8. safeguarding employment and qualifications;
9. environmental protection at establishment level; and
10. fighting racism and xenophobia at the workplace

Creation of modern and flexible structures for works councils

The main aim of the new BetrVG is to create a better correspondence between modern company organisation and the structure of employees' interest representation, in order ensure that works councils are able to act at those levels of the company where the real decisions are taken. With this objective, the new BetrVG seeks first of all to strengthen the role of the sector-level collective bargaining parties, which should be able to conclude collective agreements on the creation of more flexible and efficient structures for employees' representation. These could include:

• joint works councils for several establishments of a single company, or company-wide works councils;
• works councils for special product or business units within a company (Spartenbetriebsräte);
• works councils for the subsidiaries of an establishment (Filialbetriebsräte); and
• works councils for production and distribution networks of legally independent establishments.

If there are no collective agreements on such new employee representation structures, they could also be introduced by a works agreement at establishment or company level.

While the new BetrVG extends the possibilities for the collective bargaining parties to introduce new employees' representation structures, it also introduces some new statutory provisions in this area, such as:

• an improved possibility to create a works council in establishments which de facto belong to more than one company, in order to guarantee, for example, a joint employee representation structure for workers who work for legally independent companies but in the same establishment;
• an obligation to establish a group works council (Konzernbetriebsrat) and a group-level economic committee (Konzernwirtschaftsausschuss) in groups of companies, in order to strengthen employees' information and consultation rights on economic matters at the level where decisions are made; and
• the introduction of a special "transformation mandate" (Übergangsmandat) for works councils in the event of company restructuring and a "liquidation mandate" (Restmandat) in the event of the liquidation of an establishment, both of which should guarantee employees a functioning interest representation in these particular situations.

Facilitation of the creation and election of works councils

In order to reduce the "representation gap", in particular in smaller companies, the new BetrVG aims to facilitate the creation of works councils by removing bureaucratic obstacles in the election rules. In companies with up to 50 employees, there will be a new more streamlined election procedure according to which a works councils will be elected directly at a special works meeting. The new procedure should also help to reduce the costs of works council elections.

In addition, the new BetrVG will abolish the so-called "group principle", according to which blue- and white-collar workers hold separate elections for special representatives of their group on the works council. In future, there will be joint blue-collar/white-collar elections of both works councillors and employees' representatives on the supervisory board.

Finally, in establishment with no works councils, not only the employees should have the right to initiate and organise works council elections but also any company works council or group works council which might already exist elsewhere in the firm concerned.

Improvement and modernisation of the operation of works councils

As a result of fundamental changes in the economy and at the workplace, the demands on works councillors have changed drastically. Today, a works council must not only defend the immediate social and work-related interests of the employees but also act as a "critical co-manager", developing its own strategies and alternatives for various areas of the company's economic and organisational development. In addition, the continuing tendency towards a decentralisation of collective bargaining in Germany (DE9802248F) has created further demands on works councillors in the fields of pay and working time policy. Since these new tasks and challenges require an increasingly professional representation of employees' interests, one of the major aims of the new BetrVG is to improve and to modernise the operating conditions for works councils.

As a first step, the new BetrVG will slightly reduce the ratio between the number of works council members and the size of the establishment - for example, an establishment with 300 employees will have nine works councillors compared with seven under the current law. The number of works councillors who may be released from work to carry out their works council duties will be increased, and this facility will apply to establishment with at least 200 employees (compared with 300 under current law). Under the new BetrVG, most establishments with between 400 and 10,000 employees will have on average one more works councillor released full time from work than under the old Act. In addition, the new BetrVG will also improve the possibility for works councillors to be released part time. Table 2 below gives the details.

* Or fraction thereof.

Source: Own composition

Apart from this slight increase in the number of works councillors, the new Act also foresees improvements in the operating conditions of works councils, including:

• the right to use modern information and communication technologies (including e-mail and internet);
• a better possibility to make use of internal as well as external experts as advisers;
• a better possibility to create topic-related working groups, in particular in smaller companies;
• a better protection of works councillors against transfers within the company; and
• the possibility for the works council to delegate certain participation rights (for example, the regulation of working time arrangements or the planning of holidays) to particular groups of employees, in order to lighten the works council's workload.

Integration of new groups of employees

In the past two decades there have been far-reaching changes in the composition of the labour force, which has led to a steady decline of core full-time workers with a permanent employment contract and to a significant increase of more "peripheral" workers such as part-time workers with fixed-term contracts or temporary agency workers. In addition, the development of modern communication technologies gives more and more workers the opportunity to work at home as teleworkers.

It is the aim of the new BetrVG that all the different groups of peripheral workers will be fully protected by the provisions of the Works Constitution Act and be able to exercise the same co-determination rights. All temporary agency workers who work more than three months for the same establishment will have the right to vote in works council elections.

Strengthening of individual employees' participation

Since modern work organisation is seen as requiring a new type of a more independent and responsible employee, the new BetrVG also seeks to strengthen direct participation rights. Groups of individual employees should have the opportunity to take over certain co-determination rights from the works council, for example in the regulation of working time arrangements or the planning of holidays.

There should also be better communication between the works council and employees. The former should have better opportunities to involve individual employees in its work while the latter should become more active in defining the topics dealt with by the works council. Both the employer and the works council should encourage initiatives from individuals or group of employees.

Promotion of women

A major aim of the new BetrVG is to increase the number of female members of works councils. According to the WSI Works Council Survey 1999/2000, only 27% of all work councillors and only 19% of heads of works councils are women. The new BetrVG provides that the proportion of female members of the works council must correspond with the proportion of female employees in the establishment.

Moreover, the issue of equal opportunity and the problems of combining work and family life should become a more prominent topic within the work of works councils. Works councils should also be given the right to propose plans for the promotion of women in the establishment. Further measures for the promotion of women are also laid down in the recent draft bill on equal opportunities between men and women in the private sector (DE0009282F).

Strengthening representation for young employees and trainees

According to the WSI Works Council Survey 1999/2000 only one establishment in two has a special representative body for young workers and trainees (Jugend- und Auszubildendenvertretung). In particular, younger employees often have no separate representation in small and medium-sized establishments.

The new BetrVG aims to increase the efficiency and attractiveness of the representative body for young workers and trainees, by:

• making it possible to create such representative bodies at various levels of a company as well as for employees working for legally independent companies but in the same establishment;
• facilitating the election process for the representative body for young workers and trainees in smaller companies with up to 50 employees;
• improving the ratio between the number of younger employees and the number of young employee representatives;
• improving the operating conditions of the representative body for young workers and trainees; and
• making it possible to create a representative body for young workers and trainees at company or group level.

Safeguarding employment and qualification

According to the results of the WSI Works Council Survey 1997/8, in recent years the issue of employment security has been one of the most prominent topics for works councils in Germany (DE9901191F). Moreover, many companies have concluded so-call "employment pacts" at establishment-level in which the employees make concessions on pay or working conditions in exchange for limited job guarantees (DE9902293F).

Against this background, the new BetrVG explicitly defines the issue of employment security as one of the major tasks for works councils. They obtain the right to take initiatives for the promotion and safeguarding of employment, such as the introduction of new flexible working time arrangements, the limitation of overtime and the promotion of part-time work and early retirement. The employer will be obliged to examine carefully the works council's proposals in order to develop joint initiatives for more employment.

Furthermore, the participation rights of works councils will be improved regarding:

• the possibilities to help employees with a fixed-term contract to obtain a permanent contract;
• the introduction and realisation of vocational and further training;
• the introduction and use of new forms of work organisation such as group work; and
• the definition of selection guidelines for new employees.

Environmental protection in the establishment

In recent years, the issue of environmental protection within the establishment has gained increasing importance. The new BetrVG now seeks to ensure that employees' knowledge will be used for a continuous improvement of the environmental situation. It therefore includes new provisions, according to which:

• environmental protection will become an explicit task of the works council;
• the works council must be involved in all relevant aspects of environmental protection in the establishment;
• the works council and management should be encouraged to conclude works agreements on environmental issues;
• the employer should be obliged to inform the works council, within the economic committee, on all aspects and measures related to environmental issues; and
• the employer should be obliged to inform the employees on all aspects and measures related to environmental issues at works meeting s.

Fighting racism and xenophobia at the workplace

The issue of racism and xenophobia is a major social problem in Germany today (DE0008277F). The new BetrVG therefore wants to strengthen the role of the works council in fighting racism at the workplace and in helping to integrate foreign workers in the establishment. The new BetrVG will oblige the employers regularly to inform the works council and the workforce on the situation of foreign workers in the establishment. Employers and works councils should jointly develop measures against xenophobia at the workplace and enshrine these measures in works agreements. The works council will also have the right to veto the employment of people with racist attitudes as well as to demand the dismissal of employees involved in racist activities at the workplace.

Social partners' reactions

The reactions to the Ministry of Labour's draft for a new BetrVG from trade unions and employers' association have been highly conflicting. While the former have welcomed the government's initiative as a necessary step towards a modernisation of the German works constitution system, the latter have sharply criticised the whole draft as "an attack against employers' freedom" which is "totally hostile to business interests."

Trade unions

German trade unions have long demanded a modernisation of the BetrVG. In February 1998, the German Federation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) presented its own detailed draft for a renewal of the current BetrVG (DE9808273F). Consequently, the unions support the government's initiative. In a detailed statement, DGB assesses the Ministry's draft as mainly positive. The unions support all proposals which facilitate the creation of works councils, improve their operating conditions and extend their responsibilities to the areas of safeguarding employment, qualifications, environmental protection and fighting racism at the workplace.

From the trade union's point of view, however, there are also several provisions in the new draft BetrVG which are seen as insufficient. They have thus demanded further improvements, including:

• a new, more streamlined election procedure in companies with up to 100 employees (and not only up to 50 employees as proposed in the Ministry's draft);
• the right to create a group works council in companies which have their headquarters abroad;
• the right to have partial release from work for works councillors in companies with under 200 employees;
• a full protection through the BetrVG not only for temporary agency workers (as proposed in the Ministry's draft) but also for contract workers and other groups of peripheral employees;
• a co-determination right for the introduction of new forms of work organisation and not only for the forming of work arrangements (as proposed in the Ministry's draft).
• better co-determination rights regarding the content of work; and
• better co-determination rights regarding staff planning.

Employers' associations

In contrast to the trade unions, employers' associations sharply reject the whole draft for a new BetrVG as unacceptable for German business, since "it has a totally one-sided orientation towards works councillors' and trade unions' interests". In a detailed comment, the Confederation of German Employers' Associations (Bundesvereinigung der deutschen Arbeitgeberverbände, BDA) criticises the Ministry's draft for merely creating new costs and bureaucracy and thereby damaging the competitiveness of German companies as well as Germany's attractiveness as a location for foreign investments. Specifically, BDA rejects almost all the new provisions proposed by the Ministry of Labour, such as

• the increased numbers of works councillors and of released works councillors, seen as creating additional costs which are unacceptable, in particular in smaller companies;
• the facilitation of the election procedure in companies with up to 50 employees, since this might make it easier for small radical minorities to create a works council;
• the obligation to create group works councils;
• the extension of the right to vote in works council elections to temporary agency workers;
• the binding appointment of female works councillors in correspondence with the female proportion of the whole workforce; and
• the extension of co-determination rights to the areas of safeguarding employment, qualifications, environmental protection and fighting racism at the workplace, since this might interfere with the employer's autonomy to take management decisions.

Instead, the employers' associations demand a deregulation of the current BetrVG which would accelerate the communication process between management and works council in order allow more rapid management decisions. Therefore, BDA is calling for:

• a new provision which forbids works councillors from misusing their power to block management decisions on a certain topic because of a conflict on another topic (known as Verbot von Koppelungsgeschäften);
• an extension of the possibility to determine the concrete structures of employees' representation at a decentralised company level, and not at the more centralised level of the sectoral collective bargaining parties as proposed in the Ministry's draft;
• an increase in the company-size threshold entitling employees to form a works council, in order to relieve small and medium-sized companies of the costs of co-determination; and
• a redefinition of the "favourability principle" (Günstigkeitsprinzip) (DE0002238F) according to which it should be legally possible for companies to make work arrangements to safeguard or promote employment at establishment level, even if theses diverge from collective agreements.

Commentary

The system of works councils and co-determination at establishment level as laid down in the Works Constitution Act is one of the core elements of German industrial relations. In the past it has proved, over and over again, that it is no major obstacle to an excellent economic performance. On the contrary, it has often helped companies to create social acceptance for changes in company or work organisation and, thereby, has become an efficient instrument of corporate governance. Beside this economic argument which might favour co-determination at establishment level, there is also a political argument that in modern societies the principle of democracy cannot be excluded from companies.

In practice, the principle of co-determination at the workplace has been accepted by the majority of both employers and employees. Therefore, the sharp resistance of the German employers' associations to a new BetrVG seems somewhat surprising. The current BetrVG has seen no major changes since 1972 and it is obvious that it needs adjustments in order to correspond with modern company organisation and working life. The Ministry of Labour's draft has mainly proposed adjustments rather than real extensions of co-determination rights. It aims to put works councillors in a position to fulfil their tasks under changed conditions. Where it extends the explicit responsibility of works councils to "new" areas such as employment security or fighting xenophobia, it has only picked up those areas where there have already been many joint initiatives between works councillors and management in recent years.

The argument of the employers' associations that the new BetrVG would allow co-determination on production and investment decisions has little substance. On the contrary, the Ministry of Labour's draft is already a compromise between trade unions' and employers' demands and it might be questionable whether or not it is really sufficient for enabling modern co-determination at establishment level. One argument of the employers seem to be particularly misleading; that the new BetrVG creates unacceptable new costs. On the one hand, this is not true because, although some elements of the new BetrVG will lead to higher costs, others - such as the more streamlined election procedure - will help to cut costs at the same time. On the other hand, the Ministry of Labour has - in its justification for the new BetrVG - rightly referred to the political argument for co-determination which states that "democracy is not for free". (Thorsten Schulten, Institute for Economic and Social Research (WSI))