Only one firm in five has a works council

German works councils are often thought of as operating in all firms that exceed the basic workforce size threshold established by law. However, despite their extensive legal powers and their importance for labour relations in Germany, not much is known about the incidence of works councils and the size distribution of firms having a works council. Two recent representative, large-scale studies show that only about one-fifth of firms covered by the legislation do have a works council, though these account for the lion's share of employment.

Works council powers

In the Works Constitution Act (Betriebsverfassungsgesetz) of 1972, works councils in Germany are given extensive rights of information, consultation and co-determination. The employer has to provide the works council with both timely and comprehensive information on all matters related to the discharge of its functions. In establishments with over 20 employees, information must be given "in full and in good time" on reductions in operations and the introduction of new working methods. Consultation rights cover planned structural alterations to the plant and prospective changes in equipment and working methods that affect job requirements, all decisions relating to manpower planning, and individual dismissals.

What distinguishes the German works council (or Betriebsrat) from its European cousins is an explicit set of codetermination rights on social matters. Examples of those areas in which the works council has joint decision-making authority with management are the beginning and end of working hours, remuneration arrangements (but not wage bargaining), the regulation of overtime and reduced working hours, the introduction and operation of technical devices to monitor worker performance and health and safety measures. In all such areas, failure to reach agreement leads to their adjudication through a conciliation board. Furthermore, in establishments with more than 20 employees, the works council may also negotiate so-called "social plans" which establish compensation for the dislocation caused by plant closures or partial closures, major changes in organisation or equipment, and the introduction of new working methods or production techniques.

Electing a works council

According to the Works Constitution Act works councils shall be elected in all establishments that normally have five or more permanent employees, all of whom must be at least 18 years of age and three of whom must have at least six months' service.

Although in firms above this size threshold works councils are mandatory, they do not exist automatically. The procedure for setting up a works council, however, is simple and straightforward: Just three employees with voting rights, or a trade union represented in the establishment, are necessary to call for an electoral board, which is then responsible for calling the election, implementing it, and announcing the results. Alternatively, a labour court can set up an electoral board, again on a petition from three employees or the union. If a works council exists already, it has to elect an electoral board prior to the regular elections, which are held every four years and will next fall due in 1998.

In the election process, employees with voting rights, as well as trade unions represented in the establishment, are entitled to submit lists of candidates. Wage earners and salaried employees may have separate or joint elections. In the latter case, which is increasingly the norm, elections are on the basis of joint lists of candidates. Elections are direct and by secret ballot, with winners elected on the basis of proportional representation. The size of the works council is again laid down by law, ranging from one to 31 members for establishments with up to 9,000 employees. For larger establishments, there are two additional members for each increment of 3,000 employees.

Although setting up a works council is relatively simple and works councils have extensive powers in representing the interests of employees, the majority of establishments in Germany do not seem to have a works council. Unfortunately, there are no official statistics on the incidence and the distribution of works councils. Drawing on large-scale, representative data sets for western Germany, two recent studies for the first time are able to provide information on these issues.

Works council incidence

Based on data for 1,867 firms, a 1995 study by Berndt Frick and Dieter Sadowski reports that 24% of all private enterprises have works councils, but that these employ 60% of the private sector workforce. This indicates that large firms are much more likely to have a works council than small firms. Similarly, in an as yet unpublished study of 1,025 firms in the state of Lower Saxony in 1994, John Addison, Claus Schnabel and Joachim Wagner report that in manufacturing industry only 20% of firms with five employees or more have works councils. These firms, however, account for the lion's share of manufacturing employment (73%). Again, the probability of having a works council increases with the size of the firm, which can be clearly seen in the table below: while works councils are found in less than 10% of firms with under 20 employees, almost all firms with 250 employees or more have works councils.

Source: Addison, Schnabel and Wagner (1997), based on data from Das Hannoveraner Firmenpanel , Wave 1, 1994

According to the Addison, Schnabel and Wagner study, there are several reasons why larger firms are more likely to have a works council:

• the larger the firm size, the greater the powers and the potential influence of the works council and the greater the incentive on the part of workers to seek to instal one;
• the complexity of human resource management increases with the size of the firm, and the governance apparatus of the works council might be attractive to management and employees alike for reasons of communication, monitoring and greater internal labour market structuring;
• the more routine and regimented work organisation commonly attributed to larger firms might encourage workers to demand a works council.

In addition to firm size, in both studies the probability of having a works council increases with the age of an establishment. Other principal factors behind works council presence are: the occupational composition of the workforce (such as the proportion of female or part-time workers, who both appear to be less interested in collective representation); and certain working arrangements (such as shiftworking, which is monitored by works councils).

Commentary

Foreign observers accustomed to viewing the works council as a given in firms above the tiny legal size-threshold of five employees, will perhaps be surprised by the limited coverage found in these two studies. It should be noted, however, that the vast majority of German employees continue to be employed in firms with works councils. Future developments are difficult to predict. On the one hand, with the ongoing decentralisation of industrial relations in Germany, the influence and perhaps also the incidence of works councils may increase, in particular in manufacturing industry. On the other hand, due to different working arrangements, the growing service sector and its new, small firms may have less need to set up works councils. (Claus Schnabel, IW)

References:

, and , in "Institutional frameworks and labor market performance", edited by Friedrich Buttler et al, London and New York (1995).

, , , and , mimeo, Lüneburg University (1997)