Collective agreement extension mechanisms and practices examined

Austria has one of Europe's highest rates of collective bargaining coverage, with some 99% of relevant employees covered by a collective agreement. As examined in this feature, this is due not only to legal provisions for extending collective agreements to employers and employees not affiliated to the signatory organisations, but also, and more importantly, to the fact that membership of the Chamber of the Economy employer association is obligatory.

Austrian labour law provides elaborate provisions for extending collective agreements to cover employers and employees not affiliated to the signatory bargaining parties. In practice, however, extension provisions are less important than the system of obligatory membership of employer associations when it comes to making Austrian collective agreements generally binding. Since extension mechanisms as well as obligatory membership of employer associations have a positive effect on both collective bargaining coverage and the membership density of employer associations, they can be seen as functional equivalents from a comparative perspective. Below we examine both the statutory extension mechanisms and the effects of obligatory membership.

The statutory provisions for extension

The provisions on the extension of collective agreements are enshrined in the Labour Constitution Act (Arbeitsverfassungsgesetz, ArbVG), which refers to the private sector. Since the public sector is excluded from the right to bargain in Austria (AT0005221F), there is no need for extension procedures there. The Act contains distinct procedures for extending collective agreements to employees on the one hand, and to employers on the other hand.

As far as employees are concerned, the Act stipulates an automatic extension of collective agreements to cover non-unionised employees. Accordingly, a collective agreement is binding on all employers which were members of the signatory organisation on the employers' side when it was signed, as well as on all employees working in these employers' establishments, regardless of whether the employees of these employers are trade union members or not. This is referred to as the so-called 'non-member effect' (Außenseiterwirkung) of collective agreements. Since this effect applies automatically to any kind of collective agreement, no special procedure or application is needed to cover all employees working for employers which are members of the signatory employer associations.

No comparable mechanism of automatic extension exists with regard to those employers which are not covered by an agreement because either: they are not affiliated to the signatory employer association; or there is no collective agreement at all since there is no employer association capable of concluding such an agreement. In such cases, the Labour Constitution Act provides for a special official procedure called an 'extension order' (Satzungserklärung), whereby a collective agreement (or part of it) can be extended to include employment relationships of essentially the same nature which are not covered by an agreement. Extension orders have the same legal effect as the relevant clauses of the reference collective agreements.

An extension order is issued by the Federal Arbitration Board (Bundeseinigungsamt) at the written request of an employers' or employees' organisation possessing the capacity to conclude agreements on behalf of those employers or employees to which the extension would refer. If a trade union or an employer association equipped with the capacity to conclude a collective agreement requests the extension of a collective agreement to which it is party, then the Federal Arbitration Board is obliged to comply, provided that the following four conditions are met:

  1. A collective agreement must exist, such that it can be extended to groups outside its sphere.
  2. The collective agreement to be extended must have 'prevailing importance' (überwiegende Bedeutung) in the relevant field of industrial relations. Significantly, unlike the extension provisions of other countries (eg Germany), the Act does not specify in quantitative terms what prevailing importance means.
  3. The working conditions targeted by the extension order must essentially resemble those working conditions already governed by the relevant collective agreement.
  4. The working conditions to which a certain collective agreement should be extended must not be governed by another collective agreement. It is worth mentioning that this clause does not apply to any inter-industry collective agreements (Generalkollektivverträge) which are concluded by the 'peak' associations of the unions and employer associations. Inter-industry collective agreement in turn can be extended regardless of how similar the working conditions involved are. This provision is designed to avoid competition between existing collective agreements and extension orders, while enabling the bargaining parties to establish a multi-level system of industrial relations.

All parties involved are entitled to give their written opinion and to attend a hearing before the Federal Arbitration Board takes its decision. However, if the four conditions outlined above are met, the Federal Arbitration Board is obliged to extend the collective agreement in question. Conversely, the Board is not entitled either to extend a collective agreement on its own initiative (ie without a request by a party to the relevant agreement), or to modify or change the clauses of the collective agreement to be extended. Also notably, neither a joint request for extension by the two parties to the collective agreement nor unanimity of decision-making within the Board (see below) is required, so neither party has the formal power to veto the extension procedure.

In line with the relevant request, the subject of an extension order may be either a collective agreement as a whole or certain parts of it, provided that they are not taken out of their context. At any rate, it is only the substantive clauses of a collective agreement (ie those clauses which regulate the employment terms) which can be declared generally binding by an extension order. The extension mechanism does not apply to other parts of a collective agreement.

The Federal Arbitration Board is a permanent body affiliated to the ministry responsible for industrial relations (ie the Ministry of Economic Affairs and Employment). The Board consists of a chair and a vice-chair (who are both nominated by the ministry), four representatives of the employers, nominated by the Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) - ie the peak association of the economic chambers, as Austria's principal employer association - and four representatives of employees, nominated by the Federal Chamber of Labour (Bundesarbeitskammer, BAK), the peak association of the chambers of labour. The chair and the vice-chair are appointed for an unlimited period. The term of office of the other Board members is five years, with the possibility of reappointment. The law explicitly obliges all Board members to behave in an impartial way. Decisions are made on the basis of majority vote.

Organisationally, the Board is differentiated into several senates, the responsibilities of which differ in terms of regions and issues covered.

Supplementary provisions and obligatory membership

Extension provisions can be applied only to multi-employer agreements (such provisions lose their relevance in countries where single-employer bargaining prevails). As outlined above, Austrian labour law significantly favours multi-employer bargaining, such that single-employer settlements are very rare. In line with this, almost all collective agreements are concluded at sectoral level in Austria. This statutory preference for multi-employer bargaining augments the practical effectiveness of the extension provisions.

In addition, there is another supplementary provision laid down by the Labour Constitution Act: The Federal Arbitration Board and its territorial subunits may fix a minimum pay scale (Mindestlohntarif) at the request of an employee organisation capable of concluding a collective agreement, if no collective agreement exists for the employee group concerned due to the absence of a corresponding employer association. In this case, it is the Board itself which regulates the level of pay, so the governance of wage formation shifts from the two sides of industry to the authorities. Since both the unions and the employers seek to maintain their governance prerogatives in the industrial relations area, a wish to avoid the use of this provision allowing the authorities to set pay scales tends to promote employer associations, multi-employer bargaining and also the use of extension provisions, if needed.

Finally, there is an important institution which works as a 'functional equivalent' to extending collective agreements: the principle of obligatory membership of the Chamber of the Economy and its subunits. According to law, all businesses whose activities fall within the scope of the representational domain of the Chamber are obliged to be a member of the Chamber and its subunits. The Chamber's scope embraces almost the entire private sector (with the notable exception of agriculture and such liberal professions as doctors and lawyers). This means that approximately 96% of all private sector employees work in companies which are members of the Chamber. The Chamber is the collective voice of business regarding all kinds of interests, including those related to industrial relations. As a consequence, the Chamber is the principal employer association in Austria. The Chamber and its sectoral subunits conclude collective agreements on behalf of almost all employer groups under the Chamber's umbrella. In all these numerous cases, the problem of employers not being affiliated to the signatory employer association does not arise, due to the principle of obligatory membership of the Chamber, which automatically binds all employers which belong to the Chamber subunit that concludes the relevant collective agreement.

Hence, obligatory Chamber membership provides for complete collective bargaining coverage in a way analogous to extension orders designed to cover employers not affiliated to the signatory employer association. In this respect, obligatory Chamber membership can thus be seen as a functional equivalent to extension. Due to the Chamber's very wide-ranging representational domain, there are very few voluntary employer associations aside from the Chamber which engage in collective bargaining in the private sector.

Extension practices

In practice, extension orders regularly serve to fill two kinds of gaps in collective bargaining coverage.

First, the extension procedure is employed when a collective agreement is concluded by a voluntary association (rather than the subunits of the obligatory Chamber of the Economy) on behalf of the employer side. In this case, the extension order is devised to make those employers which are not members of the signatory employer association comply with the collective agreement. For example, extension orders of this kind are issued with regard to the sectoral collective agreements for the printing industry and for newspapers and magazines.

Second, extension orders are used to extend a sectoral collective agreement whose scope is confined to certain regions (normally certain federal states, or Länder) to the remaining regions, for which no collective agreement exists. This practice affects small-scale craft production (Gewerbe) in a few sectors such as metal production and chemicals. For these sectors, collective bargaining takes place at the Länder level and the employers are represented by the corresponding sectoral Länder subunits of the Chamber of the Economy. It is generally the case that collective agreements cannot be reached for all of Austria's nine Länder in these instances. Hence, those Länder whose bargaining parties failed to arrive at an agreement are covered via extension.

As outlined above, the law is rather vague when stipulating that an extension order can be issued if the collective agreement in question is of 'prevailing importance' and that the targeted working conditions must be similar to those covered by the collective agreement concerned. 'Prevailing importance' is defined by the Federal Arbitration Board, in that this precondition for an extension order is seen as existing if the relevant collective agreement covers the majority of employers and employees within the joint scope of that agreement and the requested extension order. The second criterion referring to the similarity of working conditions does not matter in practice. This is because, in either of the two kinds of extension practices, sectoral collective agreements are extended merely within the scope of their own sectors.

As regards the decision-making process within the Federal Arbitration Board, no pattern is observable. Some extension orders are issued on the basis of unanimity, and some on majority vote. While it is normally the unions which initiate the extension procedure, there have, nevertheless, been cases of requests for extension launched by the employer side. This indicates that the extension mechanism is accepted by both the trade unions and employer associations. One reason for this may lie in the fact that the law is rather vague in certain areas. This gives the two sides of industry the opportunity to implement the extension mechanism in a way that assures a maximum of legitimacy.

Figures on the number of extended collective agreements and the number of employers and employees covered via extension do not exist. Regardless of this, two remarks on the quantitative relevance of extension orders can be made. If gaps in collective bargaining coverage exist, there is a clear tendency in Austria to fill these gaps via extension rather than leaving them uncovered. Such gaps, however, are rare. Hence, a need to issue extension orders arises only in few cases. This is due to the encompassing scope of the 'functional equivalent' to extension: obligatory membership of the Chamber of the Economy. As noted above, the employers organised by the Chamber employ about 97% of all private sector employees. For the vast majority of this membership, the Chamber and its subunits conclude collective agreements. No problem of unaffiliated employers exists in these cases. This leaves little room for the use of extension procedures. In practice, obligatory membership is thus much more important than extension when it comes to making collective agreements generally binding on employers.

Commentary

When adjusting the coverage rate for those employees excluded from the right to conduct collective bargaining, Austria records a collective agreement coverage rate of 99%. This is one of the highest rates in Europe and the broader Organisation for Economic Cooperation and Development (OECD). For the reasons outlined above, obligatory membership of the Chamber of the Economy among companies essentially accounts for this rate. This obligatory membership of employer associations is unique in Europe. Nevertheless, it enjoys a high degree of legitimacy among Austria's employers. This is underlined by the fact that a vote on the obligatory membership issue in 1995-6 showed that 82% of the Chamber's members supported this principle. Austrian labour law also provides for the possibility to set up voluntary employer associations and, when equipped with the right to bargain, they even have priority over their obligatory counterpart. Regardless of this, the Chamber has retained its status as the principal employer association.

In other European countries, employer associations regard voluntary membership as one of their constituent principles. Given collective agreement extension practices, however, the distinction between voluntary and obligatory membership becomes blurred. This especially holds true for several countries (eg Belgium and the Netherlands), where membership dues are sometimes imposed on all companies in a certain sector via the extension of multi-employer settlements. As found by a recent comparative analysis of 20 OECD countries over three decades (National labour relations in internationalised markets, F Traxler, S Blaschke and B Kittel, Oxford, Oxford University Press, 2001), both collective bargaining coverage and the membership density of voluntary employer associations significantly increase with the use of extension practices.

The positive effect on employer association density results from the fact that the practice of extending collective agreements to unaffiliated employers provides a very strong incentive for them to join. If extension provisions exist and are used, employers cannot rule out the possibility of being obliged to comply with a collective agreement, even when they are not members of the signatory employer association. Hence, it is rational for them to join the employer association so as to be entitled to participate in the bargaining process, the outcomes of which may be binding on them in any case. Hence, obligatory membership of employer associations and extension provisions are functional equivalents not only with regard to high levels of coverage, but also with regard to high levels of employer density. (Franz Traxler, University of Vienna)

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