Federal Cartel Office challenges fair collective wages practices in Berlin

On 12 August 1997, the German Federal Cartel Office informed the Berlin Senate that the practice whereby public sector contracts for projects such as road-building are given only to companies which declare that they pay wages according to the collectively agreed rates in Berlin, infringes the anti-discrimination provisions of the German cartel law.

On 12 August 2997, the Federal Cartel Office (Bundeskartellamt) served notice on the Berlin Senate, the Berlin city and the state government, to drop the practice whereby public sector contracts for projects such as road-building are only given to companies which declare that they pay wages according to the collectively agreed rates in Berlin (a practice known as Tariftreueerklärung). These pay levels are higher than market rates and the minimum wages established for the construction sector. The Federal Cartel Office - whose tasks include enforcing the ban on cartels, exercising merger control and control of abusive practices, if the restrictive effect on competition extends beyond the territory of one federal state - declared that this practice infringes the anti-discrimination provisions of the German cartel law.

The Cartel Office thereby intends to stop regional and local authorities from stipulating that the wages agreed by collective bargaining in Berlin apply to certain types of public sector building contracts. The Cartel Office said that the state of Berlin is dominating the demand side of the road-building market and that the measure, which was introduced in 1995 with the aim of boosting local building companies, resulted in the exclusion of potential competitors which set wages lower than agreed collectively in Berlin. The practice in Berlin would discriminate against those building companies which do not bargain collectively and those which are from eastern Germany outside Berlin, where lower wages, in most cases agreed outside the industry level collective bargaining system, are one of the key competitive tools for companies.

According to the construction workers' trade union, IG BAU, 12 of the 16 German states have adopted the practice of requiring government contractors to pay wages according to current collective industry agreements, mainly to ensure that the wages paid are at least equal to the minimum wage set by the relevant industry level agreement. This provision protects employees from competition based on "unfair" wages and "wage dumping" and at the same time encourages the extension of industry-level agreements to firms that otherwise might have chosen to set pay independently.

The Cartel Office argues that the original intention of the Tariftreueerklärungbecame obsolete with the introduction of a legally binding general minimum wage for the construction sector according to the Posted Workers Act (DE9707126N).

The Berlin Senate rejected the Cartel Office's claims and has four weeks to consider the case. In the event that the Senate does not change its position, the Cartel Office announced that it would issue a formal ban, opening the prospect that the issue could end up in the courts.