Growing numbers of employment pacts at establishment level

In recent years, Germany has seen a growing number of "employment pacts" concluded at establishment level between management and works council. According to a 1999 study from the Hans Böckler Foundation, these agreements show great variety in their content, scope and complexity. However, most agreements follow a similar basic pattern: while the employees make concessions on working conditions, the employers give limited job guarantees.

Against the background of persistent high unemployment, the issue of employment security has become one of the most important topics in German industrial relations (TN9710201S). In recent years a growing number of so-called "employment pacts" (Beschäftigungspakte) have been agreed, in particular at the level of the establishment, where many of them have taken the form of an official works agreement between management and works council. According to a recent survey by the Institut for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliche Institut, WSI), in 1997/8 works agreements which explicitly aimed to safeguard employment existed in 24% of private sector establishments covered by works councils and in 12% of public sector establishments covered by staff councils (DE9901191F).

A new study from the "division for the promotion of co-determination" (Abteilung Mitbestimmung) within the Hans Böckler Foundation has now analysed of the content of this kind of works agreements ("Betriebs- und Dienstvereinbarungen Beschäftigungssicherung. Analyse und Handlungsempfehlungen", Winfried Heidemann, Edition der Hans-Böckler-Stiftung No. 8, Düsseldorf 1999). The study, which is based on an evaluation of 139 works agreements from 111 different establishments, does not claim to be representative, since the information on works agreements was collected by a voluntary questionnaire to works councillors. Therefore, it can be assumed that works councillors were more willing to make positive rather than negative works agreements available. Furthermore, there is a clear overrepresentation of the manufacturing sector in the works agreements analysed. However, the study does provide an overview of recent trends in joint initiatives on employment security at establishment-level, and of their possibilities.

Although employment has always been an important issue in relations between works councillors and management, the conclusion of establishment-level employment pacts is a relatively new phenomenon. A first wave of works agreements on employment security were concluded after Germany's deep economic recession in 1992/3. Furthermore, after the failure of an attempted "alliance for jobs" (Bündnis für Arbeit) at national level in 1996 (DE9702202F), establishment-level" alliances for jobs" became even more widespread.

As the Hans Böckler Foundation study reveals, the content, scope and complexity of the employment pacts show a great variety, with agreements differing from company to company. The same is also true for the reasons why companies are agreeing employment pacts - these can include an economically difficult situation such as the threat of liquidation, or aims such as the introduction of organisational changes or simply the improvement of competitiveness. Usually, the agreements are concluded between management and works council, while in a few cases (in particular in public services) the agreements have also been signed by the relevant trade union. Apart from the detailed provisions, however, most employment pacts follow a similar basic pattern: a trade-off of employees' concessions on working conditions against employers' promises of limited job guarantees.

Employees' concessions in exchange for employment security

Employment pacts cover a wide range of different topics and bargaining issues on which the employees agree to make concessions or to accept organisational changes - as table 1 below indicates. The most frequent bargaining issue covered by works agreements on employment security is working time, including greater flexibility of working time, reduction of working time (with no wage compensation), extension of working time, reduction of overtime and increased use of part-time work. The second most frequent bargaining issue covers a wide range of organisational changes, including the introduction of new forms of work organisation or the restructuring of business units. Furthermore, the employment pacts may contains measures on continued training, regulations allowing an easier transfer of employees between different divisions or cuts in company payments and social benefits.

Table 1. Bargaining issues covered in works agreements aimed at employment security
Bargaining issue No. of agreements mentioning issue*
Working time (flexibilisation, reduction of working time and overtime, extension of working time, more part-time work) 83
Organisational changes (new forms of work organisation, restructuring of business units etc) 54
Development of personnel/continued training 45
Transfer of employees between different divisions 43
Regulations on (early and partial) retirement 28
Payments (reduction of payments above collectively agreed rate) 21
Social benefits (reduction of company's extra social benefits ) 14
Regulations on voluntary dissolution of employment contracts 13
Sabbaticals 11
Absence/number of sick persons 5
Others 8

* Total number of agreements considered = 139. Agreements may cover more than one issue.

Source: Heidemann (1999).

Summarising all the different provisions within the employment pacts, the study distinguishes three principle ways in which the agreements aim to secure employment:

  1. reduction of the supply of labour - reduction of working time and overtime, more part-time work, early or partial retirement, sabbaticals, voluntary dissolution of employment contracts etc;
  2. reduction of labour cost - reduction of payments, social benefits and overtime bonuses, extension of working time etc; and
  3. increase in organisational flexibility - flexibilisation of working time, easier transfer of employees, measures on continued training etc.

Employers' promises on employment security

In exchange for the concessions on working conditions on the employee side, most works agreements also contain certain promises on the employer's side, covering various aspects of employment security. As shown by table 2 below, the most frequent promise is a renunciation by the employers of redundancies for economic reasons (betriebsbedingte Kündigungen). In some cases, such no-redundancy agreements are concluded for a period between one and three years or even longer. However, this kind of job guarantee is often limited to the core workforce and does not, therefore, necessarily mean that the number of employees remains stable. On the contrary, some agreements explicitly mention reductions of the workforce while at the same time guaranteeing a certain (reduced) employment level. Furthermore, a few agreements also have an "emergency clause" (Notstandsklausel) which allows the employer to depart from its promises of no redundancies in the event of unforeseeable economic difficulties.

The second most frequent employers' promise is the guarantee of giving vocational trainees a permanent job. Some employers also agree to maintain their vocational training capacities. Regarding organisational changes, some employers promise to maintain the existing grading system (in particular in public services) while other agree to abandon outsourcing plans. Finally, some employers express their general intention to safeguard or even extend an establishment, while a very few agreements contain concrete promises for new investments.

Table 2. Promises made by employers in works agreements on employment security
Employers' promises No. of agreements mentioning promise*
Any kind of promises (in total) 126
No redundancies for economic reasons 92
Guarantee to give vocational trainees permanent jobs 31
Maintenance of grading system in the event of organisational changes 23
Maintenance of vocational training capacities 19
Renunciation of outsourcing measures 18
Safeguarding/extending establishments 15
Promise of new investments 4
Others 4
No promises 13

* Total number of agreements considered = 139. Agreements may include more than one promise.

Source: Heidemann (1999).

Commentary

The growing number of employment pacts at establishment level probably marks one of the most significant new developments in German industrial relations. An overall evaluation of the meaning of these agreements has to answer at least two main questions:

  1. what are the real effects of employment pacts on job security and the wider development of the labour market?
  2. what is the meaning of employment pacts in relation to the traditional institutions of German industrial relations, in particular the system of branch-level collective bargaining?

Although it is still too early for a final estimation, for the moment, the implications of employment pacts for both the labour market and the industrial relations system seem to be rather ambiguous:

Regarding the labour market, it seems to be almost impossible to measure the real effects of employment pacts. Of course, at first sight it might be the case that concessions on employment conditions made by employees within an employment pact could help to secure employment which otherwise would have been lost. Indeed, as the Hans Böckler Foundation study finds, most agreements are so far rather "defensive" in character, since they mainly concentrate on maintaining a certain level of employment. Only a few agreements follow a more "offensive" concept of developing new resources which might lead to the creation of new employment.

The problematic aspect is, however, that employment security is often limited to a core workforce while a growing number of peripheral workers seem to be the losers in such deals. This might lead to the somewhat paradoxical situation that in some cases the conclusion of an employment pact is actually accompanied by ongoing reduction of the workforce. Finally, there is the unsolved problem of the different logic of micro- and of macroeconomics: although an employment pact which, for example, brings significant reductions of labour costs, might create new jobs in one company, this could, at the same time, lead to job losses in other competing companies. In such cases, it is likely that the companies placed under pressure will sooner or later come forward with similar initiatives for labour cost reductions. To sum up, there is a clear danger that those employment pacts which are mainly based on labour cost reductions will lead to a downward spiral of concessions in employment conditions.

This last point is also of particular importance when discussing the impact of establishment-level employment pacts on the German system of branch-level collective bargaining. Significant number of employment pacts are inspired by "opening clauses" within collective agreements which to a certain extent allow companies to diverge from collectively agreed standards (DE9709229F). At the same time, the employment pacts themselves create a significant pressure for a further decentralisation of German collective bargaining. Although the Hans Böckler Foundation study states that the overwhelming majority of works agreements on employment security do not contravene valid collective agreements, on this point the study seems not to be very representative, since it is based on voluntary contributions from works councillors who might not be very willing to give information on "illegal" agreements. Other studies, however, have suggested that there is a significant number of companies which contravene valid collective agreements (DE9901290N). It is not unusual for such offences to be committed in the name of "employment security. (Thorsten Schulten, Institute for Economic and Social Research (WSI))"

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