Collective Agreement Act celebrates its 50th anniversary

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For 50 years the legal framework of German collective bargaining has been laid down by the Collective Agreement Act, which came into force in April 1949. Although the application of the Act has been developed by Labour Court decisions, its fundamental provisions remain unchanged. Changes in collective bargaining practice have shown that the Act is relatively flexible and allows many different types of bargaining. Most trade unions and employers are currently seeking a modernisation of the German bargaining system, but not a radical shift, and there are only a very few voices within the employers' camp who want fundamental changes in the Act.

On 9 April 1999, the German Collective Agreement Act (Tarifvertragsgesetz) celebrated its 50th anniversary. The legislation was enacted on 9 April 1949 by the common Economic Council for the British and American occupation zones of post-war Germany. Since the Act was adopted before the official foundation of the Federal Republic of Germany (FRG) there was a transition period before it became valid for the whole territory of the FRG (including the former French occupation zone) in 1953.

Regarded as the outcome of a "historical compromise" between capital and labour, the Collective Agreement Act has provided the legal framework for Germany's highly institutionalised collective bargaining system and, in the view of some commentators, has made a major legal contribution to the "institutionalisation of class conflict". Apart from a few amendments, the fundamental provisions of the Act have remained unchanged until today. The application of the law, however, has always been made concrete and further developed by Labour Court decisions.

A brief history of collective agreement law

The first legal provisions on collective bargaining in Germany came into force during the First World War. Although Germany had seen a significant increase in collective agreements in the first decade of the 20th century, there was a strong faction in the employers' camp - representing, in particular, some of the core industrial areas such as mining, heavy industries and chemicals - which strongly opposed collective agreements as a restriction on the employers' right to manage. Only the particular circumstances of the war, which demanded a close cooperation between capital and labour to guarantee war production, made them willing to accept the trade unions as a bargaining party. In December 1916, a so-called "Act on Patriotic Services" (Gesetz über den vaterländischen Hilfsdienst) was adopted which contained various provisions for the subordination of the whole economy to the needs of Germany's war effort. In order to incorporate the labour movement into the German war economy, the Act provided, for the first time, some legal rights for trade unions regarding the determination of working conditions.

The German revolution in 1918 and the foundation of the Weimar Republic led to a breakthrough in labour law on collective agreements. On 15 November 1918, the top-level employers' association and trade unions concluded a "central agreement" which aimed at a fundamental renewal of industrial relations. Regarding collective bargaining, the agreement contained various provisions for the legal recognition of collective agreements, which were almost all repeated in the Collective Agreement Ordinance (Tarifvertragsverordnung) of 23 December 1918. This Ordinance was the first comprehensive legislation on collective bargaining in Germany which guaranteed the principle of collective bargaining autonomy (Tarifautonomie) according to which employers and employees were able to determine working conditions as their own responsibility and independently of any influence by the state. The principle was further confirmed by the Constitution of the Weimar Republic in 1919.

In 1923, however, the government passed a new "Ordinance on Arbitration" (Verordnung über das Schlichtungswesen) which gave the state the power to use a system of compulsory arbitration (Zwangsschlichtung). In practice, compulsory arbitration was used quite often, particularly in the last years of the Weimar Republic, thereby contributing to the destruction of collective bargaining autonomy. After the Nazis came to power in 1933, they completely abolished free trade unions and collective bargaining. In 1934, the Nazis adopted an "Act on the Regulation of National Labour" (Gesetz zur Ordnung der nationalen Arbeit), which replaced freely negotiated collective agreements with governmental ordinances.

After the Second World War, the new military government set up by the Allies in west Germany initially maintained the wage freeze which had been imposed by the Nazis during the war. Although the Allies authorised the new foundation of trade unions and employers' associations, the regulation of wages remained in the power of the military administration until the Allies lifted the wage freeze in 1948. From 1946, however, the military government together with the German labour administration prepared the creation of a new Collective Agreement Act, which was adopted in April 1949. Finally, the Basic Law (Grundgesetz) of May 1949 contained a guarantee of general freedom of association (Koalitionsfreiheit) and thereby defined the principle of collective bargaining autonomy as a constitutional right.

East Germany experienced rather different developments in labour law and practice. After unification in October 1990, however, the entire west German labour law system was extended to the territory of the former German Democratic Republic.

Main provisions of the Collective Agreement Act

The provisions of the Collective Agreement Act are based in some parts on the Weimar Republic's Collective Agreement Ordinance, but in other parts they are significantly different, reflecting rather negative historical experiences.

Parties to collective agreements

On the employees' side, the Act states that only trade unions have the right to conclude collective agreements (Article 2, Para 1). In contrast to the old Collective Agreement Ordinance, which referred rather unspecifically to "employees' associations" as the collective bargaining parties, the Act contains an exclusive provision concerning the promotion of trade unions. Neither other "employees' associations", such as "yellow unions", nor works council s have the right to conclude collective agreements. The Works Constitution Act (Betriebsverfassungsgesetz) of 1952 confirmed that works agreement s which are concluded between the works council and management "shall not deal with remuneration and other conditions of employment that have been fixed, or are normally fixed, by collective agreement" (Article 77, Para 3).

On the employers' side, the Collective Agreement Act provides that collective agreements may be concluded either by employers' associations or by individual employers. In practice, however, Germany saw the development of a comprehensive system of association-level collective bargaining during the 1950s. Although company agreements (Haustarifverträge) have gained importance in the 1990s (DE9803152F), more than two-thirds of all German employees are still covered by an association-level agreement (Flächentarifvertrag).

Binding effects of collective agreements

Collective agreement s are directly binding for all members of the bargaining parties concerned (Article 3, Para 1) - ie all employees who are members of the trade unions and all companies who are members of the employers' associations. As a result, only the members of the signatory trade unions have a direct legal claim against their employers - for example, in relation to wage increases or working time arrangements provided for in a collective agreement. In practice, however, employers who are bound by a collective agreement usually apply the agreed provisions to all employees, regardless of whether they are trade union members or not. Furthermore collective agreements can also be extended by the Minister of Labour to include employers and employees in the relevant sector which are not bound by the agreement.

Collectively agreed provisions keep their validity as long as no new agreement has been signed, even when the duration of the agreement has run out (Article 4, Para 5). The so-called "after-effect" (Nachwirkung) of collective agreements also applies to employers which have left their employers' association. Furthermore, during the term of an agreement both bargaining parties are bound by the "peace obligation" (Friedenspflicht), which forbids any form of industrial action. The latter provision, however, is not fixed in the Collective Agreements Act but has been introduced through Labour Court decisions of principle (DE9802253N).

According to the "favourability principle" (Günstigkeitsprinzip), departures from regulations laid down in collective agreements are usually possible only when they are in favour of the employees. For example, a works agreement can provide better employment conditions than a collective agreement, but not the other way round. However, the bargaining parties have the possibility to introduce "opening clauses" in collective agreements which allow, under certain conditions, a divergence from the collectively agreed standards, even when they change employment conditions for the worse.

Developments in bargaining

In the post-war period, Germany developed a comprehensive system of predominantly branch-level collective agreements concluded by trade unions and employers' associations. Since the late 1980s, however, German collective bargaining has become more decentralised and more differentiated, for example by a more extensive use of opening clauses (DE9709229F). These developments were possible without any major changes to the Collective Agreements Act. In the current debate on a further modernisation of the German bargaining system, there are some, mainly "neoliberal" critics in the employers' camp who demand radical changes in German labour law on collective bargaining such as

  • the introduction of a general opening clause in collective agreements, which would the bargaining parties at company level to diverge at any time allow from collectively agreed standards;
  • changes in the Works Constitution Act in order to allow works councils to conclude collective agreements;
  • the abolition of the state's power to extend collective agreements;
  • the abolition of the "after-effect" of collective agreements; and
  • a new interpretation of the "favourability principle". For example, a change for the worse in working conditions should be interpreted as being "in favour" of employees, if this measure contributed to their employment security.

So far, however, the trade unions as well as a majority of employers want to continue the modernisation process within the framework of the existing bargaining system. Therefore, they see no need for a change in the Collective Agreement Act.

Commentary

For 50 years now, the Collective Agreement Act has provided the legal basis for German collective bargaining. The Act has been proven to be a flexible instrument which has allowed the creation of a bargaining system which in practice is much more differentiated that its reputation implies. However, there is also a creeping growth in the number of companies which are not only using the legal possibilities to diverge from collective agreed standards but also contravening, more or less openly, collective agreements (DE9901290N). In these circumstances, it is apparent that new political and legal means need to be found to strengthen the validity of collective agreements. In this context, the 50th anniversary of the Collective Agreement Act could be a starting point for a broader reflection on the basic principles of German collective bargaining and its overall meaning for the German model of society. (Thorsten Schulten, Institute for Economic and Social Research (WSI))

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