Collective bargaining system under pressure

In autumn 2003, debate on the future of the collective bargaining system became a central issue of German politics. The leading opposition political parties - CDU/CSU and FDP - presented draft bills aimed at changing bargaining law in order to give companies more freedom to depart from collectively agreed standards. While employers supported these initiatives for further decentralisation of bargaining, the trade unions organised many protests and demonstrations against possible legal intervention and defended the principle of collective bargaining autonomy. Although the 'red-Green' government also seeks more flexibility in the bargaining system, it still favours more flexible arrangements agreed by the bargaining parties themselves instead of legal changes. In December, the mediation committee of the two chambers of the German parliament adopted a joint declaration which asks the bargaining parties to agree to more opening clauses within sectoral collective agreements.

Since the 1990s, the German system of sector-level collective bargaining has seen a continuous process of transformation towards more company-level bargaining. This transformation has taken various forms:

  • the number of employees covered by sectoral agreements has shown a significant decline while the number of company agreements has grown continuously (DE0201299F);
  • the flexibility within sectoral agreements has increased significantly with the conclusion of numerous so-called 'opening clauses' which allow companies to diverge from collectively agreed standards under certain conditions (DE9709229F) - more than one third of all companies now make use of an opening clause (DE0310203F); and
  • many companies have established so-called 'company pacts for employment' (betriebliche Bündnisse für Arbeit) whereby the employees have made concessions on pay or working conditions in exchange for limited job guarantees given by the employers (DE9902293F and DE9901191F). Although many of these company pacts either deal with issues not regulated by collective agreements (for example additional company payments) or adopt an existing opening clause, there is also a significant number of company pacts which more or less openly contravene collectively agreed standards.

To sum up, all these developments have weakened the significance of sectoral regulation to the benefit of more company regulation.

Despite all these changes in the practice of collective bargaining, there is an ongoing debate on whether or not the German bargaining system is still too rigid. A large number of German economists take a 'neo-classical' point of view and see the bargaining system as a major source of Germany’s inability to reduce its mass unemployment. In October 2003, for example, the Economic Advisory Board (Wissenschaftliche Beirat) of the Ministry for Economics and Labour issued a detailed statement on the German bargaining system, in which it called for a change to the Collective Agreement Act (Tarifvertragsgesetz). The economic advisors proposed a new legal provision whereby all collective agreements at sector level should include an opening clause in order to allow companies to diverge from collectively agreed standards.

The call for a change to the legislation on collective bargaining has also been supported by the main political opposition parties - the Christian Democratic Union (Christlich Demokratische Partei, CDU), its Bavarian associated party the Christian Social Union (Christlich Soziale Union, CSU) and the Free Democratic Party (Freie Demokratische Partei, FDP) - as well as by large numbers of employers.

CDU/CSU and FDP draft bills

On 18 June 2003, the parliamentary group of the CDU/CSU presented a draft bill for a 'modernisation of labour law'. Among other proposals - such as a reduction of dismissal protection in smaller companies or a restriction on the right to work part time - the two conservative parties demand a change to the Collective Agreement Act and the Works Constitution Act (Betriebsverfassungsgesetz) both of which would significantly affect the German bargaining system.

Concerning the Collective Agreement Act, the CDU/CSU bill includes two provisions. First, every company should have the right to pay a newly hired worker who was formerly unemployed up to 10% less than the collectively agreed rate during a trial period. Second, there should be a redefinition of the so-called 'favourability principle ' (Günstigkeitsprinzip). At present, departures from regulations laid down in collective agreements are possible only when they are in favour of the employee. Moreover, in a landmark judgment, the Federal Labour Court (Bundesarbeitsgericht) has made clear that company arrangements which contravene collectively agreed standards in exchange for job security cannot be justified by referring to the favourability principle (DE9908214F). CDU/CSU proposes that job security should be defined as creating more favourable working conditions, and that departures from collective agreements should be possible if they are supported by the works council and by at least two-thirds of the workforce concerned.

Furthermore, the CDU/CSU bill foresees the introduction of a new article on 'company pacts for employment' into the Works Constitution Act. According to the Works Constitution Act, works council s are currently not allowed to conclude agreements on issues which are usually regulated by collective agreements. The CDU/CSU wants to give the works council the right to conclude a works agreement which diverges from collectively agreed standards, within the framework of a company pact for employment. Such a pact should be supported by at least two-thirds of the workforce, while the (sectoral) collective bargaining parties should be given the right of veto.

The liberal FDP had already presented similar proposals to change the law on collective agreements in 2000 (DE0002238F). On 25 June 2003, it presented a new bill on the 'safeguarding of company pacts for employment' which notably includes a redefinition of the favourability principle.

Employers in favour of more decentralisation

German employers have been demanding changes to the legislation on collective bargaining for some years (DE0002238F). On 15 September 2003, the Confederation of German Employers’ Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), presented a statement in which it confirms it positions of principle and expresses its support for the legal initiatives by CDU/CSU and FDP. BDA repeats its demand for more opening clauses within sectoral agreements, a legal redefinition of the favourability principle and an extension of company pacts for employment. Compared with the CDU/CSU proposal, BDA goes one step further, since it wants to give companies the opportunity to diverge from collectively agreed standards without trade unions or employers' associations having the right of veto. Furthermore, BDA calls for the introduction of obligatory arbitration in the event of failed negotiations, and further restrictions on industrial action.

Trade union reactions

The trade unions have sharply criticised all attempts legally to restrict collective bargaining autonomy. In a statement on the draft bills of CDU/CSU and FDP, the German Confederation of Trade Unions (Deutscher Gewerkschaftsbund, DGB) rejected both the legally binding introduction of opening clauses into sectoral agreements and a redefinition of the favourability principle, since both would substantially undermine the unions' bargaining position

DGB gained support in its view from some leading labour lawyers, who see the proposals made by the opposition parties as a contravention of the existing constitutional right to freedom of association (Koalitionsfreiheit). A detailed expert juridical opinion drawn up on behalf of DGB came to the conclusion that the CDU/CSU and FDP bills would lead to a 'paradigm shift' in the collective bargaining system which would not be in line with the German constitution. More than 300 researchers signed a petition 'for the maintenance of collective bargaining autonomy' in which they criticised the CDU/CSU and FDP bills as a fundamental interference in industrial relations

The trade unions themselves organised numerous protests and demonstrations at local level against a possible change in the collective bargaining legislation. In addition, on 26 September 2003 an 'initiative for the defence of collective bargaining autonomy' was launched by members of works councils and (public sector) staff councils, who feared that a further weakening of sector-level agreements would also undermine their position and make them more susceptible to 'blackmail' at company level. The strong scepticism of most employee representatives has also been confirmed by a representative survey recently conducted by the Institute for Economic and Social Research (Wirtschafts- und Sozialwissenschaftliches Institut in der Hans Böckler Stiftung, WSI), which found that about 80% of all works councillors said that the trend towards a decentralisation of collective bargaining is either ambiguous or generally problematic (DE0310203F).

No legal changes at present

In autumn 2003, both CDU/CSU and FDP declared that they were prepared to use their majority in the Bundesrat- the second chamber of parliament, representing the governments of the federal states (Länder) - to put pressure on the federal coalition government of the Social Democratic Party (Sozialdemokratische Partei Deutschlands, SPD) and Alliance 90/the Greens (Bündnis 90/Die Grünen) in order to change the law on collective agreements. Because of the strong federalist system in Germany, many legal initiatives of the federal government need a majority in both chambers of parliament. Against this background, the conservative and liberal opposition parties signalled to the government that they would block a major tax reform in the Bundesrat, if the government refused to accept changes to the Collective Agreement Act.

In his keynote address to parliament on 14 March 2003, Chancellor Gerhard Schröder himself called for options to be created within collective agreements which would give the bargaining parties at company level more room for manoeuvre. Mr Schröder added that if the collective bargaining parties were not able to create such options, there might be a need to change the existing collective bargaining law by means of legal intervention (DE0303105F). However, a majority within both the SPD and the Greens are still against such intervention in collective bargaining autonomy. The 'red-Green' federal government therefore rejected the legal initiatives put forward by the opposition parties.

Finally, on 15 December 2003, the mediation committee (Vermittlungsausschuss) between the two chambers of the German parliament (the Bundestag and Bundesrat) reached a compromise on a package of new legislation covering tax and labour market policy. However, no changes in collective bargaining law were included at this point. The mediation committee only agreed on a non-binding declaration in which all parties involved expressed their expectation that 'the collective bargaining parties will agree on a new balance between regulation at sectoral and at company level within the next 12 months.'


Although there will be no changes to collective bargaining law for the moment, the German system of bargaining will continue to be under strong political pressure. Prominent members of the CDU/CSU and FDP opposition parties have already announced that they will continue to fight for a revision of the Collective Agreement Act in order to legalise company pacts which contravene collectively agreed standards.

The arguments put forward by those in favour of more decentralisation in collective bargaining are, however, in many respects doubtful. First, the idea of the German bargaining system as a rigid from of regulation which does not take into account the specific needs of companies is little more than a politically constructed myth. At the moment there are more than 57,000 collective agreements in force, with sectoral agreements in more than 300 branches. In addition, almost all major sectoral agreements now have various opening clauses which give companies opportunities to adopt collectively agreed standards according to their specific needs.

Second, if the issue of flexibility is not the problem of the German bargaining system, it might be - as maintained by German employers - that work standards and labour costs are too high. In most recent years, however, German wage increases have been extremely moderate. As international comparisons have shown, it is therefore a second myth that more decentralised bargaining systems will lead to lower labour costs. On the contrary, more radical decentralisation of German bargaining would mean that works councils would gain the right to take industrial action, and that might lead to a fundamental shift in the culture of German industrial relations.

Finally, a third myth is the idea that more decentralised bargaining would help to safeguard employment or create new jobs. The so-called 'company pacts for employment' might help to save jobs in a certain company. However, the reduction of labour costs through concessions made by the employees increases the pressure on competing companies, which either have to seek similar concessions or may face economic difficulties and in the end have to make dismissals. Taking into account recent economic developments in Germany, the main sources of low growth and high unemployment are not so much the institutions on the labour market but more the insufficient macroeconomic policy. (Thorsten Schulten, Institute for Economic and Social Research, WSI)

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