Use of opening clauses in collective agreements

In May 2006, the findings of a study that examined the use, distribution and impact of opening clauses in collective agreements in Germany were published. According to the study, opening clauses have largely been used to deviate from collectively agreed working time standards, and have been applied less frequently to reduce wages.

Results of a study on opening clauses in collective agreements (in German, 80 Kb PDF) reveal that 13% of the companies surveyed have an opening clause in their agreement. Of these establishments, 52% made use of opening clauses in 2005. The companies preferred the use of opening clauses that allow for working time adjustments. Only a minority of companies used opening clauses for the reduction of wages and this was more widespread among companies in eastern Germany.

Background of study

In May 2006, two authors from the Institute for Employment Research (Institut für Arbeitsmarkt- und Berufsforschung, IAB) and the Friedrich-Alexander University Erlangen-Nürnberg (Friedrich-Alexander Universität Erlangen-Nürnberg, FAU) published the findings of a study examining the use, distribution and impact of opening clauses in collective agreements in Germany. The study is based on data from the IAB Establishment Panel. This survey is regularly conducted by the IAB and covers 16,000 establishments in all sectors. Therefore, the results can be regarded as being representative for the whole economy.

Collective bargaining coverage in 2005

In relation to collective bargaining coverage, the study finds that larger establishments are more frequently covered by collective agreements than smaller ones (Table 1). The data also reveal that, in 2005, approximately 38% and 3% of establishments in western Germany were covered by branch-level collective agreements and company-level agreements, respectively, while 19% and 4% of the companies in eastern Germany were covered by branch-level collective agreements and company-level agreements, respectively. More than half of the establishments in western Germany and approximately three quarters of eastern German companies were not bound by collective agreements. Among these establishments, more than one third of the companies both in eastern and western Germany admitted that they used branch-level collective agreements as a guideline for individual contracts between the company and its employees.

Table 1: Collective bargaining coverage of establishments, by number of employees
Collective bargaining coverage increases in establishments with more employees
No. of employees* % of companies with branch-level collective agreements % of companies with company-level collective agreements % of companies with no collective agreement (of which use collective agreements as a guideline)
  West East West East West East
1 to 9 employees 33 14 2 2 66 (34) 84 (35)
10 to 49 employees 49 31 4 7 47 (49) 62 (49)
50 to 199 employees 59 48 9 14 32 (54) 38 (55)
200 to 499 employees 69 55 12 20 19 (52) 25 (53)
500 or more employees 79 71 11 17 10 (63) 12 (67)
Establishments (total) 38 19 3 4 60 (37) 77 (37)
Employees (total) 59 42 8 11 34 (48) 47 (48)

* 30 June 2005

Source: IAB Establishment Panel, 2005

The findings indicate that large establishments are still predominately covered by branch-level collective agreements. Moreover, small establishments that are not covered by collective agreements also make use of branch-level collective standards as a guideline to negotiate wages. Therefore, collective bargaining remains the most significant system of wage determination. However, the IAB data also confirm a declining coverage of collective agreements since the early 1990s. Furthermore, the data indicate that establishments increasingly prefer a system of wage determination that allows for higher adjustment flexibility.

Role of opening clauses

In order to prevent companies from completely avoiding collective agreements, the social partners have been discussing ways to make collective agreements more flexible. According to the German Works Constitution Act (Betriebsverfassungsgesetz), the management and the works council are not allowed to conclude a works agreement that deals with collective bargaining issues. However, if an opening clause exists in a collective agreement and if certain preconditions hold, companies may deviate from the collective standards. The premises, scope, content and formal specifications of the deviating agreement at the company level are frequently stipulated by both the union and the employer organisation. Different forms of opening clauses are prevalent in Germany:

  1. Opening clauses for working time adjustments mostly delegate the allocation of working hours and the handling of overtime to the actors at company level. In this respect, a ‘working-time corridor’ (Arbeitszeitkorridor) allows the company to reduce or extend working times within certain limits.
  2. If an establishment suffers serious economic problems, a specific opening clause (Härtefallklausel) enables the company to pay its employees wages below the collective standards. However, this holds true only for a limited period of time. If employees are to be paid below the collectively agreed rates, either the works council or the management has to apply for an exemption from the collective agreement. Social partners then decide whether or not an exemption is appropriate, given the economic situation of the establishment.
  3. Opening clauses that also require the approval of the social partners (Öffnungsklauseln mit Zustimmungsvorbehalt). While the works council and management can negotiate a works agreement that deviates from the collective agreement, the validity of any such works agreement requires the consent of both the union and the employer organisation.
  4. Opening clauses that do not require the approval of the social partners (Öffnungsklauseln ohne Zustimmungsvorbehalt) – certain issues that are stipulated in the industry-wide collective agreement are left open to self-governed negotiations between the works council and the company management. The resulting works agreement is valid without the prior consent of the social partners.
  5. Opening clauses for small-sized companies (Kleinbetriebsklauseln) – small companies can devise singular agreements allowing for lower wages. For example, eastern German retail establishments with up to 25 employees are allowed to pay lower wages; the wages fall short of the collectively agreed standards by 4%.

Distribution of opening clauses

According to the study, 13% of the companies surveyed in both eastern and western Germany that are covered by collective bargaining confirmed that opening clauses exist in their collective agreements (Table 2). Of these establishments, 52% made use of opening clauses in 2005. These clauses were most frequently used in the transport and communications sector in both western (74%) and eastern Germany (88%). Establishments in the construction sector in eastern Germany (89%), as well as those in the consumer goods sector in western Germany (73%), also applied opening clauses frequently.

Table 2: Percentage of establishments covered by collective agreements that made use of opening clauses, by sector
More than half of the surveyed establishments used opening clauses in 2005
Sector Western Germany Eastern Germany
Existing opening clauses Used opening clauses Existing opening clauses Used opening clauses
Agriculture 7 84 * *
Mining/electricity 28 45 20 53
Quarrying 26 44 22 42
Investment goods 18 59 13 47
Consumer goods 17 73 10 33
Construction 12 54 7 89
Retail/repair 16 55 16 31
Transport/ communications 14 74 4 88
Financial intermediation/ Insurance 15 20 8 27
Other business activities 13 48 20 54
Other activities 9 46 15 47
Non-profit organisations 8 8 27 39
Public administration/ social security 11 38 12 62
Establishments (total) 13 53 13 50
Ratio of employees (of the establishments covered by collective agreements with opening clauses) 29 52 21 52

* Not displayed as sample was too small.

Source: IAB Establishment Panel, 2005

The study also reveals that 71% of employers in western Germany and 62% of employers in eastern Germany used opening clauses for working time adjustments (Table 3). However, only 31% of the surveyed establishments in western Germany and 37% of the workplaces in eastern Germany used opening clauses to reduce either nominal or real wages.

Table 3: Reasons for use of opening clauses (%)
Opening clauses are mostly used for working-time adjustments
Reason Western Germany Eastern Germany
Working time adjustments 71 62
Reduction of payments, suspension of pay increases or supplementary grants 31 37
Other 19 28

Source: IAB Establishment Panel, 2005

Conclusions

Several conclusions can be drawn from the findings of the study. First, the use of opening clauses to reduce wages and salaries depends critically on the economic situation of the establishment. If the economic situation is favourable, opening clauses are used less frequently. This is also true for companies that receive financial backing from foreign investors or that use modern technical equipment. Furthermore, there is a significant correlation between the reduction of wages and a reduction of staff. The study also suggests that either both the employees and unions are willing to accept wage concessions if a company has already been forced to lay off workers, or the wage concession does not suffice to overcome the serious economic situation within a company.

Sandra Vogel, Cologne Institute for Economic Research (IW Köln)

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