Opening clauses increase in branch-level collective agreements

Since the beginning of the 1990s, German branch-level collective bargaining has been under increasing pressure from employers demanding more company-specific regulations on working conditions. As a reaction, in recent years the social partners have concluded more and more "opening clauses" in branch-level collective agreements. These are the findings of a recently published study by the Institute for Economics and Social Science. By using an opening clause, some companies are able, to a certain extent, to diverge from collectively agreed standards. Overall, opening clauses lead to a further decentralisation of collective bargaining which, in the long term, could question the foundations of the Germany's traditional bargaining system.

Challenges to branch-level collective bargaining

The German system of collective bargaining, as it developed in the post Second World War period, is mainly based on branch-level collective bargaining (branchenbezogene Flächentarifverträge) between relatively strong collective organisations, such as industrial trade unions and employers' associations. As a result of a "historical compromise" between capital and labour, German collective bargaining created a system of solidaristic settlements, which guaranteed a certain wage standard independent of the economic performance of an individual company and thereby, to a certain extent, took wages and working conditions out of the sphere of market competition. Today, about three-quarters of German employees are still covered by a branch-level collective agreement.

However, following the current public debate, the German system of collective bargaining seems to be looking more and more old-fashioned. Fundamental changes in the economic and political environment have put the system under increasing pressure:

  • growing internationalisation seems to lead to a new mobility of capital which makes it more and more easy for companies to undermine the national "cartel function" of branch-level collective agreements (eg by a shift of production). Internationalisation brings wages back into the field of competition;
  • increasing international competition leads to permanent restructuring among companies seeking cost reductions and therefore reinforces a tendency to undermine collective agreements which are blamed for being too expensive and over-regulated;
  • continued growth in unemployment weakens the position of the trade unions and even makes employees' representatives at company level often willing to accept working conditions below the collectively agreed standards;
  • new forms of work organisation do not fit with "tayloristic" work classifications in traditional collective agreements (eg the distinction between blue- and white-collar workers) and demand more differentiated provisions;
  • trade unions and employers' associations are both losing members and the organisational foundations of branch-level collective bargaining are thus being weakened;
  • as a result of the enormous crisis associated with its economic, transformation branch-level collective bargaining has never become as stable in east Germany as in the west. In the meantime, in some sectors branch-level collective bargaining has been widely eroded, which in return has a significant influence on the developments in the west; and
  • the growing influence of "neo-liberal" ideologies puts both collective bargaining parties in a defensive position and undermines the political acceptance of branch-level collective agreements.

As a consequence of these developments, it has become widely accepted among the collective bargaining parties that German collective bargaining needs some major reforms, in order to make the system more flexible and allow more differentiated solutions in accordance with the specific needs of individual companies. However, so far only a minority of employers have sought a radical shift in collective bargaining to the company level. To the contrary, trade unions, employers' associations and even the majority of individual employers still want to continue with the principle of branch-level bargaining, but to limit its scope and allow more space for (additional) company bargaining at the same time.

The use of opening clauses in agreements

Most of the social partner organisations prefer a means of modernising branch-level collective bargaining which follows the path of "regulated decentralisation". The use of "opening clauses" (Öffnungsklauseln) and other provisions for differentiation in branch-level collective agreements has become the most prominent such instrument. According to a recent study by the Institute for Economics and Social Science (Wirtschafts- und Sozialwissenschaftliches Institut, WSI), which covers 40 main collective bargaining areas in Germany, a constantly growing number of opening clauses have been concluded in recent years ("Deregulierung, Differenzierung und Dezentralisierung des Flächentarifvertrages. Eine Bestandsaufnahme neuer Entwicklungstendenzen in der Tarifpolitik", Reinhard Bispinck, in: WSI-Mitteilungen No. 8 (1997)).

Usually, opening clauses are concluded at branch level between trade unions and employers' associations. In principle they allow companies, under certain conditions and to a certain extent, to modify or to diverge from collectively agreed standards. In that event, the collective bargaining parties at company level - the management and the works council and/or local trade unions - have to conclude a separate agreement. Taking into account the relations between the bargaining parties at branch and at company level, there exist two different types of opening clauses:

  1. the company bargaining parties sign a company or works agreement which is automatically a substitute for the branch-level agreement; or
  2. the company bargaining parties work out a company arrangement but the collective agreement parties at branch level have to give their support before the new company arrangement can actually replace the branch-level agreement.

The question as to whether the final decision to use an opening clause should lie with the collective bargaining parties at company level or at branch level is heavily disputed among the social partners. While most employers' associations tend towards leaving the final decision to the company level, the trade unions want to keep a veto right with the collective bargaining parties at branch level.

Regarding the scope and content of opening clauses, views differ considerably not only between the social partners, but also among the various sectoral trade unions and employers' associations. As a result, there exist various different types of opening clauses, covering all kind of bargaining issues. Three broad categories can be distinguished:

  1. opening clauses on wages and salaries and other payments;
  2. opening clauses on working time; and
  3. opening clauses for particular groups of employees or companies

The table at the end of this article provides a selection of different types of opening clauses found in current sectoral agreements.

Opening clauses on pay

Opening clauses on wages and salaries are probably the most controversial because they affect the core of branch-level collective bargaining. However, for a long time it has been common practice that, in the event of a possible bankruptcy, the social partners could decide to diverge from the collectively agreed payments. In the latest collective agreements for the west German metalworking industry there is a kind of "general clause" which expressly allows the bargaining parties to conclude diverging standards in order to avoid an insolvency.

As early as 1993, the collective bargaining parties in the east German metalworking industry introduced a "hardship clause" (Härtefallklausel) which allows companies with immense economic problems to pay their employees, for a limited period of time, wages and salaries below the minimum wage set by the collective agreement (DE9703205F). The decision to make use of hardship clauses lies with the social partners and must be integrated with a comprehensive reorganisation strategy by the company. During the term of a hardship agreement, employers have to renounce making redundancies.

The introduction of a new opening clause in the national pay framework agreement of the west German chemicals industry in June 1997 (DE9706216F) goes one step further. For the first time, a general opening clause on wages has been agreed which is not strictly linked with a possible bankruptcy of the company but can also be used to avoid redundancies or to improve competitiveness. Under the new opening clause, companies are able to reduce the collectively agreed wage by up to 10% within a limited period of time. In the meantime, the chemicals deal has already found its first imitator in the east German construction industry, where a similar opening clause was concluded in July 1997 (DE9707126N).

Opening clauses on working time

Opening clauses on working time are widespread and already have a long history. When in 1984 the IG Metall metalworkers' union achieved a break-through in reduction of working time towards the aim of a 35-hour week, it had, at the same time, to accept employers' demands for more flexible working hours. Therefore, IG Metall agreed to introduce an opening clause which allows the companies to extend working time up to 40 hours per week for a maximum of 18% of the company's workforce.

An increasingly common instrument in working time flexibilisation is the introduction of a "working time corridor", as has been agreed in chemicals or the textile and clothing industry. On the basis of collectively agreed working time, an opening clause allows the companies to extend or reduce its working time within certain limits.

Finally, many collective agreements (for example in banking, printing and metalworking) contain an opening clause for a limited working time reduction without wage compensation. These opening clauses are always linked to the aim of safeguarding jobs. As a result, for example, a banking company is able to reduce, for a limited period of time, its weekly working time from 39 to 31 hours without wage compensation, and in return has to renounce redundancies during the period when the opening clause is in use.

Opening clause for particular groups of employees or companies

While most opening clauses are valid for all companies and employees covered by branch-level collective agreements, there are also opening clauses which are limited to particular groups. Two types of group-related opening clauses can be distinguished:

  1. opening clauses which affect only certain groups of companies - for example, collective agreements in the east German retail trade contain opening clauses which allow only small companies with up to 15 employees to pay below the collectively agreed rate; and
  2. opening clauses which affect only certain groups of employees - for example, the collective agreements in the west German chemicals and paper industries contain a provision which allows company to pay newly-hired employees, who have been long-term unemployed, only 90% of the collectively agreed rate.

Commentary

In recent years, more and more opening clauses have been introduced into German branch-level collective agreements which shift bargaining competence to the company level and lead to a further decentralisation and differentiation of collective bargaining. This can mainly be seen as a reaction of the social partners to the growing dissatisfaction with the German bargaining system by employers which demand more company specific regulations on working conditions. As a result, Germany's collective bargaining system is much more flexible than its actual reputation.

However, the consequences for the employees are rather ambiguous. On the one hand, a divergence from collectively agreed standards sometimes goes along with limited job guarantees, at least for the core workforce. On the other hand, there is a clear danger that opening clauses just mark a first step towards a permanent worsening of working conditions. With the shift of bargaining competence to the company level, works councils are going to lose the stable background of branch-level collective agreements and are more at the mercy of employers which apply pressure to achieve agreements on further social concessions.

While German employers' associations usually welcome the widespread introduction of opening clauses, for the trade unions this leads to a strategic dilemma: on the one hand they hope to stabilise the branch-level collective bargaining system through a "regulated decentralisation"; however, if the process of further flexibilisation goes on, this could finally lead to a step-by-step erosion of branch-level collective bargaining. Therefore opening clauses as such are not a magic tool to meet the fundamental challenges to German collective bargaining. (Thorsten Schulten, Institute for Economics and Social Science (WSI))

Table. Selection of different types of opening clauses in German collective agreements
Topic of opening clause Collective agreement (region) Content of opening clause
General opening clause allowing departure from collectively agreed standards Metal industry (Lower Saxony etc.) Joint declaration of the parties points out that in very hard cases (eg a possible bankruptcy) differing standards could be concluded for a specific company.
Reduction of collectively agreed basic payments Chemicals industry (west) and Construction (east) Up to 10% reduction of collectively agreed payments in order to save jobs and/or improve competitiveness.
Suspension of wage increases Plastics (Hessen) Depending on the economic performance a reduction or limited postponement of the agreed flat-rate payment of DEM 250.
. Metalworking industry (east) In the case of hardship (eg a possible bankruptcy) a limited departure from the collective agreement on basic payments, annual bonuses and working time reduction.
. Textiles and clothing (west) Limited postponement of the 1997 agreed wage increase of 1.5%
Annual bonuses (holiday and Christmas bonuses) Chemicals industry (west) Exceptional regulations for the amount and date of annual bonuses in the event of economic difficulties.
. Printing (west) A postponement of annual bonuses is possible; companies with less than 35 employees can cut their annual bonuses from 95% to 60% of a monthly income once in four years.
. Wood processing (Mecklenburg-Vorpommern) Reduction of annual bonuses in the event of bad economic performance.
. Textiles and clothing Limited postponement of annual bonuses.
Extension of working time Metalworking industry Working time can be extended up to 40 hours per week for a maximum of 18% of the company's workforce.
. Cigarettes industry (west) Working time extensions from 37 to 37.5 hours per week.
Working time corridor Chemical industry (west) Working time corridor of /- 2.5 hours on the base of 37.5 hours weekly working time.
. Textiles and clothing (west) and Umbrella industry (west) Extension or reduction of yearly working time by a maximum of 6.75% (130 hours) in exchange for job security.
Limited working time reduction without wage compensation in exchange for job guarantees Banking Reduction of weekly working time from 39 to 31 hours.
. Printing (west) and Iron and steel (west) Reduction of weekly working time from 35 to a minimum of 30 hours.
. Wood processing (Saxony) Reduction of weekly working time from 38 to 35 hours.
. Metalworking industry (west) Reduction of weekly working time from 35 to 30/29 hours (with regional differences).
Different standards according to the size of the company Breweries (Hessen) A three-month postponement of the recently agreed wage increase in medium-sized companies.
. Printing (east) A 20-month postponement of the adaptation of west German wage levels in companies with less than 50 employees.
. Retail trade (east) Companies with up to 5 employees can pay 8% below the collectively agreed rate, companies with up to 15 employees can pay 6% below the collectively agreed rate.
. Wholesale trade (Brandenburg) Small companies can pay below the collectively agreed rate.
Lower wages for particular groups of employees Chemicals industry (west) and Paper industry (west) 90% of the collectively agreed wage for newly-hired employees who have been long-term unemployed; 95% for newly hired employees obtaining their first job.
Reduction of payments for vocational trainees Construction Reduction of up to 10% of the collectively agreed rate.
. Tourist offices Reduction of up to 15% of the collectively agreed rate.

Source: WSI Collective Agreement Archive 1997

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