JILPT Research Report No.177
Systems of Industrial Relations at Company and Workplace Level in Germany:
With focus on the establishment of norms by works agreements and company-based collective agreements

 

May 28, 2015

Summary

Research Objective

This Research aims to examine the reality of systems of industrial relations at company and workplace level in Germany as well as the mechanism of collectively establishing working conditions (establishment of norms) based on the systems, and to clarify the facts of “decentralization”, whereby the authority to fix working conditions devolves from industry level to company and workplace level in that country.

Research Method

Literature review, Local interview survey

Major Findings

I. Current system of industrial relations at workplace in Germany

Firstly, Chapter 1 of this report overviews the content of regulation under the Works Constitution Act (Betriebsverfassungsgesetz), which supports workplace-based industrial relations in Germany. Then, we study the actual situation of the “works councils” (Betriebsräte) that handle these industrial relations in terms of their organizational management, decisions on internal working conditions, and the use of opening clauses specified in industry -based collective bargaining agreements, approaching two case of works council that are “establishment A of company C” and “establishment B of company D” in the metal and electronics industry, where the authors conducted interview surveys in July and September 2013.

  1. Works councils’ authority to fix working conditions based on the Works Constitution Act

    This Research found that, under Germany’s dual system of industrial relations, the Works Constitution Act also grants co-determination rights to works councils, bodies representing employees based on a democratic election process within individual workplace. This enables the councils to establish norms concerning labor relations (i.e. make collective decisions on working conditions). In terms of regulation on “Social Matters” such as the order inside the workplace and the distribution of working hours (Works Constitution Act, Article 87 (1)), in particular, works councils are given co-determination rights in the form of consent rights, and are placed on exactly the same rights footing as employers. Employers are not allowed to make unilateral decisions on such matters. On this basis, a works agreement is concluded when an employer and a works council have reached a consensus on matters subject to co-determination, and this works agreement is then applied with normative effect to all workers belonging to the establishment in question.

  2. Relationship with labor unions

    Of course, labor unions are constitutionally positioned at the center of worker representation in Germany (Article 9 (3) of the Basic Law (Grundgesetz)). As such, labor unions also take priority over works councils in the Works Constitution Act. The purpose of this arrangement is to prevent works councils from eroding the powers of labor unions (particularly industrial unions) in fixing working conditions laterally across enterprises. This is most plainly evident in the “principle of priority of collective agreements (Tarifvorrangsprinzip)” provided in Article 77 (3) clause 1 of the Works Constitution Act. According to this principle, working conditions already fixed or normally fixed by a collective agreement, cannot be subject to a works agreement in Germany. It is only possible for a works agreement, at the workplace level, to fix flexible working conditions differing from those in collective agreements when opening clauses (Öffnungsklauseln) are established in industry-based collective agreements and when these are accepted. Besides this, the Works Constitution Act also recognizes the authority of works councils in providing various support or supervision for the activities of labor unions.

  3. Works councils functioning as corporate branches of industrial unions

    As can be seen from the above, German law makes a very strict distinction between the character of labor unions, as collective bodies based on the voluntary membership of workers, and that of works councils, which forcibly represent all workers in a given workplace based on a democratic internal election process. Of course, the very cooperative relationship between the two under Germany’s traditional dual industrial relations has long been known in Japan. That is to say, the majority of members of works councils are also traditionally members of industrial unions. In comparatively large-scale establishments, moreover, there are shop stewards of industrial unions (Vertrauensleute), and they fulfil the role of relaying works council decisions to workers in each workplace, and at the same time gathering opinions at the workplace and conveying them to the works council. In reality, therefore, works councils could be said to have traditionally functioned as corporate branches of industrial unions.

  4. Situation of works councils and internal regulation of working conditions –– From the interview survey

    In the authors’ interview surveys at establishment A of company C and establishment B of company D, we found that this basic structure of Germany’s dual industrial relations was still being maintained. Specifically, in these works, the unionization rate is relatively high, while the majority of members of works councils are union members, and below them, many shop stewards belonging to industrial unions support the works council. Thus, an extremely close-knit relationship between industrial unions and the works councils was evident.

    Turning next to the situation of internal decisions on working conditions in the two establishments visited, both relied on regulation by industry agreements with regard to substantial working conditions such as wage amounts and prescribed weekly working hours, according to their respective work rules that govern basic working conditions as a whole. Conversely, on internal order and other social matters subject to co-determination rights, detailed norms had been established in those work rules. Thus, their respective roles were clearly divided between matters to be regulated by collective agreements and those to be regulated by works agreements, based on the work rules in the two establishments surveyed.

  5. Situation of fixing flexible working conditions –– From the interview survey

    One of the objectives of this Research was to verify whether or not the parties engaged in industrial relations at workplace level in Germany make use of the aforementioned opening clauses in industry agreements, particularly in connection with wages and working hours, a crucial aspect of collective agreement policy; and if they do, how they fix flexible working conditions based on these. According to interviews with the members of works councils of the aforementioned two establishments on this point, they both replied that they “Do not use” opening clauses. Of course, it is not that flexible working conditions are not fixed at all at company and workplace level; rather, in both of the workplaces surveyed, the regulation of working hours (in particular, extensions of prescribed weekly working hours) differed from that specified in industry agreements.

    However, this was not because they used opening clauses, but because “supplementary collective agreements (Ergänzungstarifverträge)” (which allow regulation on working hours in industry agreements to be changed), with application limited to companies C and D, had been concluded by industrial unions and employers’ associations, the parties to industrial relations at industry-level. Using this method to fix flexible working conditions is construed as allowing for greater control from industry level than when works councils and employers use opening clauses to do so, in that industrial unions and employers’ associations themselves are parties to the agreement.

    Meanwhile, though not used by the two establishments in this survey, the collective agreement in the Baden-Würtemberg metal and electronics industry, which also applies to both establishments, includes provisions permitting flexible regulation even of actual wage amounts at workplace level. Nevertheless, the aforementioned supplementary collective agreements are supposed to be used here also as a tool for deviating from this, and thus works councils and employers alone are not able to deviate from regulations in industry agreements.

    Seen in this light, there is certainly a phenomenon in Germany whereby flexible working conditions in relation to wages and working hours are fixed at company and workplace level, rather than depending only on provisions in industry agreements. In reality, however, there are thought to be difficult circumstances for basing this only on judgments by the parties at workplace level, at least, as completely separate from industrial unions and employers’ associations. Particularly in cases where the above-mentioned supplementary collective agreements are used, as long as the regulatory authority itself still continues to be held by the parties at industrial level, “decentralization (Dezentralisierung)” is not necessarily the most appropriate term to describe the phenomenon of fixing labor working conditions more flexibly in this form in Germany. Rather, a more accurate description of the situation might be to call it “individualization of fixing labor working conditions for each company or workplace” by the parties to collective bargaining at industry level.

II. Legal theory and actual situations concerning company level collective agreements in Germany

Next, in Chapter 2, German company collective agreements were studied from the angles of both legal theory and actual situations.

  1. Legal theory on company-based collective agreements

    Firstly, in terms of legal theory, according to the prevailing view and the position offered by judicial precedent, individual employers in Germany are deemed able to conclude company agreements with labor unions (known as “Tariffähigkeit” or collective bargaining ability). This is regardless of whether they have “social power” (soziale Mächtigkeit), whether they belong to employers’ associations, or whether there are clauses prohibiting individual company agreements in the agreements of employers’ associations they are affiliated to. The labor unions, meanwhile, can engage in labor dispute action seeking company agreements, even with individual employers affiliated to an employers’ association, as long as it does not infringe upon the obligation of relative harmony arising from the industry agreement concluded with the employers’ association. Of course, it goes without saying that this can also be done if an individual employer does not belong to an employers’ association. As a result, we may conclude that there is no particular restriction under German law when labor unions conclude company agreements with individual employers.

  2. Company-based collective agreements as a tool for decentralization? –– From the interview survey

    Turning to the actual situation, the first point is that agreements concluded at individual companies have traditionally been used by several major German corporations, such as Volkswagen. Of course, the phenomenon of decentralization cannot be found there, in the sense of compromising the ability of industry agreements to fix labor conditions laterally across companies, since better working conditions are normally fixed there than in industry agreements.

    On the other hand, since 1990 there have been increasing examples of medium-scale German companies with around 200-499 employees, which belong to no employers’ associations or have withdrawn from employers’ associations, concluding individual company agreements with industrial unions. This is certainly a change that was not previously seen in the German system of collective industrial relations. Nevertheless, at least according to the authors’ interview survey, individual company agreements concluded by these are in reality nearly all “recognition agreements” (Anerkennungstarifverträge). As such, they do not function as tools for fixing labor working conditions in a form significantly departed from the content specified in industry agreements. Therefore, it should be noted that this form of decentralization could only be expressed as “controlled decentralization (kontrollierte Dezentralisierung)” by industrial unions, even if it appears to show that the phenomenon of decentralization of the authority to fix working conditions using individual company agreements is more advanced in Germany today than it used to be.

    Seen in this way, it would appear appropriate, at the present time at least, to respond negatively to the question of whether the authority to fix working conditions, retained until now by parties engaged in labor relations at industry level in Germany, could be undermined by company level agreements in future.

III. Law policy trends concerning industrial relations in Germany

In Chapter 3, finally, individual law policies concerning Germany’s industrial relations were studied. These policies are currently being promoted under the third Merkel administration, based on a coalition agreement concluded between the Christian Democratic Union/Christian Social Union (CDU/CSU) and the Social Democratic Party (SPD) in November 2013.

  1. Enforcement of the statutory minimum wage system

    The first such law policy to be highlighted is the Minimum Wage Act (Mindestlohngesetz) that came into effect on January 1st, 2015, based on the Act on Strengthening Collective Bargaining Autonomy (Gesetz zur Stärkung der Tarifautonomie) of August 11th, 2014. The Minimum Wage Act provides for the first statutory minimum wage system to be applied uniformly in Germany. Under its provisions, from January 1st, 2015 onwards, all employers that employ workers in Germany must pay a wage no lower than the statutory minimum wage amount (until December 31, 2016, this will be 8.50 euros per hour). In the era when industry agreements broadly covered workers based on the system of dual industrial relations, this kind of statutory minimum wage system used to be regarded as unnecessary in Germany. However, in response to a decreased organization rate of industrial unions and employers’ associations since 1990, an increase in companies opting for “membership without collective bargaining ties” (in German, ohne Tarifbindung, or OT membership)”, and other factors, the application rate of industry agreements has fallen significantly, and the stratum of people working for low wages has grown. This is the background to the enactment of this Minimum Wage Act.

  2. Amendment of the universal applicability system

    Similarly, the Act on Strengthening Collective Bargaining Autonomy (August 11th, 2014) also introduced an amendment to Article 5 of the Collective Agreement Act, which provides for a system of universal applicability (the Declaration of General Applicability). The amendment led to greater deregulation of substantive conditions than before. Specifically, the previous standard requirement of 50% was abolished and changed to a broader requirement, namely “if deemed to be necessary in the public interest”. As is well known, the system of universal applicability had been functioning properly until then, and this was one reason why German industry level bargaining agreements had maintained a high rate of application. However, along with a decline in the organization rate of employers’ associations and an increase in OT member companies, as seen above, the amendment reflected an increase in situations in which the previous standard requirement of 50% could not be reached.

  3. Legislation on the principle of collective agreement unity

    In December 2014, moreover, the German Cabinet approved a draft law on the principle of “collective agreement unity” (Tarifeinheit), which until then had been based on case law. The purpose of the legislation is to ensure that, when more than one agreement has been concluded by more than one labor union in a single workplace (the phenomenon known as “Tarifkollision” or collision of collective agreements), only the agreement that applies to the majority of workers in those workplaces will apply, and the application of other agreements will be excluded.

    In Germany until now, the number of labor unions with jurisdiction over a single industry has been limited to one, based on the principle of industrial organization (Industrieverbandsprinzip) espoused by the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), the national center for labor unions. Conflict between labor unions was thus avoided. But since 2000, pilots, engineers, doctors and other workers in specialist professions have been forming occupational unions (Spartengewerkschaften) and developing their own collective agreement policies. Such moves could give rise to the aforementioned phenomenon of collision of collective agreements. Since 2010, moreover, the Federal Labour Court of Germany has permitted multiple agreements to coexist in a single workplace, causing industrial labor and management organizations to demand that the principle of collective agreement unity be enshrined in law. This demand came closer to reality when it was explicitly stated in the coalition agreement. At the same time, legislation on this principle of collective agreement unity is also expected to have a wave effect on the legality of industrial action taken by occupational unions.

  4. Two directions taken by German legal policy on collective industrial relations

    Thus, of these law policies, the amendment of the Declaration of General Applicability and legislation on the principle of collective agreement unity take the direction of state “support” for the traditional German system of collective agreement. On the other hand, the introduction of the statutory minimum wage system also takes the direction of “intervention” by the state (though nominally undertaken to strengthen the collective bargaining autonomy). It would therefore be fair to say that a theoretical reordering of the relationship between the guarantee of collective bargaining autonomy (Article 9 (3) of the Basic Law) and the statutory minimum wage system will be required in Germany in future.

IV. Conclusion

To summarize the above, in line with the objective of this Research, the outcome of the authors’ interview survey suggests that, in the contemporary Germany system of collective industrial relations as a whole, the phenomenon of greater flexibility in fixing working conditions will either remain within the scope of “individualization at company and workplace”, or even if taken as resulting from “decentralization”, will always be under the control of industrial unions. As such, this does not seem to be perceived as a particularly serious problem in terms of the authority to fix working conditions at individual industry level. On the other hand, however, the stratum of workers who are outside the scope of protection by collective agreements and workplace level agreements in the first place is increasing year by year in Germany. If anything, both the labor-management organizations and the Researchers interviewed by the authors saw this problem as the more serious theme. Consequently, the current situation of German collective industrial relations (legislation) under the current third Merkel administration is that the state has taken over part of the function of setting minimum working conditions, which used to be handled by collective agreements, while also embarking on active support for the collective agreement system as a whole.

Policy Contribution

The published results are due to be used in various government meetings as data of the Ministry of Health, Labour and Welfare.

Main Text (only available in Japanese)

Research Categories

Project Research: “Research on Mechanism for Establishing Terms and Conditions of Employment, Centering on Labor Management Relations”
Subtheme: “Research project on directions for collective labor relations in connection with the establishment of norms”

Research Period

FY2014

Author

Yota YAMAMOTO
Researcher, The Japan Institute for Labour Policy and Training
Yoshiaki SAKAKIBARA
Associate Professor, Nagoya University of Economics

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