Germany: Court ruling could promote bargaining fragmentation

A ruling issued by Germany's Federal Labour Court in June 2010 overturned the long-standing principle that only one collective agreement can apply in any single workplace. Employers' associations and trade unions are alarmed by the judgment, and have jointly proposed legislation to the Government to re-establish the principle.

On this page:
Legal status of unions
Bargaining structure
"One plant - one agreement"
Ruling overturns unity principle
"Unravelling of the bargaining system"
Joint proposal for new law.

Legal status of unions

The German Basic Law (or constitution) provides, in art.9 on freedom of association, that: "The right to form associations to safeguard and improve working and economic conditions shall be guaranteed to every individual and to every occupation or profession." Only legitimate trade unions are entitled to sign collective agreements and to receive legal protection in the event of industrial action. Determining what constitutes a legitimate trade union is a matter for the courts, which have established criteria against which organisations are judged. The key benchmarks are that an organisation must:

• seek to conclude collective agreements;
• not impose or require membership;
• be independent of the employer side; and
• have sufficient organisational strength to engage in meaningful bargaining with the option, in principle, of undertaking industrial action.

The main central union organisation is the Confederation of German Trade Unions (Deutscher Gewerkschaftsbund, DGB), which has eight affiliated sectoral unions (with a total membership of around 6.3 million). However, a number of trade union organisations exist outside DGB, and many of these have achieved recognition as legitimate unions, alongside DGB's affiliates. A long-standing rival is the Christian Trade Union Confederation (Christlicher Gewerkschaftsbund Deutschlands, CGB), which has affiliates in a range of sectors but is much smaller than DGB (with 280,000 members).

There are also independent occupational unions representing specific groups such as doctors, pilots, cabin crew and train drivers, and their number has increased in recent years. The merger of a number of trade unions in 2001 to form the DGB-affiliated ver.di services union, in particular, prompted discontent on the part of some occupational groups, which felt that their interests had become submerged. New unions have also sprung up in sectors such as postal services, although in some cases these have been found to be funded by employers.

Bargaining structure

The traditional post-war structure of German collective bargaining has been for industry-level agreements signed by DGB affiliates to predominate, with the majority of employees covered by such agreements and company or occupational accords rare. However, this system has been eroding, with the coverage of sectoral agreements falling. According to research from the Institute for Employment Research (Institut für Arbeitsmarktforschung, IAB), 56% of employees in western Germany and 38% in eastern Germany were covered by industry-level agreements in 2009. These figures compare with 70% and 56% respectively in 1996. The proportion of employees covered by company-level agreements changed relatively little over the same period, standing at 9% in the west and 13% in the east in 2009.

The system has also come under pressure from changes in the behaviour of non-DGB unions. In some cases they used to work cooperatively with the major industry union in their sector and negotiated common collective agreements through single-table bargaining. These arrangements have become strained as the DGB unions have been pushed by wider industrial and political concerns into wage moderation. In three notable cases, pilots, doctors and train drivers, this has led to breakaways from existing company/industry agreements, with demands for separate occupational agreements backed by industrial action.

"One plant - one agreement"

The increased scope for trade union "pluralism" (ie, multiple unions with members in the same workplace) has raised the issue - which has been awaiting legal resolution for some time - of the status of collective agreements, in cases where more than one agreement has been concluded as a result of a number of unions organising at a workplace.

Under the Collective Agreements Act (Tarifvertragsgesetz), a collective agreement is directly applicable to the signatory employer or members of a signatory employers' organisation, and to members of the trade union that concluded the agreement. Where a workplace could, in principle, be covered by more than one agreement, and in theory separate agreements could apply to different employees doing the same job, the courts have upheld the principle of "collective bargaining unity" (Tarifeinheit), or "one plant - one agreement", by requiring that only one agreement may apply to an employment relationship. This should be the agreement that is "most proximate" (speziellere) in terms of scope (for example, geographical or occupational) to the employment relationship in question.

The proximity principle has allowed company-level agreements to take precedence over industry-level agreements, with the danger for the major DGB-affiliated industrial unions of being "undercut" by a poorer agreement at workplace level negotiated by a rival - and possibly more "employer-friendly" - trade union. In some recent instances, collective bargaining unity has been challenged by occupational trade unions, which have sought separate agreements and have successfully argued before the courts that these efforts and associated strikes were lawful on the grounds that a new collective agreement was being pursued.

Overall, however, there have been only limited deviations from collective bargaining unity at industry level, as establishing independent occupational trade unions is a complex process fraught with costs and the risks of political isolation. The contradiction between the theoretically high degree of scope for trade union pluralism, based on the constitutional right of association and the Collective Agreements Act, and the contrary enforcement of collective bargaining unity, has been largely held in check.

Ruling overturns unity principle

The courts' long-standing position of upholding collective bargaining unity has now been overturned by a ruling (10 AS 2/10, 10 AS 3/10) issued on 23 June 2010 by the Tenth Senate (equivalent to a bench) of the Federal Labour Court (Bundesarbeitsgericht). In making its ruling, the Tenth Senate, which is ultimately responsible for decisions on the status of collective bargaining parties, has followed a ruling made by the Fourth Senate in January 2010. This earlier ruling indicated a proposed departure from previous case law on the issue. The agreement of the Tenth Senate was needed, because its previous rulings had upheld the principle of collective bargaining unity.

The new rulings uphold the status of collective agreements concluded, after strike action, by occupational unions representing pilots, doctors and train drivers. The grounds are that the principle of the right of association and the requirements of the Collective Agreements Act take precedence over the hierarchy of agreements that underpins the notion of "one plant - one agreement", which was "invented" by courts in the past to simplify bargaining arrangements. In a statement, the Federal Labour Court noted: "There is no overriding principle that only one set of collective agreed provisions should apply to different employment relationships of the same type at a workplace." As such, the court has now reinforced the statutory principle enshrined in the Collective Agreements Act.

In the case in question, two doctors, who are members of the medical trade union the Marburg Federation (Marburger Bund), complained to the courts that their employer had insisted on applying the provisions of a collective agreement negotiated with ver.di, covering the wider public sector. This agreement had not been signed by the Marburg Federation, following the breakdown of its single-table arrangement with ver.di in 2005. The doctors asked for the payment of holiday supplements to which they were entitled under an older agreement jointly signed by ver.di and the Marburg Federation, but which had been eliminated by the newer ver.di agreement.

The doctors' argument was that this preceding agreement continued in force in their case. This was upheld by the court on the grounds that the continuing application of the old agreement is a strict requirement of the Collective Agreements Act, which states that agreements apply directly and with binding force to the members of the signatory parties, and that to displace a freely concluded agreement would not be compatible with freedom of association.

"Unravelling of the bargaining system"

The ruling could have profound consequences for the stability of collective bargaining arrangements in Germany. By abandoning its long-standing principle of "one plant - one agreement", the Federal Labour Court has opened the door to the possibility of multiple collective agreements at a workplace. The ruling also raises a number of issues on the applicability of collective agreements, the right of association, and the continued application of collective agreements after they have nominally expired (often dubbed "evergreen" provisions).

The ruling has been criticised by a number of employers' associations. Gesamtmetall, which represents employers in the metalworking sector, stated that "if competing trade unions can lawfully endanger industrial peace" then "one of the central benefits of industry-level agreements will have been lost". The national employers' body, the Confederation of German Employers' Associations (Bundesvereinigung der Deutschen Arbeitgeberverbände, BDA), called on the Government to legislate in order to prevent an "unravelling of the collective bargaining system". The DGB has criticised the ruling as threatening a "new crisis on the collective bargaining front". Its general secretary, Michael Sommer, stated: "We fear that this decision could lead to a fragmentation of collective bargaining with negative consequences for employees and companies."

By contrast, smaller trade unions have welcomed the decision. The Marburg Federation said the ruling is "a success for employees, who can no longer be denied the right to choose which trade union concludes a valid agreement for them". The pilots' union, Vereinigung Cockpit, indicated that it would challenge in the Federal Constitutional Court any attempt to legislate to offset the ruling.

Joint proposal for new law

In a display of unity, the DGB and BDA have proposed legislation to re-establish collective bargaining unity. The proposal, jointly submitted to the Government, argues that where there are multiple collective agreements concluded by different trade unions, the agreement that should apply should be that concluded by the trade union with the most members within the scope of the agreement.

Under the proposal, the legal obligation on trade unions not to reopen negotiations or take industrial action during the lifetime of an agreement would apply both to the union that signed the valid agreement and any other trade unions. This would prevent an occupational union seeking to break away from an existing pay agreement to negotiate an improved one for a group with particular industrial strength. Such a law would not prevent multiple trade unions at a workplace negotiating separate agreements for individual groups of workers, provided there is no "collision" - that is, overlap - between the two agreements.

Chancellor Angela Merkel has indicated that she would be sympathetic to proposals to sustain collective bargaining unity, and senior members of the coalition Government of the conservative Christian Democrats/Christian Social Union (CDU/CSU) and the liberal Free Democrats (FDP) have advocated "rapid action" to respond to the ruling.

This article was written by Pete Burgess, correspondent for Germany.