Germany: Metalworking settlement focuses on jobs

The two sides in the German metalworking industry concluded a long-term deal in February 2010 to minimise the risk of redundancy for the sector's 3.4 million workers until June 2012. In return, the IG Metall trade union has made concessions on pay. 

On this page:
Metalworking during the downturn
Short-time work
Agreement reached
Pay provisions
Employment preservation
Trainees
Future of statutory short-time scheme
"Successful joint crisis management".

Metalworking during the downturn

Germany's highly export-oriented manufacturing sector has gained from globalisation but has also proved fragile in the face of the downturn in world trade. The metalworking industries, with their focus on automotive and machinery exports, have been particularly hard hit, with a drop of 30% in output during the current recession. However, employment in the sector has fallen by only around 5%, due to a combination of the following factors:

• The main trade union in the sector, IG Metall, has been willing to negotiate scope for company-level deviation from the terms of industry-level collective agreements to sustain job creation and preservation for firms in difficulty (notably through the "Pforzheim accord" of 2004). In addition, when faced with the collapse in output in 2008-09, IG Metall has concluded agreements aimed at sustaining employment directly at regional level. Over the years, in order to retain core employment, unions and employers have also created a range of instruments, such as individual working time accounts, that create a buffer when output falls.
• The reliance on high skill levels to produce quality-based exports that are not price sensitive has made firms reluctant to cut skilled staff when faced with the need to cut output. Many large firms, such as BMW, Bosch, Daimler-Benz and Schaeffler, have concluded agreements during the recession offering job security for varying periods. Since a previous downturn in the early 2000s, firms have also taken advantage of greater scope for using fixed-term and temporary agency contracts, and these have borne the brunt of short-term downsizing in the current recession. Some 200,000 temporary agency staff lost their jobs between 2008 and 2009.
• The employment situation has been eased by the existence of a statutory system for supporting employees put on short-time working: just over a million workers are currently on short time, compared with unemployment of 3.6 million in January 2010. At present, an estimated 220,000 jobs are estimated to be maintained by short-time work in the engineering industry. The statutory scheme has been extended in scope and flexibility a number of times over the course of the recession, offering both a foundation on which negotiated solutions have built and the precondition for their continued operation.

Short-time work

Statutory short-time working (Kurzarbeit) enables employees to be moved to a shorter working week if the employer is unable to offer full-time work owing to economic difficulties. Under the scheme, and provided that the employer obtains works council or employee consent, working hours can be cut, with those employees faced with a loss of 10% or more of their monthly pay compensated by payment of a state benefit from the Federal Labour Agency. Under a 2009 relaxation of the scheme, this was made payable for up to 24 months for claims made in 2009, falling to 18 months for claims made in 2010. The benefit amounts to 60% (67% for employees with children) of the difference between the employees' normal pay and the reduced short-time wage. Under some collective agreements, employers must top up pay to a higher proportion of usual earnings.

Before the recession, employers had to pay full social security contributions (both employers' and employees' contributions) in respect of employees' hours not worked owing to short-time work. In January 2009, they were exempted from half of these contributions, and the exemption was made total in some circumstances by further amendments to the scheme implemented in July 2009.

One in three employees in the metalworking industry has reportedly experienced periods of short-time work during the downturn. Although the scheme saves employers redundancy and potential rehiring costs, as well as preserving skills, companies have still had to bear substantial residual labour costs of between 24% and 35% of usual labour costs, typically caused by annual extra payments provided for in collective agreements. According to the Federation of Metal Trades Employers (Gesamtmetall), unit labour costs rose by 29.5% in the year to the second quarter of 2009.

Agreement reached

The current metalworking collective agreement, signed in November 2008, does not expire until the end of April 2010, but extensive informal soundings over a new accord began in autumn 2009. Both sides were eager to address the issue of jobs, while employers sought a clear perspective on costs for the early stages of the expected recovery, a situation which encouraged the negotiation of a new agreement well before the old one expired.

Negotiations were held against a background of fears that economic recovery will be too weak to make a serious dent in unemployment before entitlement to state short-time benefit expires for a large number of workers. Existing industry-level agreements on job security in metalworking, which have been in operation for some time, allow only a limited cut in working hours, and this, it was feared, would not be sufficient to enable substantive "work-sharing" to be carried out.

A "pilot" package of agreements, including a 23-month pay settlement and an accord on job security, was concluded on 18 February 2010 in North-Rhine Westphalia (bargaining in German metalworking is conducted at regional level). Both sides recommended adoption in all bargaining regions and talks on implementation began immediately in other regions. Regional agreements on employment aspects might differ slightly, depending on local circumstances and pre-existing arrangements. For example, an agreement on "short time, training and employment" was concluded in Baden-Württemburg just before the North-Rhine Westphalia deal, reflecting some of the special circumstances in that area.

Pay provisions

Under the deal, basic agreed pay rates will be frozen until 2011. In place of a consolidated increase, employees will receive a one-off payment of €320 to cover the period from May 2010 until March 2011. The payment will be made in two stages: the first €160 in May 2010 and the second €160 in December 2010.

The lump-sum payment is broadly intended to offset expected inflation over the 11-month period: retail prices are currently forecast to rise by 0.6% in 2010 and 0.8% in 2011.The percentage impact of the lump sums will depend on the employee's pay grade, and on any sums they are regularly paid in excess of the agreed industry-wide minimum. For example, the €320 payment would be equivalent to 1.25% of a skilled worker's total agreed pay over the 11-month period, including the annual "13th month" payment. However, many employees, especially in larger firms, are in higher grades and also receive additional plant-level payments. The impact on real incomes can, therefore, be expected to be lower than a 1.25% increase.

After the 11 months covered solely by the lump-sum payment, pay rates will be increased by 2.7% to cover the period from April 2011 until March 2012. It will be possible for the start-date for this increase in pay scales to be delayed or brought forward by two months, on the basis of plant-level agreement between management and works councils. The pay agreement expires on 31 March 2012.

Trainees will receive a one-off payment of €160 for the May 2010-March 2011 period, with their pay rates then rising by 2.7%, as for other employees.

Employment preservation

The package includes a new legally binding collective agreement, dubbed "Future in work" (Zukunft in Arbeit), which creates a range of voluntary options intended to maintain employment. The agreement, which takes effect after a firm has been using short-time work for at least 12 months, as from 1 November 2008, has two phases.

In "phase one", and as long as employees are still on statutory short-time working, the agreement includes a measure to lower the cost to employers by allowing the expense of the 13th-month payment (which is made up of a summer holiday payment and a Christmas payment) to be distributed across 12 months and included in the calculation of short-time work benefit for months in which employees are not working. Normally, employers would be obliged to pay the summer and Christmas payments in full on the dates when they fall due in June and December.

This change will raise the level of short-time benefit paid by the state. Because the change also means that the amount of the 13th-month payment will be reduced in proportion to the overall drop in employees' working time, it will reduce the overall cost of short-time work for employers. Short-time working under these conditions can last for a minimum of six months, and up to a maximum of the full permitted duration of statutory short-time working. During this period, employers may not terminate the contracts of the staff affected.

In "phase two", and if there are continuing problems in maintaining employment, the agreement provides for a voluntary option, applicable until mid-2012. This is intended to follow the expiry of statutory short-time working benefit, which will hit many firms by autumn 2010. Under this new provision, which is being labelled "agreed short-time work" (tarifliche Kurzarbeit), the agreed working week can be reduced at company level from the normal 35 hours to 28 hours and, with the agreement of the signatories to the sectoral collective agreement (IG Metall and the regional employers' association), reduced further to 26 hours.

In Baden-Württemberg, the adoption of this model can be pursued through an agreed arbitration procedure should the employer refuse. The arbitration panel can impose up to six months of such short-time working. Local negotiators in Baden-Württemberg concluded an agreement on short-time working in April 2009, which dealt with some of the additional costs of employer top-ups to short-time benefit in this region, as well as allowing more flexibility on fixed-term contracts. The 2009 deal was set to expire at the end of 2010, and the new agreement will now replace it. The higher top-ups in Baden-Württemberg will also continue.

During phase two, employers will provide some compensation for loss of pay, depending on the volume of hours forfeited. This compensation payment becomes due once hours are reduced below 31 per week. For example, if weekly hours are reduced to 28, employees will be paid for 29.5 hours.

The new scheme would be used instead of state short-time working. As an alternative to moving to this option, firms can also use the provisions of the existing collective agreement on employment security (Beschäftigungssicherungstarifvertrag) in metalworking. This allows weekly working hours to be cut to 30 for all or some groups of employees in a plant by works agreement, with a corresponding cut in pay. The pay cut can be mitigated by compensatory payments which, by agreement, may be partially or wholly financed by cuts in the 13th-month payment. This agreement will continue in force, but might be insufficient to offset the overall loss of hours worked.

Trainees

Some changes have been made to the existing agreement on trainees in North-Rhine Westphalia, under which employers are obliged to take on all their trainees, once their training is completed, for a period of at least 12 months.

This provision remains in force, but the procedures will be more clearly established. If a company has trained more individuals than it needs to cover succession (this is, to fill relevant posts falling vacant), then management and works council must consider whether a 12-month contract is possible for the surplus trainees, three months before the training period ends (training takes three years for most occupations in metalworking). If a company is not able to offer a contract, because of "acute employment difficulties", the parties at plant level are required to establish whether it is possible to offer a contract on reduced hours or in another plant. A trainee's right to a contract can also be held open for a year while they undertake military or civilian service. Trainees who cannot be offered a post have a right to preference in applying for relevant jobs for up to a further two years.

In a new provision, to be finalised by April 2010, former trainees will be offered scope to acquire additional skills. The scheme would allow such employees to work for two years full time but at only two-thirds of their usual pay, thereby accumulating entitlement to paid time off. They would then be able to engage in further training outside the workplace for a year, such as obtaining a Meister (skilled craftsperson) qualification, using these time credits. They would return for a fourth year and work full time.

There are some regional variations in trainee agreements, and on how an employer's refusal to offer posts on completion of training is dealt with.

Future of statutory short-time scheme

The metalworking social partners have called on the Government to take further steps to maintain and improve the operation of the statutory short-time work system in the light of their agreement. In particular, they have asked for all firms to be exempted from payment of social security contributions in respect of unworked hours, for the entire duration of short-time working. This exemption was granted temporarily in 2009, but expires at the end of 2010, with employers required to pay contributions on the basis of 80% of full-time pay. In addition, the partners have requested that employer top-ups to short-time benefit should also be free of employers' social security contributions.

At the time of writing, discussions were under way within the Government (a coalition of the conservative Christian Democrats/Christian Social Union and the liberal Free Democrats) on whether this request will be met, depending on economic developments during 2010. The new agreement in metalworking includes an "exit clause" that would allow IG Metall to reopen negotiations and withdraw from the agreement should the exemption not be extended.

"Successful joint crisis management"

The deal agreed in February offers a complex sharing-out of potential future losses of income and output in the metalworking sector, in an organised manner that would be hard to achieve in a more decentralised and company-based collective bargaining system. It offers an insurance policy against a further deterioration in employment in metalworking, at an initial cost to union members of forfeiting increases in real incomes until mid-2011. Given the dire economic situation in the sector, IG Metall has mobilised its resources around the consensual subject of jobs.

The range of permitted deviations from the pay terms of the metalworking sector agreement allowed by the 2004 "Pforzheim accord" means that even the lump-sum payments due in May and December 2010 could be foregone at company level if certain preconditions are met. Conversely, should the economy improve rapidly, IG Metall could urge works councils to go for a more rapid catch-up by seeking to bring forward the 2.7% rise in agreed minimum rates, due in April 2011, by the permitted two months.

The deal also engages in a systematic trade-off with the state, minimising the risk of large-scale claims for unemployment benefit, in return for slightly higher ongoing payments of statutory short-time benefit, by reshaping annual remuneration for workers on short time. Companies will be obliged to carry the cost of surplus workers and, where agreed, to maintain pay levels at slightly higher levels than warranted by hours worked. At the same time, they can avoid redundancy costs and have some of the cost burden of operating short time lifted.

Gesamtmetall, representing metalworking employers nationally, commented that the agreement "shows that successful joint crisis management has created a new basis of trust between employers, trade unions, works councils and employees". Gesamtmetall also noted that it is unprecedented that a negotiated solution could be reached, without industrial action or the threat of it, some months before the expiry of the current agreement. This, the employers argue, "strengthens the constitutionally guaranteed principle of free collective bargaining".

The chair of IG Metall's executive committee, Berthold Huber, stated that the outcome is a "good result" that provides for a "fair sharing of burdens" and will enable employment to be secured during the crisis. However, the agreement needs appropriate support in the shape of amendments to the statutory short-time work system.

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

European employment policy, practice and law, March 2010