Germany: New Government's employment agenda examined
Following the general election in September 2009, Germany has a new conservative-liberal coalition Government. The main employment-related issues on the Government's agenda include minimum wages, fixed-term work and increased labour force participation.
On this page:
Election
results
Tax issues
Employment
issues
Review of minimum wages
Employment protection
Co-determination
safe
Improved corporate governance
Fixed-term employment rules to be changed
Employee
privacy to be strengthened
Raising labour force
participation and diversity
Health insurance
review
Social benefits and job centre reforms.
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Key points
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Election results
The federal election, held on 27 September 2009, resulted in a change of Government at national level, after four years of a "grand coalition" of the conservative Christian Democrats/Christian Social Union (CDU/CSU) and the Social Democrats (SPD).
Overall, the larger parties lost voter support, with smaller parties to the centre and left, and the Greens winning a historically large share of the vote. The new Government is a coalition of CDU/CSU and the liberal Free Democrats (FDP). The dominant grouping is the CDU/CSU block, which won 33.8% of the vote nationally, led by Angela Merkel, who remains Chancellor. The FDP won 14.6% of the vote. This re-establishes a pattern of coalitions that governed Germany from 1982 until 1998. While the CDU/CSU share of the vote fell to its second-lowest figure since 1949, the FDP appears to have been a beneficiary of the economic crisis and disillusionment with the larger parties. Running on a platform of tax cuts and smaller Government, the FDP raised its share of the vote by nearly one-third.
The major loser was the SPD, which saw its share of the vote fall to an all-time low of 23%, and is now out of national Government. The Greens raised their share of the vote to 10.6%, and the Left Party (Die Linke) boosted its share to 11.9%. The Left Party, formed in 2007 from the successor organisation of the former east German ruling Socialist Unity Party, together with left-wing groups from western Germany, is now the largest electoral force in some east German regions (Länder), but has also begun to win double-digit support in urban areas in the west, and is supported by a number of prominent trade union activists and officials. While the Left Party has been in coalition with the Social Democrats in the Land Government of Berlin and elsewhere in eastern Germany, this option has been rejected in other regions and at national level by the SPD - although the recent electoral outcome might change this position.
Negotiations over a formal coalition agreement were completed between the CDU/CSU and FDP on 25 October. Key ministerial posts were also agreed.
Tax issues
One of the key areas of the agreement, and one of the most challenging for the coalition parties, is in the field of personal taxation, where the FDP pressed hard for early and large cuts. Under the agreement, net taxation will fall from 1 January 2010 for those with children. The child tax allowance will rise to €7,008 a year (with increases in child benefit for those who do not pay tax), leading to an annual reduction in tax for a married couple with two children of some €510. A further simplification of the tax system will be introduced, probably from 1 January 2011, with a number of tax bands rather than the current progressive sliding scale. This is also likely to lead to a substantial net reduction in income tax, as long as employees remain in the same band (especially relevant for the taxation of overtime earnings).
Cuts in corporate taxation will also be implemented, beginning in 2010, through larger write-offs for losses and more tax relief on corporate interest outgoings.
Any tax cuts will ultimately need to be recouped as, under legislation introduced in 2009, the German Government is constitutionally obliged to run a deficit of no more than 0.35% of gross domestic product by 2016. This is likely to be achieved by ensuring that public spending grows more slowly than the economy as a whole, assuming that stable growth returns. The volume of cuts will also be reduced below those promised in the election campaign. However, the shape of any measures to meet the balanced budget obligations was not clear at the time the coalition deal was concluded. Rather, the coalition will focus on boosting growth until recovery is established, according to Chancellor Merkel.
Employment issues
Employment issues do not have a high profile in the coalition agreement, compared with the importance they had under the former CDU/CSU-SDP coalition. There was disagreement both between the coalition parties and, to some extent, within them in negotiations in this area, and the outcome is a fairly limited one. The new Labour Minister is Franz-Josef Jung (CDU), an appointment seen by some commentators more as a function of internal shuffling within the coalition than as a positive choice. He will need to conduct some delicate negotiations within Germany's complex balance of federal and local authorities, as noted below.
Review of minimum wages
Germany has no statutory national minimum wage. However, the 1996 Posted Workers Law (Arbeitnehmer-Entsendegesetz) allows collectively agreed minimum wage rates to be applied to all employers and employees in a particular industry by the Minister of Labour. For this to take place, the sector must be specifically included in the legislation, which requires an amendment by Parliament following an application by trade unions and employers in the sector, with the proviso that there is an existing sectoral agreement covering at least 50% of the industry's workforce.
Only construction and related industries were initially included under the Posted Workers Law's minimum wage procedure. The legislation was amended in 2007-08 to include industrial cleaning, electrical trades and postal services. A further amendment in April 2009 added six further sectors: waste management; private security services; "industrial textile services" (principally industrial laundries); care for elderly people; special mining services; and some areas of vocational training.
Application of the Posted Workers Law's minimum wage provisions requires the presence in an industry of a collective agreement covering at least half of the workforce. With regard to sectors with no collective bargaining and lacking effective negotiating partners, or with no pay agreement that meets the 50% criterion, the outgoing Government recently amended the Minimum Working Conditions Law (Mindestarbeitsbedingungengesetz) to create a "standing committee on minimum remuneration". The new committee will determine whether legally binding minimum wages should be introduced in any given sector, depending on whether there is evidence of "social dislocation" because of the absence of a minimum rate.
The FDP opposes any further extension or use of the minimum wage machinery, and had indicated that it would like to consider the fate of minimum wages already introduced. The problem for the coalition in achieving any retreat from the existing position was that the current legislation was introduced under Chancellor Merkel.
As a consequence, although the coalition parties reaffirmed their rejection of a single statutory minimum wage, there will be no immediate action on the machinery created over the past two years. Rather, the coalition agreement states that the current legislation will be reviewed by October 2011 in the light of its impact on job creation, the protection of employees, and competitiveness: "The outcome of this review will determine whether the existing regulations on minimum wages will continue or be abolished."
There is agreement between the coalition parties on introducing a statutory ban on pay rates that are less than two-thirds of the usual wage, as set by collective agreement or custom and practice, in any given sector. Until now, this has been a matter for the courts, which have been prepared to strike down such pay rates as "contrary to good morals" (contra bonos mores), and hence unenforceable in civil law, although this process is haphazard and depends on finding a plaintiff. Details of how a comparator pay rate will be established have not been finalised, and are likely to be complex. Trade union commentators have denounced the proposal as implying a statutory toleration of poverty wages.
The coalition proposes to retain and "strengthen" existing machinery for declaring collective agreements "generally binding" in a sector through the process of "extension" (Allgemeinverbindlicherklärung). Full details were not set out in the coalition agreement, but the arrangements outlined appear to render extension more difficult to achieve. The emphasis is that any proposal to extend an agreement would need a majority vote on the collective bargaining committee (Tarifausschuss). At present, the minister of labour can declare an agreement to be legally binding if an application has been made by the negotiating parties under the Posted Workers Law, even if other employer representatives vote against this. Extension under the Posted Workers Law, through ministerial ordinance, will continue to be possible, but this will require the agreement of the whole cabinet - and, if understood literally, this would allow the FDP to veto any proposals.
Employment protection
Under German law, specific rules on protection against dismissal apply to employers with more than 10 employees. In these companies, the dismissal of employees with at least six months' service with the employer is permissible only if justified by specific reasons. These are: operational grounds; conduct-related grounds; and grounds related to the employees' person and capacity to do the job.
These employment protection provisions have been subject to a number of changes over the years, and the issue has been seen as an important indicator of the approach to employment law of successive governments. The company-size threshold, above which the rules apply, stood at five employees until a CDU/CSU-FDP coalition increased it to 10 employees in 1996. The SDP-Green coalition that took office in 1998 then reduced the threshold to five employees again in 1999. When re-elected in 2002, the SDP-Green coalition once more raised the threshold to 10 employees from 2004.
The FDP and business groups argued for some relaxation of the current provisions, and in particular raising the employee threshold from 10 employees to 20 employees. However, Chancellor Merkel stated that she was not prepared to sanction such a step, especially given the atmosphere of heightened uncertainty around job security due to the recession, and no action has been proposed in this area.
Co-determination safe
Since the election, leading CDU politicians, including Chancellor Merkel and the current federal President, Horst Köhler, have remained engaged with the trade unions, speaking at major union events, such as the 60th anniversary of the founding of the German Trade Union Confederation (DGB) and the congress of the IG BCE chemical and energy workers' union. At the latter, Chancellor Merkel assured delegates that the new coalition would not seek to change Germany's board-level co-determination arrangements (Mitbestimmung).
Under these arrangements, which constitute a central element of Germany's corporate governance, in most types of company (such as joint-stock and limited-liability companies) with 500 or more employees, the employees are represented alongside shareholders' representatives on the supervisory board (which, under Germany's two-tier board system, oversees the management board that is responsible for running the company day to day). In companies with between 500 and 1,999 employees, one-third of the supervisory board is elected by the workforce from candidates nominated by the works council or employees. In companies with 2,000 or more employees, half of the supervisory board is elected by the workforce, with trade union nominees guaranteed a certain number of seats alongside company employees. In companies with this latter "parity" board representation, the supervisory board's chair is always a shareholders' representative and has a casting vote in the event of a tie.
Improved corporate governance
The coalition agreement emphasises the need for improved corporate governance, and indicates that measures taken to improve liability and compensation arrangements, introduced in 2009, will be extended. In particular, the coalition intends to target "perverse" incentives, especially in the finance sector, and has intimated that it might introduce clawback arrangements. Scope for employee financial participation will be extended, with proposed legislation that would allow employees to make a salary sacrifice to buy shares in their employer's company on a tax-favoured basis.
Fixed-term employment rules to be changed
The coalition agreement proposes to amend the existing legislation on fixed-term contracts, whereby without a "material reason" it is prohibited to offer a fixed-term contract to someone if they have ever worked for the same employer before in a fixed-term capacity. In general, it is permitted to use fixed-term contracts for time-related or task-related posts, as long as there is a material reason. Fixed-term contracts without a material reason, as a straightforward option for flexible hiring, are possible for up to two years, but legislation was introduced in 2001 to close the loophole that allowed employers to conclude a series of such agreements with short breaks (which had to be at least four months) by prohibiting re-employment without a material reason. The proposed amendment would allow rehiring on such a contract, provided a year has elapsed since the end of the previous contract.
Employee privacy to be strengthened
Following recent scandals in which a number of companies - including Aldi, Deutsche Bahn, Deutsche Bank and Deutsche Telekom - have been found to have spied on their employees or misused personal data, the CDU/CSU-FDP coalition has agreed to strengthen legal protection for employee privacy. However, no specific details have yet been published.
Raising labour force participation and diversity
The coalition aims to raise the labour force participation rate of women and of older workers. Specifically, it will not extend existing measures on "phased early retirement" (Altersteilzeit), which provide for state subsidies for these schemes: in future, they will have to be financed by the employer alone. There will also be a review of existing retirement ages.
The agreement welcomes advances in diversity management, and intends to extend existing pilot projects that encourage women to return to the labour force after having children. The agreement states that consideration will be given to legislation to require organisations to have a quota of women in senior positions: initially, however, the approach will be one of advice, encouragement and the setting of voluntary goals by organisations.
Equal pay audits will be encouraged in the private sector, using software and consultancy models already trialled (known as Logib-D), but no compulsion has been proposed.
Health insurance review
The financing of the health insurance system will be reviewed from 2011 and major changes are possible. The system is based on employer and employee contributions to local health funds, which pay the providers of health services, such as doctors and hospitals.
The FDP has argued for more scope for privatisation. Recent years have seen major changes in the operation of the scheme, with a national health fund in place since January 2009, through which all employer and employee statutory contributions are channelled to local health funds. There is now also a standard rate of health insurance contribution, which the FDP would like to abolish and replace with more local autonomy. One measure agreed is to make it easier for individuals to switch from the statutory scheme to private medical insurance by allowing this after an employee has earned above the threshold income for one year, rather than the current three-year wait.
Many local funds are in deep financial trouble, with a combined deficit of some €7.5 billion. Despite many efforts to trim health spending, the cost to individuals and firms is expected to rise, albeit cushioned by some direct diversion of central tax revenues. Both the CDU and the FDP have argued for flat-rate health insurance contributions and for their separation from overall labour costs. However, the difficulty for Chancellor Merkel is again that, under the previous coalition, she oversaw the introduction of the scheme that is now in difficulties.
One concrete step in this area is that employer health contributions will be frozen, meaning that any move to eliminate current losses will need to be borne either by employees alone or from the reserves held by funds.
Social benefits and job centre reforms
One major administrative task facing the new labour minister is the reorganisation of the role of job centres in the delivery of a range of benefits (known as "Hartz IV"), following a ruling by the Federal Constitutional Court in 2007. This found that the joint administration of centres by the federal Government and local authorities breached administrative law principles.
Employees who need to claim means-tested benefits (known as "unemployment benefit II") will in future not be required to include in the means test the value of any assets intended to secure a private old-age pension.
This article is based on material provided by Pete Burgess, European Employment Review correspondent for Germany.
European Employment Review 430 (EER 430) contents
