German employers must prepare for new collective bargaining obligations

It comes as the Federal Ministry of Labor and Social Affairs introduced a draft bill on collective bargaining compliance (52 pages/528 KB PDF) on 22 July.

The draft law is part of a broader strategy by the German government to reverse the decline in collective bargaining coverage across Germany. Once covering around 75% of jobs in Germany, collective bargaining agreements now apply to only around 50% of the workforce. The new law seeks to counter this trend by requiring that companies awarded deferral public contracts adhere to sector-specific collective agreements. This obligation will also extend to subcontractors, ensuring that fair wages and working conditions are upheld throughout the supply chain.

The government has emphasised that collective bargaining agreements are a cornerstone of decent work and a functioning social partnership, balancing interests of employees and employers on an equal footing in a bid to reliability and security for both sides. The law is designed to promote fair competition and prevent ‘wage dumping’ in publicly funded projects.

Andreas Schöberle, employment law expert at Pinsent Masons, said: “The goal of the draft legislation is to strengthen declining collective bargaining coverage. This increases the amount of bureaucracy in companies, which must prove compliance with the new, more onerous standards. Besides, the new law limits the constitutional right of companies for autonomous work conditions negotiations with trade unions.”

The law will apply to federal public supply and service contracts, as well as service concessions, with an estimated contract value of at least €50,000. Companies bidding for these contracts must demonstrate compliance with relevant collective agreements, and this requirement will be monitored throughout the duration of the contract. Minimum working conditions should be regulated in an industry-specific collective agreement compliance ordinance by the Federal Ministry of Labor and Social Affairs at the request of a trade union or employers’ association. Additionally, the bill sets out subcontractor liability for compliance with collective agreement provisions by subcontractors employed by the contractor. Non-compliance by companies can result in contractual penalties up to 10% of the contract value and a special termination right, allowing the principal to terminate the contract without notice.

Lars Hettich, public procurement law specialist at Pinsent Masons, said: “From a procurement law perspective, the draft bill represents an ambitious attempt to link social policy goals with public procurement.”

“The use of procurement law as a vehicle to implement strategic goals is nothing new. Various collective bargaining laws already exist at the state level – a federal law could ensure greater uniformity here. The draft law strengthens collective bargaining agreements but also brings with it practical challenges for implementation – particularly with regard to the likely increase in bureaucracy. The legislature is consciously accepting this in favour of ensuring social standards and is thus making an exception to its current efforts to relieve contracting authorities of their procurement burdens through the Procurement Acceleration Act, also expected as a draft bill next week,” he said.

It remains to be seen whether the draft bill will be passed as law, targeted by the government in August but subject to approval by the Bundestag and Bundesrat, likely by the end of the year.

“In any case, this draft can be seen as a sign that the coalition’s labour law goals are to be taken seriously,” said Schöberle.