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Holding the Shop TogetherGerman Industrial Relations in the Postwar Era$

Stephen J. Silvia

Print publication date: 2013

Print ISBN-13: 9780801452215

Published to Cornell Scholarship Online: August 2016

DOI: 10.7591/cornell/9780801452215.001.0001

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The Enduring Resilience of the Law and the State in German Industrial Relations

The Enduring Resilience of the Law and the State in German Industrial Relations

(p.13) Chapter 1 The Enduring Resilience of the Law and the State in German Industrial Relations
Holding the Shop Together

Stephen J. Silvia

Cornell University Press

Abstract and Keywords

This chapter examines how law and the state supported and sustained Germany's postwar industrial relations system. It first provides an overview of the German labor law before considering how the postwar German state has bolstered the social partners through the use of tripartite bodies to govern numerous aspects of German society, both economic and noneconomic. It then challenges two widely held assumptions about labor law and the role of the state in postwar industrial relations. First, the German economy was more successful in the immediate postwar era because losing World War II wiped the slate clean of prewar laws and deals between interest groups and the state that hindered growth. Second, labor and management practitioners commonly stress collective bargaining autonomy and underplay the important role of the state in providing the prerequisites for that autonomy. The chapter argues that the forces driving membership trends for German trade unions and employers associations differ and that state support of German industrial relations cannot be held responsible for change in the postwar era.

Keywords:   labor law, Germany, industrial relations system, German economy, World War II, collective bargaining autonomy, trade unions, employers associations, industrial relations, postwar Germany

In this chapter I examine the role of law and the state in German industrial relations. This is to familiarize readers with the distinctive history and contemporary features of German labor law because they profoundly shape the reckoning of German employees and employers about what are possible and preferable policies in the field of industrial relations. I also make clear that law and the German state have been crucial in supporting and sustaining the postwar industrial relations regime.

I challenge two commonly held perceptions about labor law and the role of the state in Germany. First, some scholars have asserted that the German economy was more successful in the immediate postwar era because losing the Second World War wiped the slate clean of prewar laws and deals between interest groups and the state that hindered growth.1 An examination of the facts, however, demonstrates that postwar German law and practice in most areas consist largely of borrowings from the Weimar Republic and even the Second Empire. They have been, if anything, more numerous and encompassing than in previous eras. This is certainly true for postwar industrial relations. Second, labor and management practitioners typically stress collective bargaining autonomy and underplay the important role the state plays in providing the prerequisites for that autonomy. Rather, the German state has served as a sturdy trestle supporting the postwar industrial relations regime. Contrary to the erosion and exhaustion arguments (p.14) discussed in the introduction, the foundations of the law and the state have remained as robust components of German industrial relations.

I am also clearing the field here for one of my larger arguments, namely, that the forces driving membership trends for German trade unions and employers associations differ. Unionization is primarily a sociological phenomenon, whereas employers association membership is principally an economic calculation based on sectoral considerations. State support of German industrial relations is quite important, but it has been a constant; it therefore cannot be held responsible for change in the postwar era.

German Labor Law: A Brief Overview

Germans commonly refer to the start of postwar reconstruction in May 1945 as “hour zero,” largely because of the devastating impact of the war and the wholesale scrapping of Nazi state structures. A brief review of the contents and antecedents of statutes delineating freedom of association, collective bargaining, and adjudication of workplace disputes reveals, however, that most of the components of the postwar regime are refurbished versions of prewar institutions, practices, and structures. I begin with a discussion of the freedom of association, which is the bedrock on which both the statutes and the jurisprudence for industrial relations is built. In subsequent sections, I examine the legal provisions undergirding collective bargaining, contracts, labor courts, and the regulation of industrial disputes.

Freedom of Association

In industrial relations, freedom of association (Koalitionsfreiheit) means the right of employees to organize trade unions and of managers to form employers associations. This right existed formally even in Imperial Germany, though it was often difficult for employees to exercise it in practice. Most business associations and individual firms in Imperial Germany went to considerable lengths to avoid having to deal with unions. Employers frequently used ties to local police and politicians to harass unionists and to disrupt their organizations. At times the German national government also made life difficult for unionists. Under the leadership of Imperial Chancellor Prince Otto von Bismarck, the German state banned all socialist activities and organizations, including socialist trade unions, from 1878 to 1890.2 Even after the expiration of the antisocialist laws, government officials at all levels in Imperial Germany frequently subjected unionists to spying, harassment, dismissal, police violence, and sensational trials before biased judges. (p.15) The famous statement of Judge Lujo Brentano summarizes the contradictory attitude of the Imperial German state toward trade unions: “Workers possess the freedom of association. If they make use of it, however, they will be punished.”3 In contrast, the German state did not inhibit the creation and operation of business associations during this same period. In fact, it even permitted the formation of cartels.

The First World War substantially changed the configuration of Germany’s sociopolitical relations, which helped to advance the legitimization of trade unions. Once war broke out, nationalism trumped cross-national class solidarity for most workers and their organizations, despite considerable rhetoric to the contrary in socialist circles in the years leading up to the conflict. German labor backed the war effort and quickly offered to participate in a “national unity front” to maintain a “civil peace” (Burgfrieden) for the duration of the conflict.4 Labor’s initial contribution to the civil peace was a no-strike pledge. In return, employers and the government agreed to stop harassing trade unions and to cooperate with them throughout the war. The highpoint of the civil peace came on 5 December 1916. The imperial government’s Third Supreme Military Command headed by Gen. Paul von Hindenburg and Gen. Erich Ludendorff enacted the Auxiliary Patriotic Service Act (Gesetz betreffend den vaterländischen Hilfsdienst). This act recognized unions as legal bargaining agents for workers, opened the public sector to union recruitment, and required the establishment of employee committees in medium-and large-sized workplaces. In return, labor accepted a work requirement for all able-bodied males between seventeen and sixty and a stipulation that employees gain permission from their current employer before changing jobs. Labor leaders hoped that the civil peace would permanently anchor trade unions within Germany’s economy and society, but achieving this objective proved elusive.5

Germany’s defeat in the First World War unleashed considerable turbulence. The kaiser abdicated on 9 November 1918, two days before Germany signed the armistice to end hostilities. On November 10, a mass gathering of Berlin workers’ and soldiers’ councils elected a five-person council of “people’s commissars” as the new government. All of the commissars were social democrats. Three were from the larger and more moderate Social Democratic Party of Germany (Sozialdemokratische Partei Deutschlands, SPD), and two were from the left-wing Independent Social Democratic Party of Germany (Unabhängige Sozialdemokratische Partei Deutschlands, USPD). Friedrich Ebert, head of the SPD, became provisional chancellor.6

(p.16) The kaiser’s abdication did not induce union leaders to change their integrationist course, but it did trigger a renegotiation of labor’s arrangement with German employers. The unrest of the moment and the social democratic monopoly in the new provisional government put labor in the stronger strategic position. The upsurge of radicalism prompted significant numbers of German employers to abandon their rejectionist attitude toward organized labor and to embrace the reformist trade unions as a way to save capitalism. Many established union leaders feared a full-blown socialist revolution nearly as much as did employers, because it would most likely sweep them and their organizations away along with the institutions of capitalism. Thus, a common interest in preserving the status quo served as a foundation for cooperation and compromise between German labor and management.7

On 15 November 1918, business and union leaders acted on their own to start to build a post-Imperial industrial relations system. A delegation of social democratic trade unionists led by the head of the Generalkommission der Gerwerkschaften Deutschlands (General Commission of German Trade Unions), Carl Legien, and a group of prominent businesspeople led by Ruhr industrialist Hugo Stinnes signed a twelve-point pact known as the Stinnes-Legien agreement. The agreement took the form of a private contract rather than legislation because of doubts about the stability and legitimacy of the provisional German government. Most prominently, the Stinnes-Legien agreement recognized independent trade unions as the sole legitimate collective representative of employees, declared collective agreements to be inviolate, permitted the formation of works councils (Betriebsräte) in workplaces with more than fifty employees and instituted the eight-hour workday as a standard.8

Germany’s new republican constitution, drafted in the city of Weimar in 1919, greatly improved the legal anchoring of labor’s freedom of association. Article 159 of the Weimar constitution adopted much of the language of the Stinnes-Legien agreement, including the guarantee of the right of employees to form unions. Employers also remained free to create associations. The German state generally respected this freedom of association during the Weimar era, although it did not always defend trade unions and their members from hostile employer actions (e.g., the use of strikebreakers and dismissal of union activists).

Freedom of association soon came to an end after Adolf Hitler rose to power in January 1933. His National Socialist government did permit trade unionists to hold their traditional May Day celebration in 1933, but the (p.17) motivation was by no means benign. The Nazis used the demonstrations to identify union activists. On the following day, autonomous union representation came to an abrupt end. Nazi officials conducted a massive nationwide sweep, arresting thousands of trade unionists and shutting down all independent labor organizations. In the place of unions, the Nazis set up the subservient Deutsche Arbeitsfront (DAF, German Labor Front).9 Nazis were far less confrontational with business associations, but they dissolved them nonetheless in 1934, replacing them with the Reichsgruppe Industrie, which had compulsory membership and a subservient relationship with the Nazi state.

After the Second World War, Western occupying powers gradually restored freedom of association, but it was ultimately up to Germans themselves to decide how such freedom should be structured in a postwar republic. From the summer of 1948 to the spring of 1949, a constitutional convention consisting of representatives elected by the parliaments of the western German states (Länder) met to draft a provisional constitution, which they called the Basic Law (Grundgesetz). Article 9, section 3 of the Basic Law does not use the word “union” (Gewerkschaft), but it explicitly declares: “The right to form associations to safeguard and improve working and economic conditions shall be guaranteed to everyone and to all occupations.” This expansive language, which includes all public-sector employees as well as white-collar employees with supervisory duties, exceeds the rights granted in many other countries (e.g., the United States). It should be noted that the general language of article 9, section 3 also gives firms full freedom to form employers associations. The only restriction in the realm of industrial relations is a ban on company-dominated unions. Courts have ruled that company unions deny employees a genuine right to freedom of association.10

Mindful of the compulsory nature of most Nazi organizations, court rulings have also interpreted article 9, section 3 of the Basic Law to protect the freedom not to be forced to belong to an organization, which in German legal parlance is called “negative freedom of association” (negative Koalitionsfreiheit). The doctrine of negative freedom of association forbids compulsory union membership (i.e., a “closed shop” or a “union shop”) as a condition of employment, which is permissible in many English-speaking countries. Since the 1960s, court rulings have forbidden collective bargaining agreements that give some benefits to union members only, concluding that these amount to indirect pressure on employees to join a union. This interpretation of article 9, section 3 has deprived unions of a means (p.18) to neutralize a significant free-rider problem that has deprived them of members and dues.11 Still, the Basic Law contains the strongest language protecting the rights of both employees and employers to organize ever found in any German constitution.

Collective Bargaining and Contracts

Whereas freedom of association simply guarantees the right of unions and employers associations to exist, a collective bargaining regime goes one step further. It establishes the ground rules for negotiations between employers and trade unions, and—in instances when talks fail—industrial conflict. German jurisprudence has built out the concept of “collective bargaining autonomy” (Tarifautonomie) as a predicate of the freedom of association. Collective bargaining autonomy at its foundation should not be equated with the absence of state involvement. The state does provide substantial support for collective bargaining “without, however, involving itself in the substantive issues dealt with around the bargaining table.”12 To draw an analogy, the role of the German state in industrial relations is like that of a fish bowl. The state’s role in defining and sustaining the contours of a highly constructed realm of industrial relations is crucial, but it is in the background and often not immediately apparent to actors and observers alike. If it were withdrawn, however, the state’s full significance would become immediately apparent to all, just as fish would immediately notice the disappearance of their bowl. The state’s supporting role in industrial relations is consistent with postwar Germany’s general approach to regulation, which has been to create underlying “framework conditions” (Rahmenbedingungen) that tilt the playing field for economic decision making in a constructive direction, but then let private parties interact without interference.13

The German state did not always provide supportive framework conditions for collective bargaining. Before the First World War, collective bargaining was a precarious endeavor. Although Imperial Germany had a series of laws regulating working conditions, it had no industrial relations legislation. Collective agreements fell uneasily into the category of private contracts concluded by collective actors. Since cartels were legal in the Second Empire, there was no foundation in law to attack collective bargaining agreements as a restraint of trade, which was a common antiunion tactic in English-speaking countries at the time. Instead, judicial opinions varied widely. Some judges found collective bargaining (p.19) agreements to be illegal, but others did not. A few judges even ruled that collective agreements were binding on all employees, including nonunion members.14

The 1916 Auxiliary Patriotic Service Act ended the legal ambiguity surrounding collective bargaining agreements by definitively establishing their legitimacy, but it was only in the immediate post-Imperial years that the German state adopted specific legal ground rules for collective bargaining. The Collective Agreements Order (Tarifvertragsordnung, TVO) of 23 December 1918 laid the procedural foundation for collective bargaining in interwar Germany. The TVO had an unusual pedigree. Large portions of the order (which is quite short) came directly out of the Stinnes-Legien agreement that labor and management had crafted on their own six weeks earlier. The short-lived provisional German assembly passed it. The German government, working under the Weimar constitution, absorbed the TVO into German law. The new collective bargaining regime shifted most negotiations out of the workplace and into the hands of employers associations and the trade unions negotiating regionally for individual sectors, which helped to professionalize them and to reduce workplace-level conflict. It quickly took root and proved successful when it was used, but external circumstances reduced its application.15

The great inflation of 1923 compelled the German government to introduce a system of binding state arbitration as an option for settling labor disputes. This option gave the labor ministry the power to set compensation unilaterally, so long as the collective bargaining parties had agreed to submit themselves to it after negotiations had reached an impasse. During the mid-1920s, unions frequently resorted to state arbitration, taking advantage of a sympathetic labor ministry to achieve better contract results than could have been attained without intervention. Autonomous collective bargaining atrophied as a result. In 1928, poor economic conditions led the labor ministry to begin imposing settlements far less favorable to employees. In subsequent years, when economic conditions went from bad to worse as a result of the Great Depression, state arbitration awards became even more meager. The unions still used the arbitration regime, albeit reluctantly, because soaring unemployment undercut their capacity to wage successful strikes. In 1931, Chancellor Heinrich Brünning scrapped state arbitration. The horrendous unemployment of the time completely undercut union bargaining power, and real wages plummeted. When the Nazis came to power in 1933, they eliminated collective bargaining altogether when they wiped out autonomous trade unions.16

(p.20) After the war, it took several years to reassemble a collective bargaining regime. The legislative components were once again put into place by a provisional government. On 9 April 1949, the assembly of the three united economic zones of western Germany passed the Tarifvertragsgesetz (TVG, Collective Agreements Act). The postwar German government subsequently adopted it as federal law. Just as in many other instances during the postwar reconstruction of Germany, the lawmakers decided to adhere very closely to the old law when drafting the new one. As a result, the structure, language, and even the name of the 1949 Collective Agreements Act echo the 1918 Collective Agreements Order. One portion of the Weimar collective bargaining regime was pointedly dropped, however. The Allies banned binding state arbitration under article 2, section 1 of Control Council Law 35 because of the bad experience with the practice during the Weimar Republic. The new Federal Republic of Germany followed suit.17

The Collective Agreements Act is short. It has only 1,600 words in the original German. Article 1 defines a collective agreement as a written contract that regulates the rights and duties of the collective bargaining parties concerning the “content, conclusion and termination of employment relations.” Article 2 states that collective agreements are legally binding and only employers associations, individual employers, and trade unions are eligible to make collective agreements (tariffähig). Germans call a contract between a union and an employers association that covers all member firms of the association a “regionwide” collective bargaining agreement (Flächentarifvertrag). A regionwide agreement has been the most common contractual arrangement in German industrial relations. A regionwide agreement is binding on all employers association and union members in the sector and district specified in the contract. There is nothing like a regionwide collective bargaining agreement in English-speaking countries. The closest thing is pattern bargaining. Both pattern bargaining and regionwide bargaining have the same objective—that is, the elimination of competition on the basis of wage costs among firms in the same sector—but pattern bargaining is organized around firms rather than regions.

The typical sector has a set of regionwide districts for the purposes of collective bargaining. The number of districts varies from sector to sector, depending on the specific profile of that sector (e.g., the size of firms and regional concentrations of production facilities). Most sectors have between eight and twelve districts. For each sector, formal negotiations to produce a new set of regionwide agreements take place separately in (p.21) the individual regional districts. In practice, however, the union leadership typically picks one district to serve as the “pilot.” The lead negotiations take place in the pilot district, and, if talks break down, strikes normally occur there too. Union officials are strategic in selecting the district where a strike can be most effective economically and where the rank and file are motivated and capable.

Both the union and the employers associations in individual sectors generally prefer that all the other districts copy the results reached in the pilot district with little or no change, in order to avoid one region gaining a cost advantage over the others. The union and the confederation of employers associations for each sector have mechanisms designed to facilitate the spread of the pilot agreement to the other districts. The procedure for ratifying a regional contract within most unions typically includes approval by the union’s national collective bargaining committee as a step, which makes rogue ratification of a regional contact impossible. The means of achieving nationwide uniformity on the employers’ side of the table differ in several respects from those of the unions, reflecting crucial dissimilarities between employers associations and trade unions.

Employers associations are not mass organizations, their members are firms rather than individuals, and their membership typically numbers only in the hundreds or low thousands for each district within a sector. As a result, employers associations rely far more heavily than unions on direct and informal means, such as e-mail and telephone calls, to gain a sense of membership preferences. Reaching consensus has frequently proved to be much harder for employers. The greater difficulty is not surprising. Employers association membership is far more heterogeneous than that of trade unions. Member firms range from small shops to multinational enterprises. Some members are bitter rivals; others are linked along supply chains or engaged in joint ventures. In practice, the leadership of the national confederation for each sector takes a principal role in setting and executing the strategy for each collective bargaining round, but it does so only after extensive consultations with key members, both large and small. Since the 1990s, the national bodies of employers associations in many sectors have strengthened coordination by assembling a national collective bargaining advisory group with representatives from leading regional associations in the sector and requiring the national sectoral organization to be on hand during negotiations in pilot districts. The purpose of these groups is to improve communication and buy-in and to decrease the likelihood that member firms will balk at a compromise reached at the bargaining table.18

(p.22) It should be noted that, in some sectors, the union and the national confederation of employers associations have tolerated differences in regional agreements. In most instances, the differences have been too small to produce significant regional divergences in labor costs. There are two prominent exceptions, however. First, in 1973, IG Metall’s regional district in Baden-Württemberg agreed to a pilot framework agreement with the North Württemberg–North Baden mechanical engineering employers association that tightly regulated assembly line work and gave employees expansive break times.19 No other regional employers association adopted this pilot framework agreement, which put Baden-Württemberg employers at a cost disadvantage vis-à-vis their competitors elsewhere in Germany until this agreement was replaced with a new one in the mid-2000s. Second, since German unification, the compensation agreements for eastern Germany in most sectors have set rates lower than those for the western regions.

TVG article 3 stipulates that all members of unions and employers associations remain bound by any regionwide collective agreement reached when they were members for the duration of those contracts even if they subsequently quit the organization. Firms cannot immediately escape the requirements of a collective agreement simply by leaving an association. This provision enhances the power of collective agreements and augments the stability of the organizations that sign them, in particular, employers associations.

Uniformity in collective agreements does not extend beyond the sectoral level. Labor market conditions differ too greatly from sector to sector, and the institutional architecture of German industrial relations is too fragmented along sectoral lines to facilitate the coordination of collective bargaining across the whole economy. Still, collective bargaining results in some sectors do affect outcomes in others. Each year the settlement achieved by one of the stronger unions (usually the metalworkers) sets the unofficial benchmark for all of the others.

The most common alternative to a regionwide collective agreement used in German industrial relations today is a single-firm contract (Firmentarifvertrag), which is often called a “house” agreement. The number of single-firm agreements has grown over the last thirty years, but they are still of secondary importance. In 2007, they only set compensation for 8 percent of all employees in western Germany and 13 percent in eastern Germany. Most house agreements only deviate from regionwide collective agreements at the margins.20

(p.23) Whereas labor and management in most countries rely on a single contract to cover all aspects of their relationship, multiple specialized contracts are the norm in Germany. The social partners use three specialized accords: the compensation collective bargaining agreement (Entgelttarifvertrag, ETV, often just referred to as a Tarifvertrag or collective bargaining agreement); the framework collective bargaining agreement (Rahmentarifvertrag, RTV); and the skeleton collective bargaining agreement (Manteltarifvertrag, MTV).

The ETV is the most prominent of the three types of contracts. It sets pay and benefit rates. The media, central bankers, investors worldwide, public officials, and rank-and-file members of both trade unions and employers associations pay most attention to ETVs because they have the most immediate effect on pay and hence labor costs. ETVs are negotiated more frequently than any other type of contract. The duration of a typical ETV is one year, though variance from this norm is not unusual. Longer ETVs are most often the product of a more comprehensive agreement to phase in a new benefit (e.g., weekly working-time reduction), hard times, or the desire to provide more certainty for employers regarding future labor costs. Sometimes union negotiators ask for a thirteen-or fourteen-month contract so that the total wage increase over the life of the agreement is bigger than it would be for a twelve-month accord. This enables union officials to present a percentage increase to their members that is nominally closer to the initial union demand than a twelve-month agreement would allow. ETVs very rarely extend to three years in length, which is the typical duration of a US collective agreement. At times, when economic conditions have been especially unpredictable, the bargaining parties have agreed to ETVs as short as eight or nine months, but this is also quite rare.21

The second type of German contract, the framework agreement, defines the job classifications and compensation structure within individual sectors. Jobs are defined by the tasks involved, educational requirements, and experience. Often, the classifications can be quite general, so that the thousands of firms using the same classification scheme can easily adapt them to their specific needs. RTVs are extremely technical and notoriously complex. They are nonetheless quite important because they establish the underlying framework for how work gets done and how one is paid for doing it. They also establish the relative importance of education, work duties, and experience in determining compensation.

In most instances, decades pass before the collective bargaining parties renegotiate framework agreements. The long intervals between negotiations (p.24) are problematic because as framework agreements age, the occupational specifications they contain grow increasingly out of date. Old agreements have contained occupations that no longer exist (e.g., computer-card key punchers) and failed to provide guidance regarding the duties and pay for whole new classes of employees (e.g., webmasters) and work practices (e.g., group and home work). When the gap between an RTV and actual practice becomes too great, labor and management find that they can no longer put off a more comprehensive revision of the RTV. The collective bargaining parties wrote their first RTVs in the late 1940s and early 1950s. Most sectors in Germany drafted completely new RTVs during the 1960s. The microprocessing revolution of the 1980s prompted the production of a third generation of RTVs approximately a decade later.

Historically, private-sector RTVs had five to eight blue-collar wage groups, within which pay was pegged to either piece rates or hourly work, and three to five white-collar salary groups. Starting in the 1990s, individual sectors have increasingly adopted a single set of job classifications that cover all their employees, be they blue-or white-collar workers. The transition has occurred because automation has made blue-and white-collar work less distinct, class difference has become less salient in postwar German society, and simpler job classification schemes provide more flexibility and are cheaper and easier to manage. Contemporary RTVs typically have five to eight job categories for all employees based on tasks, technical knowledge, and experience. They provide for pay in the form of a monthly salary for all, but employees still receive a premium for doing overtime and extra work.

An analogous transformation occurred in the public sector. The public sector used the Federal Collective Agreement for Public Employees (Bundes-Angestellten-Tarif, BAT) as a framework agreement from 1961 to the mid-2000s. The BAT was a relic from a bygone era of paternalism and bureaucratic complexity. The BAT had over 16,000 attributes to determine compensation. The most important were age, seniority, and family size. Job performance was not an attribute. The result was a complex and arbitrary pay determination that did not reward the best performers.

After years of talks, negotiators completed a new framework agreement called the Tarifvertrag für den öffentlichen Dienst (TVöD, Collective Bargaining Agreement for the Public Service Sector) in 2005. The TVöD is a significant departure from the BAT. It eliminates the old demographic categories for wage determination, sets a new lower baseline category (to enable the public sector to bring down costs to the level of private-sector firms providing similar services), and makes (p.25) performance central to pay, which is a revolution in the German public service sector. The bargaining parties were both satisfied with the TVöD, but the agreement has not been popular with some of the union rank and file, particularly those who no longer receive the supplemental payments specified in the old contract.

The third type of contract, the MTV or skeleton collective agreement, regulates the remaining terms and conditions of employment not covered by an ETV or RTV. MTVs include such things as weekly working time, overtime, maternity leave, sick pay, bonuses, vacation benefits, and severance provisions. Most MTVs consist of a main body followed by a series of independent contracts addressing particular items (e.g., vacation time and pay) attached as appendices. As a rule, an MTV is long and contains very general language because hundreds of firms use them. Managers and works councillors in individual enterprises apply broad provisions of an MTV to meet their specific needs. The parties to collective bargaining typically renegotiate at least some portion of an MTV every three to five years. Besides these three types of contracts, many collective bargaining parties have created special contracts to address particular concerns in several sectors. The most common special contracts provide for employee stock ownership, further education, layoff protection, and supplemental retirement.

This constellation of complementary collective agreements is complex, to be sure, but it does provide for more flexibility than is immediately apparent. After all, contracts differ significantly from sector to sector. The nested arrangement of contracts permits bargaining parties to focus on different aspects of industrial relations incrementally as need arises. The contracts are also meant to set minimum standards. TVG article 4 contains the so-called favorableness principle (Günstigkeitsprinzip) that allows management to improve compensation unilaterally above the rates spelled out in a regionwide collective agreement but not to undercut it. Firms may pay more if they wish, and many do so in order to remain competitive within a tight local labor market, to reduce turnover, or to attract the best employees. Employers and works councils may also negotiate a “workplace agreement” (Betriebsvereinbarung), which would supplement a collective agreement, in order to codify understandings regarding extra compensation that are specific to a workplace. An agreement with a works council does not fall under the protection of the TVG because works councils are not eligible to be a party to a collective agreement as defined by article 2 of the act. Agreements to provide workplace compensation below the contractually specified minima are also permitted, but only if the collective bargaining parties both agree.

(p.26) Article 5 of the TVG provides a means to use the state to expand the reach and stability of the postwar collective bargaining regime. Article 5 authorizes the Federal Ministry of Labor and Social Affairs to issue a “declaration of general applicability” (allgemeine Verbindlichkeitserklärung, AVE, aka erga omnes declaration), which is a decree that extends the coverage of an existing regionwide collective agreement to all businesses in a bargaining district of a sector, including firms that are not members of the employers association. The purpose of a declaration of general applicability is to establish a floor to wages. There are important differences between an AVE and a minimum wage. A nationwide minimum wage typically sets an extremely low floor because it must be geared not to disrupt employment in the most basic unskilled segments of the economy. AVEs, in contrast, set a much more rigorous standard because they are tailored to each sector and include all compensation. In essence, article 5 provides the opportunity to establish prevailing compensation rates specific to individual sectors. It should also be noted that AVEs amplify the reach of sectoral collective bargaining, whereas a nationwide minimum wage reduces it.

AVEs are not automatic. An employer, employers association, or trade union must ask for one. The federal labor minister then decides whether to submit the request to the ministry’s collective bargaining committee, which consists of three employers association and three trade union representatives. If the committee approves the AVE (which it usually does), then the labor minister issues it. Article 5 also states that only contracts that cover at least a majority of employees in the bargaining district for the sector in question are eligible to be declared generally applicable. Since the unionization rate in individual sectors and regions of the German economy has rarely ever amounted to a majority of those employed, it is the high density of employers associations that have made most sectors in western Germany eligible for an AVE.

It is important, however, not to overstate the significance of AVEs in German industrial relations. AVEs have never set compensation for more than 5 percent of the labor force. AVEs are rarely if ever used in heavy manufacturing or the public sector in western Germany, because few employers have relied on a business model that depended on undercutting the regionwide collective agreement. That having been said, the very existence of article 5 has dissuaded employers at the margins from trying to gain a competitive edge through lower labor costs. AVEs have been more influential in sectors with large numbers of small firms, such as janitorial services, hotels, restaurants, and the retail trade.

(p.27) Over the last two decades, AVEs have become a less effective means to police the labor market. First, many eastern German employees and foreign nationals, desperate for work, have accepted without complaint jobs paying far below the minima set in collective agreements from employers. Second, membership density in regional employers associations throughout many sectors in eastern Germany has fallen well below the threshold needed to qualify for an AVE. So, this avenue of redress is often not available there. Third, in a few instances over the last twenty years, the employer representatives on the federal labor ministry’s collective bargaining committee refused to approve a declaration of general applicability. Fourth, foreign firms and foreign subsidiaries of German companies primarily in construction and related sectors have increasingly “posted” employees from abroad to work in Germany on fixed contracts paying foreign wages that are well below German rates. This practice falls outside of the purview of TVG article 5.22

Germany began to address the erosion of coverage of collective agreements in the mid-1990s. The Christian Democratic–led government under Chancellor Helmut Kohl first spearheaded passage of an EU directive that permitted member states to regulate compensation for posted employees.23 The government then passed the Employee Posting Act (Arbeitnehmer-Entsendegesetz) in 1996, which extended the German government’s power to issue a new type of AVE that would cover foreign-based construction companies working in Germany.24 Unlike TVG article 5, the Employee Posting Act does not require a collective agreement to cover at least a majority of employees in the bargaining district for the sector in question as a precondition to converting a contract into a generally applicable compensation floor. This solution made it possible for the collective bargaining parties in the construction sector to create contracts that set minimum rates specifically for posted employees, which they have done since 1997. These collective agreements have produced a practical compromise that sets wages for posted employees significantly lower than standard domestic rates but substantially higher than what they had previously received.25

The Employee Posting Act set a precedent that drew the attention of those interested in establishing wage floors for other sectors where wages were extraordinarily low but an article 5 AVE could not be used because trade union and employers association membership was too low. Several years of political wrangling ensued because opinions on the matter were divided within both business and labor circles. Many businesses, especially (p.28) those in the sectors experiencing cutthroat wage competition, favored extending the act, but the peak confederation of employers associations opposed it, in large part because the act cut the confederation out of the new process for declaring contracts generally applicable. Some union officials expressed a preference for a nationwide minimum wage over this system of extending special contracts in only the most hard-hit sectors. In 2006, a “grand coalition” government under the chancellorship of Christian Democrat Angela Merkel finally garnered enough support simply to amend the Employee Posting Act to include six new sectors: janitorial services, private postal delivery, private security, specialized coal mining duties, laundry, and waste management. The amendment still failed to curb cutthroat wage competition because the Employee Posting Act applied only to foreign firms using posted employees in Germany. Consequently, the Merkel grand coalition government followed up with the separate Minimum Working Conditions Act (Mindestarbeitsbedingungengesetz) that applies to domestic firms in low-wage sectors that do not qualify for an article 5 AVE because of low trade union and employers association membership.26 The Minimum Working Conditions Act, which includes the nursing care, private security, and waste management sectors, borrows the mechanism from the Employee Posting Act that permits the conversion of special collective agreements written by the trade union and employers associations in a designated sector into a generally applicable compensation floor. Since 2009, special sectoral minimum compensation provisions have covered twelve sectors particularly prone to low-wage employment.27

Union officials see widening the scope for using AVEs as an important means to shore up collective bargaining coverage. Proposals include eliminating the 50 percent coverage threshold to qualify for an AVE, removing the need to have the labor ministry’s collective bargaining committee approve all AVEs, and permitting the extension of AVEs to comparable sectors.28 For example, at the 2011 convention of the Vereinte Dienstleistungsgewerkschaft (ver.di, United Service Employees Union), ver.di chair Frank Bsirske declared, “Lowering the hurdles for general declarations of applicability; that currently is among our most important demands in advance of the 2013 Bundestag election.”29 The Employee Posting Act and Minimum Working Conditions Act show that the German government can and will take steps to buttress the industrial relations regime. The fact that Christian Democratic chancellors headed the two governments that passed these acts demonstrates that support for the postwar industrial (p.29) relations regime extends across party lines. In recent years, several German states have passed prevailing-wage legislation (Tariftreugesetze) that restricts government procurement only to firms that pay at least the collective bargaining rate. These patches on the German industrial relations regime have slowed the decline in collective bargaining coverage. Their efficacy as long-run solutions remains unclear, however. Maintaining membership density remains a challenge in both unions and employers associations, and in the past five years, courts outside of the industrial relations regime have challenged this sort of legislation as a solution.

Within Germany, the Berlin Administrative Court (Verwaltungsgericht) struck down a 2008 AVE issued for the private postal delivery sector based on a technicality. The court decided that the labor ministry committed a grave procedural error by instituting the AVE without first soliciting the written position of private postal sector firms. The Federal Administrative Court upheld the decision in 2010. The European Court of Justice has also issued a series of rulings curtailing posting directives (i.e., Laval, Luxembourg, Rüffert, and Viking). The broader political arguments surrounding these cases have pitted the freedom of association against the free movement of people, but the actual decisions have been grounded in narrow technicalities, specifically, failures to implement the posting directive to the letter of the law. The German and European posting directives remain on the books. Since employers are always looking to cut costs, new court cases challenging them are likely to arise in the future.30

All German collective agreements spell out the parties’ binding contractual commitments (schuldrechtliche Verpflichtungen) to one another in what is known as the “obligatory” portion of the document. Failure to uphold any obligatory commitments leaves the offending party vulnerable to a damage suit, which can be quite costly, depending on the violation. The most salient obligatory component of most contracts in the manufacturing sector is the so-called peace obligation (Friedenspflicht). The peace obligation forbids strikes and lockouts for the duration of the accord. The obligatory portion of German collective agreements also routinely contains a mediation procedure, which begins once a contract expires. This portion of the contract also typically has an “expanded peace obligation” clause that extends the ban on industrial action to the mediation period. If mediation fails, a union is then free to engage in a strike. Contracts with these obligations became the norm in manufacturing during the 1950s.31

In practice, the overwhelming majority of collective negotiations in Germany result in an agreement without resort to industrial action, but (p.30) strikes do happen. Before launching a discussion of industrial disputes, however, it is essential to say something about the bodies that have produced the jurisprudence that regulates them, namely, the labor courts.

Labor Courts

The system of labor courts serves as “the backbone of labor relations and labor law in Germany.”32 The creation of specialized courts to deal with commercial and labor matters in Germany dates back to the late nineteenth century. Previously, civil courts heard labor disputes, but they lacked the expertise to adjudicate properly the expanding number of statutes regulating industry and working conditions. In 1890, the Imperial German government established specialized industrial courts and in 1904 added commercial courts (Handelsgerichte) modeled after French tribunaux de commerce to hear cases involving commercial activity. These courts used tripartite panels (Kammer) of three judges. The chair of each panel was either a professional judge or civil servant. The other two panel members were lay judges (ehrenamtliche Richter). One came from the ranks of employees and the other from among the employers. Trade unionists were still dissatisfied with this arrangement, however, because courts at times subordinated the employment relationship to other concerns of enterprises. During the Weimar Republic, organized labor agitated for the creation of specialized labor courts that would be institutionally independent and have enlarged competence. In 1926, the government passed the Labor Courts Act (Arbeitsgerichtsgesetz), which created a new system of labor courts and gave it sole jurisdiction over all legal disputes concerning labor and employment law involving employees. The law borrowed the tripartite model from the industry and commercial courts and established a three-tier structure of local courts, regional appellate courts, and the Imperial Labor Court (Reichsarbeitsgericht) as the court of last instance.33 Once in place, labor courts played an important role in the industrial relations of the Weimar Republic. The collective bargaining parties and individual actors resorted to them frequently and generally obeyed their rulings.

When Adolf Hitler rose to power, the labor courts were not dismantled, but the Nazis invoked their Führerprinzip (leadership principle) to justify rendering them subservient to the political leadership. In practice, Nazi labor courts were heavily biased in favor of employers. This core component of Nazi ideology also sanctioned employers to act unilaterally in a paternalistic fashion in the workplace and admonished employees (p.31) simply to follow the orders of their superiors. In 1946, the Allied Control Council of the four occupying powers enacted Law No. 21, which reestablished local and regional labor courts with judicial independence. German lawmakers integrated elements of Law No. 21 and the old 1926 act to create a new Labor Courts Act, which passed in 1953 and was amended in 1979.34

German labor courts today have the same exclusive jurisdiction over labor and employment law as did the Weimar courts. The system has three tiers: labor courts (Arbeitsgerichte) at the local level; state labor courts (Landesarbeitsgerichte, LAG), which hear appeals; and the Federal Labor Court (Bundesarbeitsgericht, BAG), which is the court of last instance unless a constitutional question is involved. On those occasions, an appeal to the Federal Constitutional Court (Bundesverfassungsgericht, BVG), which is Germany’s supreme court, is possible. European Court of Justice decisions are also binding on all German courts. Local labor courts have retained the tripartite three-judge panels first introduced during the Second Empire. The number of panels in each locality varies, depending on the size of the population. The chair is a full-time judge with a lifetime appointment. The labor minister of each state appoints the lay judges, relying heavily on lists of potential candidates that the trade unions and employers associations suggest. There is no requirement that lay judges have any legal training, and many do not. State labor courts are also composed of tripartite three-judge panels, the difference being that only those with at least five years of experience as a lay labor court judge at the local level are eligible to be appointed to serve on a state labor court.35

The 1953 Labor Courts Act added the Federal Labor Court as a single court of last instance above the state level. The BAG started hearing cases in 1954. It was in Kassel until 1999 when it moved to Erfurt, the capital of the eastern state of Thuringia. The Federal Labor Court is organized into several specialized “senates.” There are currently ten. Each senate hears cases within a subsection of the labor law and is composed of three full-time judges and two lay judges, one drawn from the ranks of employees and the other from the employers. Thus, full-time judges voting as a bloc possess a majority. The federal labor minister appoints all the judges according to the Federal Republic’s general guidelines for selecting judges and, unlike at the lower levels, without consulting employers associations or trade unions. Individual BAG senates hear routine cases. If an appeal addresses a fundamental question of labor law that could set a new precedent, the “full senate” (grosser Senat) of the BAG hears the case. The full senate includes the chief justice of the BAG, four full-time justices, the (p.32) senior chairs of the BAG senates, one lay employee judge, and one lay employer judge. The BAG has continued a tradition first articulated by labor courts of the Weimar Republic that envisions the preservation of “social order” as the principal mission of the industrial relations system and the maintenance of balance between the social partners as the best means to accomplish this end.

The jurisdiction of German labor courts is broad. It covers cases involving employers associations, trade unions, and any dispute between an employer and an employee. The latter include individual cases involving wrongful dismissals, compensation, damages, and complaints regarding the contents of references. Over the last three decades, the number of new cases filed annually has ranged between 350,000 and 660,000. At the end of each year, pending cases have ranged from over 100,000 to over 250,000. The heavy reliance on labor courts to settle individual disputes in German industrial relations has proved to be both extremely slow and highly costly. It even has its own name, “juridification” (Verrechtlichung), which is typically used pejoratively. Juridification is by no means new; it was a feature of industrial relations in the Weimar Republic.36

In the realm of collective bargaining, both the BAG and BVG have explicitly embraced the “parity principle” (Paritätsprinzip) as a guiding doctrine. It holds that neither collective bargaining party should enjoy systematic advantage over the other. In practice, achieving parity entails using “the system of collective bargaining contracts … to balance out the structural inferiority of individual employees when making employment contracts.”37 Courts have protected “collective bargaining sovereignty” (Tarifhoheit) and autonomy—that is, the right to produce private law in the form of collective agreements—free from state intervention, so long as that private law is consistent with statute and precedent and does not knock out of alignment the balance of power between the social partners.38 The parity principle has provided considerable stability even in tumultuous economic and political times because courts punish actors that attempt to use labor market muscle to cripple or to destroy their opposite number. The plainest and most frequent manifestation of courts enforcing the parity principle is in the regulation of industrial disputes.39

Strikes and Lockouts

As mentioned earlier, the Basic Law only explicitly grants freedom of association, but it says nothing about rights or limits regarding industrial conflict.40 Courts in the postwar era have filled this void by producing jurisprudence (p.33) to define the contours of the permissible in industrial disputes. It is now settled law that the German constitution implicitly grants a right to engage in industrial conflict.41 That right has limits, however. A doctrine of German jurisprudence first developed by prominent legal scholar Hans Carl Nipperdy established “social appropriateness” (Sozialadäquanz) and “societal balance” as measures for determining a strike’s legality. Newspaper publishers hired Nipperdy to write a brief for a case involving a two-day strike by the printers union in May 1952. The union struck to protest as inadequate the draft of the Works Constitution Act (Betriebsverfassungsgesetz) that was before the Bundestag and to pressure the government to alter the draft legislation to make it more favorable to labor. The newspapers asserted that the strike was illegal and were seeking a damage settlement from the union. Nipperdy contended that strikes must be socially appropriate and balanced to be legal and presented three assessment criteria: (1) the strike must be directed against an employer or employers association; (2) it must be a strike over wages or working conditions; and (3) the goal of the strike must be the conclusion of a collective bargaining agreement between a union and one or more employers.42

Nipperdy argued that the newspaper strike met none of these criteria. At the time, the court of last instance was the Land labor court of each state, because the Federal Labor Court did not yet exist. Land labor courts in all the states except for West Berlin found the Nipperdy argument persuasive and decided in favor of the newspaper publishers. The case became an important precedent.43

Labor leaders have groused publicly about this interpretation of German law ever since because it confines the subject of legal industrial action to wages and working conditions, thereby precluding strikes to influence government policies or to affect other decisions at a firm, such as investment. Unionists regularly assert that the Nipperdy criteria do not impinge on labor’s “duty” to strike if undemocratic elements ever seize power again in Germany. Fortunately, circumstances have never arisen in postwar Germany that would have led to putting labor’s interpretation to the test.44 Occasionally, unions have staged what have amounted to political strikes in order to influence government policy (e.g., in 1986 during an effort to thwart the amendment of article 116 of the Employment Promotion Act),45 but they have kept them brief and called them “protests” instead of strikes. Governments typically have not challenged such actions in court. The Nipperdy criteria are the oldest postwar precedent in labor law, but challenges to them persist. A minority view in the German legal community has questioned the Nipperdy approach, arguing that since state regulation has become increasingly (p.34) important in industrial relations, labor should therefore be permitted to influence it by using industrial action. The Nipperdy criteria have also run afoul of European jurisprudence. In 1998, the Ministerial Committee of the Council of Europe found a ban on noneconomic strikes to be incompatible with article 6, section 4 of the European Social Charter, which addresses collective bargaining rights. To date, however, no cases have arisen in German courts to prompt changes to the doctrine.46

The first case that came before the newly created Federal Labor Court in 1954, which concerned the right to strike, provided an opportunity to elaborate on the Nipperdy criteria. The court’s ruling, which was handed down in 1955, recognized the strike as a collective and therefore protected action that did not breach an individual labor contract. The ruling included a definition of “legitimate” strikes that not only embraced the Nipperdy criteria of social appropriateness (which came as no surprise because Hans Carl Nipperdy served as the first president of the Federal Labor Court) but also added more qualifications. First, it specified that only parties capable of signing collective agreements as stated in TVG article 2 can engage in industrial disputes, reinforcing the prohibition against political strikes. Second, the court stated that a strike is legal only if it is a last resort (ultima ratio) after all other means to settle a dispute have been exhausted. In other words, it is illegal to strike or to lock out employees without first going through established settlement mechanisms (e.g., negotiation and meditation).47 Third, the 1955 BAG ruling stated that it was essential that the collective bargaining parties maintain an “equality of weapons” (Waffengleichheit), which in practice legalized the option of employers to lock out employees. Lockouts, the court argued, give employers an opportunity to counterbalance the tactical advantage unions have because labor leaders get to pick the location and extent of strikes. The court’s 1955 ruling gave employers substantial discretion in the use of lockouts. It stated that once a collective agreement and any additional contractual peace obligation expired an employer was free to initiate a lockout even if no employee had yet struck. This is known as an “offensive lockout” (Angriffsaussperrung). The ruling also held that employers have no obligation to rehire locked out employees once an industrial conflict ended.48

As German society demonstrated greater affluence and confidence in the postwar democracy, new justices replaced old and jurisprudence evolved. In 1971, the BAG added the concepts of “parity of forces” (Kampfparität) and “proportionality” (Verhältnismässigkeit) as important new refinements of the parity principle that had guided German jurisprudence in industrial (p.35) relations since the Weimar Republic. The court justified the need for these additional criteria by pointing out that strikes adversely affected others beyond the immediate participants and therefore should be contained as much as possible. In practice, proportionality has three dimensions. First, the size of an industrial conflict should be proportionate to what is necessary to achieve the stated goals in the dispute. Second, no side should aim to destroy the other through industrial conflict. Third, the participants in an industrial action must restore industrial peace as soon and as fully as possible once a dispute is over.49

The BAG has used the new criteria to reverse much of the 1955 decision regarding lockouts. In 1971, the court ruled that lockouts merely suspend rather than end the employment relationship; employers therefore must reemploy locked out workers once an industrial dispute has ended before it can hire other employees. In 1980, the court reaffirmed the permissibility of lockouts, but it sought to limit their use through a mathematical formula. The formula itself is somewhat arbitrary; it is largely a product of the specifics of the strike that was the subject of the 1980 case. If less than one-fourth of the workforce in a bargaining district is on strike, an employer may lock out up to one-fourth of the employees in addition to the strikers. For larger strikes, the court argued that the employers needed proportionately fewer lockouts to neutralize a union’s tactical advantage. If between one-fourth and one-half of the employees are striking, an employer may lock out employees until a maximum of one-half of the entire workforce is either striking or locked out. If a majority of the workforce is on strike, lockouts are no longer legal. The BAG in the same decision indicated in passing that offensive lockouts were incompatible with the parity principle, but no test case has arisen since to clarify the matter.50

The 1980 BAG decision sparked considerable speculative discussion within legal circles about “lockout arithmetic.” Experts attempted to use the ratios and reasoning that the court provided to fill in the remainder of the frontier to distinguish proportionate from disproportionate lockouts, but a 1988 BAG decision rejected this exercise. It stated that there is no abstract boundary defining proportionality; each case must be judged on its own merits. The BAG did find that proportionality precludes employers associations from responding to a small strike by locking out huge numbers of employees. Specifically, the court ruled that a nationwide lockout in the printing industry in response to a strike involving fewer than 10 percent of all printing employees was disproportionate. Since the 1980s, lockouts have (p.36) become extraordinarily rare. As a result, no new jurisprudence has been produced on the topic.51

The BAG has also been active in defining permissible behavior regarding strikes. The court allows union leaders considerable discretion over setting the targets, extent, and timing of economic strikes. When selecting targets, union officials pay careful consideration to firm vulnerability, spillover effects, the capacity of local union branches to wage an effective campaign, and the impact on the union’s strike fund. The BAG has used the ultima ratio principle mentioned earlier to make holding a strike vote using a secret ballot a necessary prerequisite to a “full” (unbefristet) strike. Typically only one or two union districts out of a nationwide total of ten to fifteen hold a vote. In the few sectors that have single national contracts, a nationwide strike vote is held. The execution of a strike vote is an internal union matter. Union officials use the process not only to poll the membership but also to maximize internal support and to demonstrate resolve externally. Only union members are permitted to vote, and union officials write and count the ballots. Union officials craft the ballot in a way that leaves no doubt as to the preferred outcome. Union statutes require at least 75 percent of the votes cast to support a walkout in order to proceed with a full strike. Given union officials’ control over the process, attaining at least 75 percent has been routine. If a provisional settlement is reached only after a strike has begun, German unions require a second vote. It takes a supermajority of 75 percent to reject a settlement, with the logic being that it should take the same percentage of the vote to continue a strike as it takes to launch one. This requirement opens up the possibility that a majority could reject a settlement without the “no” vote reaching the 75 percent threshold required to continue a strike. In such instances (which have been rare) the tentative agreement still proceeds through the ratification process.52

The jurisprudence regarding full strikes is relatively straightforward, but it is not so clear regarding other types of strikes. The ultima ratio principle makes wildcat strikes illegal, but the Federal Labor Court ruled in 1976 that “warning strikes”—that is, half-day walkouts in the midst of negotiations—are legal even if they depart from the ultima ratio principle. The court reasoned that warning strikes accelerate reaching a settlement because their intent is to show resolve rather than to apply economic pressure. After the 1976 ruling, some unions took advantage of the exception granted for warning strikes by developing a tactic called “new mobility.” This tactic deploys waves of warning strikes that critics have denounced as crossing the line beyond an expression of resolve. Still, the BAG decided in 1984 and again (p.37) in 1988 not to ban new mobility tactics because each individual action was of the size and scope of a warning strike. In practice these court decisions have eroded the ultima ratio principle.53 The Federal Labor Court has also tackled the difficult issue of sympathy strikes (Unterstützungsstreiks), which are strikes in support of another group of employees who are engaged in an industrial dispute. In 1988, the BAG ruled that sympathy strikes are lawful only when they benefit those for whom the sympathy strikers are striking but not the sympathy strikers themselves. The BAG revisited the question of sympathy strikes in 2007, ruling that proportionality is necessary for such a strike to be legal.54

There has been only one recent court ruling that challenges rather than bolsters the status quo. In June 2010, the Federal Labor Court ruled that a foundational concept of postwar German industrial relations—namely, that each workplace should have only one collective agreement—was incompatible with the German constitution’s protection of the freedom of association. In practice, the ruling makes it easier for small “occupational unions” (Berufsgewerkschaften) to carve out niche positions at choke points in the economy and negotiate contracts that are more generous than those secured by the larger unions. The ruling sent shock waves throughout not only the union movement but also the employers associations. The latter feared more frequent industrial disputes and small unions whipsawing their associations for greater compensation. The employers associations and the larger established unions initially denounced the court’s ruling and jointly proposed legislation to reverse it by extending all aspects of any collective agreement covering the plurality of employees in a workplace—including the “peace obligation” that restricts strikes—to all unions and their members in that workplace.55 The federal government was open to making these changes, but a year after the court ruling, the second largest German union, ver.di, reversed its position and came out against the draft legislation. Ver.di leaders explained that they still supported the principle of “one workplace, one union” but that they did not favor protecting it by making the peace obligation legally binding throughout the German economy. The peace obligation has been the norm in manufacturing, but many of the service sectors under ver.di’s jurisdiction do not have it. Ver.di’s shift stopped the legislation cold.56 So far, the impact of the court ruling has been negligible. Moreover, the willingness of the center-right Merkel government to pass legislation aimed at reversing the court ruling is further evidence of the willingness of leading politicians, regardless of party, to take action to preserve the integrity of the postwar industrial relations regime.

(p.38) Taken in full, courts in postwar Germany have sculpted industrial conflict into a highly controlled exercise of economic muscle to be used solely to settle individual disputes rather than existential struggles between capital and labor. The role of courts in postwar German industrial relations is a prime manifestation of state activism to preserve the status quo. The evidence in this chapter shows a legal edifice that continues to function effectively. It suffers from neither erosion nor exhaustion. Beyond the courts, the postwar German state has bolstered the social partners through the use of tripartite bodies to govern numerous aspects of German society, both economic and noneconomic. These tripartite bodies are therefore worthy of some consideration here.

Tripartite Bodies in Postwar Germany

Germany, like many other northern European countries, frequently uses neocorporatist forms of governance. Distinctive features of the neocorporatist approach include government designation of interest groups (such as employers associations and trade unions) as official representatives of certain segments of society, government consultation with these groups as a part of the decision-making process, and derogation to interest groups of the execution of some traditional government tasks.57 Tripartite bodies composed of business, labor, and government representatives manage all important aspects of the welfare state. For example, in a tradition dating back to the nineteenth century, Germany uses boards consisting of an equal number of employee and employer representatives to supervise management at each of the more than five hundred providers of social insurance (i.e., accident, health, hospice, and retirement insurance). Every six years, Germany holds “social elections” to fill these seats. In practice, the social partners determine who ends up on these boards. The trade unions generally endorse only as many employee candidates at each provider as there are employee seats available. Other candidates rarely enter the race. The result is a noncontested “peaceful election” (Friedenswahl). The employers associations do the same for the employers’ seats. Consequently, German trade unions and employers associations have considerable influence over social insurance providers.58 With the adoption of postal balloting in 1974, participation had been stable at 43 to 44 percent between 1974 and 1993. Participation began to drop thereafter, falling to 30.8 percent in 2005, indicating a deterioration of the social milieu of both business and labor. Participation slipped only marginally further in 2011, dropping to 29.4 percent.59 The social partners also have designated seats on the German (p.39) states’ media councils, which are neocorporatist bodies that advise state radio and television outlets on programming and the use of the media for the public good, and are regular board members on numerous charities and not-for-profit groups.

The most important corporatist body in the German labor market is not an insurance provider but a parapublic institution: the Federal Employment Agency (Bundesagentur für Arbeit, BA). The BA was created as the Federal Employment Office (Bundesanstalt für Arbeit) in 1969 as a part of the Employment Promotion Act (Arbeitsförderungsgesetz, AFG), but antecedents date back to the Weimar Republic. The BA is an independent agency managed by a board of employee, employer, and government representatives. The BA’s duties include job placement (over which it has a monopoly in Germany), the calculation and distribution of unemployment insurance, job creation programs, vocational counseling, and vocational training. The BA has a four-tier structure. Beneath the headquarters in Nürnberg there are ten “regional managements” (Regionaldirektionen), 178 “employment agencies” (Agenturen für Arbeit) and 610 branches (Geschäftsstellen). The principal source of funds for the BA is a payroll tax borne equally by employees and employers. For some time, the BA has also received a supplemental payment out of general revenues to make up for budget deficits, which arise when expenditures exceed the payroll taxes collected.60

When unemployment swelled starting in the 1970s, so did the BA. Between 1970 and 1980, the BA’s budget increased more than sixfold, from an equivalent of €2 billion (4 billion deutschmarks, $2.6 billion) to €13 billion. From 1980 to 1988, it almost doubled, moving to €23 billion. By the turn of the century, the BA had ninety thousand employees; a substantial portion of the staff consisted of bureaucrats trained only in the intricacies of Germany’s complex system for determining individual unemployment benefits. By 2004, the BA’s budget had more than doubled again. It stood at €56 billion, which amounted to 20 percent of total public expenditures. To fund this explosive growth, the unemployment insurance tax, which employees and employers pay jointly, rose from 3 percent of payroll in 1980 to 4.3 percent in 1990 and to 6.5 percent in 1993.61 The unemployment insurance tax remained at that rate until 2007 when the government cut it to 4.2 percent in a bid to stimulate hiring. A series of smaller cuts followed. As of 2011, the tax rate returned to 3 percent. Significant declines in the number of unemployed since 2005 have enabled the BA to avoid massive budget deficits despite the tax cuts.62

(p.40) The tripartite governance structure of the BA gives the social partners control over what is a significant share of total public expenditure. Critics, such as Wolfgang Streeck, assert that trade unions and employers associations have “captured” the BA and subverted its mission to fulfill particularistic needs at the expense of the economy as a whole. A series of publicly subsidized early retirement schemes introduced in the 1980s and 1990s permitted the unions to provide additional benefits to members. Employers used the system to externalize the cost of increasing productivity through labor shedding and to reduce the average age of their workforces. Much of the BA’s active labor market funding that poured into eastern Germany after unification was used to purchase services from training and educational outfits with close ties to trade unions. The government tolerated the social partners’ abuses because it was exploiting the system too. Relatively generous unemployment insurance benefits bought social peace for some time. During the 1990 federal election campaign, Chancellor Kohl pledged that German unification would not require any major tax increases. Immediately after the campaign, which Kohl’s coalition won, the government drew heavily on the BA’s funds in an effort to pay for the rising cost of unification while honoring Kohl’s campaign promise. This dysfunctional use of the BA did not last. Within a few years, the BA’s reserves were exhausted, and the Kohl government introduced a “solidarity surcharge” to income taxes.63

A scandal that engulfed the Bundesanstalt in late 2001 and early 2002 provided an opportunity for reform. It came to light that for years the BA had been falsifying data on its success rate in making job placements. In response, the German government assembled a commission of experts in 2002 headed by Peter Hartz, chief of personnel at Volkswagen, to develop a proposal for a comprehensive overhaul of the BA. The Hartz Commission, at the urging of the Gerhard Schröder government, expanded the mandate of the commission to address the problem of unemployment in general.64 The reforms of the BA, most of which were adopted in 2003 and came into effect in 2004, endeavored to break the bureaucratic culture, to streamline the structure, and to transform the BA into an agile job-placement service. The organization changed its name from the Federal Employment Office to the Federal Employment Agency in order to make the BA sound less like a government agency and more like a private job-placement firm. Changing culture and practice within the BA has been difficult. BA personnel claim that they are far too under-resourced, understaffed, and undertrained to be an effective, consumer-oriented placement agency. Critics point to such claims as indicative of a hidebound bureaucratic mentality that is still (p.41) prevalent in the agency. Management debacles, such as the purchase of ineffectual software in the mid-2000s, have not helped.65 Unemployment has come down in recent years, but the bulk of the progress is due to the labor market reforms of the Schröder government and declining unit labor costs vis-à-vis Germany’s trading partners in the euro area rather than administrative improvements at the BA. Still, the BA remains as a pivotal institution that maintains the social partners’ positions as prominent actors in the German economy and society.

The State as a Source of Support and Stability in German Industrial Relations

In this chapter I have pointed out the central role the state plays in sustaining the German industrial relations system through legislation, courts, and parapublic institutions. This support has remained steadfast despite rotations in governmental power and even in the most difficult of times, such as the 2008 financial crisis. Court rulings starting in the latter half of the 2000s at the national and European levels have posed challenges to the law at the margins, but they evidence neither erosion nor exhaustion. To the contrary, the law and the state still serve as supportive pillars.

In countries where the law and the state have not served as bulwarks (e.g., Japan, the United Kingdom, and the United States), the influence of organized labor and employers associations (vs. individual firms) has declined. In countries where the state has supported the industrial relations system (e.g., France and Spain), trade unions and employers associations have retained influence, despite declining membership. It is not often in traditional taxonomies of industrial relations that Germany is grouped with France and Spain, but when it comes to state support, it is appropriate. There is one important distinction, however. The state has a less visible role in the Federal Republic, which is consistent with Germany’s regulatory preference for providing framework conditions rather than more direct forms of intervention.

I reject the canard that losing the Second World War was a gift in disguise because it permitted Germany to liberate itself from the laws, interest groups, and political deals that had supposedly impeded economic growth. The Second World War did not wipe the slate clean. The postwar industrial relations regime actually consists of laws, institutions, and practices resurrected from prewar times, most with only light refurbishment. All this was accomplished by the first half of the 1950s, that is, before the German economic miracle took off. The restoration facilitated rather (p.42) than hindered growth. This chapter also provides the grain of salt with which to consume organized labor and management’s heavy emphasis on collective bargaining autonomy.

The architects of postwar German industrial relations not only returned to the old slate immediately after the end of the Second World War, they quickly began to write more on it by expanding some institutions that existed only in rudimentary form before the war. The most prominent of these is codetermination, which is the topic of the next chapter.


(1.) Mancur Olson, The Rise and Decline of Nations: Economic Growth, Stagflation, and Social Rigidities (New Haven: Yale University Press, 1982).

(p.233) (2.) Hajo Holborn, A History of Modern Germany, 1840–1945 (Princeton: Princeton University Press, 1969), 285–87; and Michael Schneider, Kleine Geschichte der Gewerkschaften: Ihre Entwicklung in Deutschland von den Anfängen bis heute (Bonn: Dietz, 1989), 51–54.

(3.) Wolfgang Däubler, Das Arbeitsrecht 1: Leitfaden für Arbeitnehmer, 5th ed. (Reinbek bei Hamburg: Rowohlt, 1982), 48. Quotation as cited in Andrei S. Markovits, The Politics of West German Trade Unions: Strategies of Interest Representation in Growth and Crisis (Cambridge: Cambridge University Press, 1986), 32.

(5.) Dieter Schuster, Die deutsche Gewerkschaftsbewegung, 6th ed. (Cologne: Druckhaus Deutz, 1980), 42–43.

(7.) Gerard Braunthal, Socialist Labor Politics in Weimar Germany (Hamden, CT: Archon, 1978), 35; and Boris Stern, Works Council Movement in Germany, Bulletin of the United States Bureau of Labor Statistics 383, miscellaneous series (Washington, DC: Government Printing Office, 1925), 66.

(8.) Gerald D. Feldman and Irmgard Steinisch, Industrie und Gewerkschaften, 1918–1924: Die überforderte Zentralgemeinschaft (Stuttgart: Deutsche Verlags-Anstalt, 1985), 136.

(11.) Bundesarbeitsgericht, “Pressemitteilung Nr. 21/11,” 23 March 2011; Frankfurter Rundschau, 24 March 2011; Wolfgang Streeck, “Gewerkschaften als Mitgliederverbände: Probleme gewerkschaftlicher Mitgliederrekrutierung,” in Beiträge zur Soziologie der Gewerkschaften, ed. Joachim Bergmann (Franfurt/Main: Suhrkamp, 1979), 83–84; and Hans-Eckbert Treu, Dualistisches System der Interessenvertretung und Einheitsgewerkschaftsprinzip: Eine Studie über das Verhältnis von Gewerkschaft und Betrieb (Frankfurt/Main: Rita G. Fischer, 1980), 68–72.

(12.) Carl Mischke, “Industrial Action in Germany,” Industrial Law Journal 13, no. 1 (1992): 13.

(13.) Christopher S. Allen, “Ideas, Institutions and Organized Capitalism: The German Economy Twenty Years after Unification,” German Politics and Society 28, no. 2 (Summer 2010): 140.

(14.) Stephen J. Silvia, “Working Conditions,” in Modern Germany: An Encyclopedia of History, People, and Culture, 1871–1990, vol. 2, L-Z, ed. Dieter K. Buse and Juergen C. Doerr (New York: Garland, 1998), 1092–93.

(15.) Markovits, Politics of West German Trade Unions, 32Thomas Blanke, Rainer Erd, Ulrich Mückenberger, and Ulrich Stascheit, Kollektives Arbeitsrecht: Quellentexte zur Geschichte des Arbeiterrechtes in Deutschland (Reinbek bei Hamburg: Rowohlt, 1975).

(17.) Michael Kittner, Arbeits-und Sozialordnung: Ausgewählte und eingeleitete Gesetztexte, 22nd ed. (Cologne: Bund, 2001), 1394.

(18.) Volker R. Berghahn and Detlef Karstens, Industrial Relations in West Germany (Oxford: Berg, 1987), 26–30.

(20.) Institut für Arbeitsmarkt-und Berufsforschung, IAB-Betriebspanel 2007 (Nürnberg: IAB, 2008); Leo Pünnel and Martin Quecke, Was man vom Arbeitsrecht wissen sollte, 19th ed. (Neuwied: Luchterhand, 2002), 27.

(21.) WSI Tarifarchiv, http://www.tarifvertrag.de.

(22.) Reinhard Bispinck, “Allgemeinverbindlichkeitserklärung von Tarifverträgen—vom Niedergang zur Reform?,” WSI-Mitteilungen, no. 7 (2012): 496–507.

(23.) Directive 96/71/EC, 16 December 1996.

(25.) Reinhard Bispinck and Johannes Kirsch, “Minimum Standards between Collective Agreements and Statutory Provisions,” special issue: “Industrial Relations in Germany: An Empirical Survey,” WSI-Mitteilungen 56 (2003): 44–45.

(27.) Bundesministerium für Arbeit und Soziales, Pressedienst, 13 May 2011; and N24, 14 July 2010.

(28.) Frankfurter Allgemeine Zeitung, 21 September 2011.

(29.) Wolfgang Däubler, “Reform der Allgemeinverbindlichkeitserklärung: Tarifrecht in Bewegung?” WSI-Mitteilungen 65, no. 7 (July 2012): 508–16.

(30.) Stern, 18 January 2010; Bundesverwaltungsgericht, VG Berlin 4 A 439 07; European Court of Justice, C-438/05, 11 December 2007; C-341/05, 18 December 2007; C-346/06, 3 April 2008; C-319/06, 19 June 2008; Diamond Ashiagbor, “Collective Labor Rights and the European Social Model,” Law and Ethics of Human Rights 3, no. 2 (2009), article 5; A. C. L. Davies, “One Step Forward, Two Steps Back?: The Viking and Laval Cases in the ECJ,” Industrial Law Journal 37, no. 2 (2008): 126–48; and Alicia Hinarejos, “Laval and Viking: The Right to Collective Action versus EU Fundamental Freedoms,” Human Rights Law Review 8, no. 4 (2008): 714–29.

(31.) Hagen Lesch, “Schlichtung: Reichen die alten Mechanismen aus?” Unternehmen und Gesellschaft, no. 4 (2005).

(32.) Manfred Weiss, “Labour Dispute Settlement by Labour Courts in Germany,” Industrial Law Journal 15, no. 1 (1994): 14.

(33.) Ibid., 3–4.

(36.) Markovits, Politics of West German Trade Unions, 418–19; Rainer Erd, Verrechtlichung industrieller Konflikte: Normative Rahmenbedingungen des dualen Systems der Interessenvertretung (Frankfurt/Main: Campus, 1978); and Manfred Weiss and Marlene Schmidt, Labour Law and Industrial Relations, 4th ed. (Alphen aan den Rijn, Neth.: Kluwer Law International, 2008), 156–61.

(38.) Thomas Blanke, “Koalitionsfreiheit und Tarifautonomie: Rechtliche Grundlagen und Rahmenbedingungen der Gewerkschaften in Deutschland,” in Die Gewerkschaften in Politik und Gesellschaft der Bundesrepublik Deutschland: Ein Handbuch, ed. Wolfgang Schroeder and Bernhard Wessels (Wiesbaden: Westdeutscher Verlag, 2003), 161.

(p.235) (39.) Renate Jaeger and Siegfried Bross, “The Relations between the Constitutional Courts and the Other National Courts, Including the Interference in This Area of the Action of the European Courts,” Report of the Constitutional Court of the Federal Republic of Germany, Conference of European Constitutional Courts, 12th Congress, Warsaw, 16–17 May 1999.

(40.) Five German states do guarantee the right to strike explicitly in their constitutions: Berlin, Bremen, Hesse, Rhineland-Palatinate, and the Saar (Mischke, “Industrial Action,” 1).

(41.) Jens Kirchner and Eva Mittelhamm, “Labour Conflicts,” in Key Aspects of German Employment and Labour Law, ed. Jens Kirchner, Pascal R. Kremp, and Michael Magotsch (Berlin: Springer, 2010), 199.

(42.) Kittner, Arbeits-und Sozialordnung, 1347Xenia Rajewsky, Arbeitskampfrecht in der Bundesrepublik (Frankfurt/Main: Suhrkamp, 1970), 36–51Markovits, Politics of West German Trade Unions, 44

(43.) H. Otto, Münchener Handbuch zum Arbeitsrecht (Munich: C. H. Beck, 2009), section 285, para. 40–43.

(45.) Stephen J. Silvia, “The West German Labor Law Controversy: A Struggle for the Factory of the Future,” Comparative Politics 20, no. 2 (January 1988).

(46.) Kittner, Arbeits-und Sozialordnung, 1404Weiss and Schmidt, Labour Law, 207–8Wolfgang Däubler, “Das Grundrecht auf Streik—eine Skizze,” Zeitschrift für Arbeitsrecht 4, no. 1 (January–March 1973): 200.

(47.) Mischke, “Industrial Action,” 11; Bundesarbeitsgericht, “Arbeitsrechtliche Praxis” (AP) no. 1 re Grundgesetz Art. 9, Industrial Action, 28 January 1955; and Markovits, Politics of West German Trade Unions, 45–46.

(53.) Bundesarbeitsgericht, 1 AZR 605/75 Art. 9, Abs. 1 GG, 17 December 1976; 1 AZR 342/83 Art. 9 GG, 12 September 1984; 1 AZR 651/86 Art. 9, GG, 21 June 1988; and Weiss and Schmidt, Labour Law, 204–5.

(54.) Bundesarbeitsgericht, 1 AZR 468/83, Art. 9 GG, 5 March 1988; 1 AZR 396/06. Art. 9, Abs. 3 GG, 19 June 2007; and Weiss and Schmidt, Labour Law, 206–7.

(55.) Frankfurter Allgemeine Zeitung, 23 June, 20 July, and 9 September 2010; Frankfurter Rundschau, 23 June 2010; Die Zeit, 1 November 2010; Süddeutsche Zeitung, 14 January 2011; Bundesarbeitsgericht, Beschluss des 10. Senats vom 23.6.2010—10 AS 3/10 and 10 AS 3/10; Gewerkschaft Deutscher Lokomotivführer, Hauptvorstand, “14 Eckpunkte-Papier: Argumentationshilfe zur Tarifpluralität,” Frankfurt/Main, 21 February 2011; Detlev Hensche, “Wider der Tarifeinheitsfront,” Blätter für deutsche und internationale Politik 54, no. 8 (August 2010): 13–17; and Olaf Wittenberg, Tarifeinheit im Betrieb: Ein Auslaufmodell?—Spartengewerkschaften auf der Überholspur (Hamburg: Diplomica, 2009).

(56.) Frankfurter Allgemeine Zeitung, 8 June 2011; and Frankfurter Rundschau, 26 May 2011.

(p.236) (57.) Peter J. Williamson, Corporatism in Perspective: An Introductory Guide to Corporatist Theory (Newbury Park, CA: Sage, 1989), 203–24.

(59.) Frankfurter Allgemeine Zeitung, 17 June 1999; Bernhard Braun, Tanja Klenk, Winfried Kluth, Frank Nullmeier, and Felix Welti, Modernisierung der Sozialversicherungswahlen (Baden-Baden: Nomos, 2008); and Deutsche Rentenversicherung Bund, “Ergebnisse der Listenwahl bei der deutschen Rentenversicherung Bund,” http://download.sozialwahl.de/fileadmin/user_upload/pdf/Ergebnisse/Sozialwahl_2011_Ergebnisse_gesamt.pdf.

(60.) Before 2004, the institutions of the top three tiers of the BA had different names. From top to bottom, they were: Head Office (Hauptstelle), State Employment Office (Landesarbeitsamt), and Employment Office (Arbeitsamt). Eric Owen Smith, The German Economy (London: Routledge, 1994), 196–97; and Deutsche Rentenversicherung Bund, “Sozialwahl 2011,” http://sozialwahl.adlexikon.de/Sozialwahl.shtml.

(61.) Helmut Reuther, Soziale Marktwirtschaft im Schaubild (Bonn: Transcontact, 1990), 60.

(62.) Handelsblatt, 8 September 2004.

(63.) Wolfgang Streeck, “From State Weakness as Strength to State Weakness as Weakness: Welfare Corporatism and the Private Use of the Public Interest,” Max-Planck-Institut für Gesellschaftsforschung, Working Paper 03/2, March 2003.

(65.) Frankfurter Rundschau, 20 February 2002 and 26 May 2004; Handelsblatt, 7 August 2004; Der Spiegel, 24 June 2002 and 3 September 2005; Die Welt, 28 August 2002; and Die Zeit, 3 August 2003.