Collective bargaining

What it means

Collective bargaining is negotiation between trade unions and an employer or employers' association over pay, working time, benefits and other working conditions. The outcome is a collective agreement, which binds both sides and improves conditions beyond the statutory minimum.

On the employees' side, a trade union always negotiates. If several unions operate in a company, they act jointly. A works council or individual employees cannot conclude a collective agreement, although the council has other rights to information and consultation.

A distinction is made between a company-level collective agreement for one employer and a higher-level agreement for a whole sector, concluded by an employers' association with a higher union body. The ministry can extend a higher-level agreement to employers that are not members of the association.

How it works in practice

The process begins with a written proposal from one side, to which the other must respond in writing within the statutory deadline, addressing each point. Negotiations follow, in which the parties exchange demands and offers and look for a compromise, most often on pay rises and benefits.

If the parties cannot agree, they may turn to a mediator they choose or one appointed by the labour ministry. If mediation does not produce agreement either, they can ask for an arbitrator, whose decision is binding. The employees' last resort is a strike, the employer's a lockout.

For payroll, the collective agreement is an important source of rules. It may set higher premiums, longer holidays, severance pay above the statutory minimum, meal allowances and supplementary pension contributions, all of which have to be reflected in the payroll system and the budget.

What to watch out for

Provisions of a collective agreement that are less favourable to employees than the law or the higher-level agreement are invalid. An employer therefore cannot use a collective agreement to get around minimum standards, such as minimum wage claims or statutory premiums.

Entitlements under a collective agreement apply to all of the employer's staff, not just union members. When budgeting payroll costs and making changes such as collective redundancies, the entitlements of the whole workforce must be taken into account.