Company Agreement

From Max-EuP 2012

by Ulrich Runggaldier

1. Subject matter and purpose

It is only in German-speaking countries that the term ‘company agreement’ is so firmly established. Legal institutions with similar objectives and tasks exist in other European countries; however, they are not to be equated with the institution of the company agreement. The company agreement is a fundamental component of the so-called ‘works constitution’. The notion, function and aim of the company agreement are therefore only comprehensible when the basic principles of the works constitution are taken into consideration. The role of the works constitution is to settle the conflicting interests of capital and work that exist in a company, enterprise or corporation. § 39(1) Arbeitsverfassungsgesetz (Austrian Labour Constitution Act) reads as follows: ‘The purpose of the provisions on the works constitution and their application is to bring about a balancing of interests for the good of the employees and the company’. A similar provision is contained in § 2(1) Betriebsverfassungsgesetz (German Works Constitution Act). As a rule, the aforementioned balancing of interests takes place through the conclusion of company agreements.

The company agreement itself is an agreement on company matters concluded between the employer and the works council within the scope of its competence. The company agreement is to be concluded by the employer and the works council and recorded in writing. The employer is to publicize the company agreement by displaying it in an appropriate place in the workplace.

The company agreement is not permitted to regulate all matters. The law specifies which matters can be the subject of a company agreement. Austrian law explicitly states those areas and matters that are subject to regulation by company agreement by law or collective agreement (§§ 29, 96, 96a, 97 Labour Constitution Act), including the introduction of inspection measures and technical systems to monitor the employees in so far as these measures have an effect on human dignity (Menschenwürde), but excluding regulations that concern wages.

According to German law, however, wages and other working conditions, which are regulated or are usually regulated by a collective labour agreement, cannot be the subject of a company agreement. This does not apply if a collective labour agreement specifically allows for the conclusion of supplementary company agreements. This means that the collective labour agreement has precedence over the company agreement. Therefore, it is also established that the regulatory level of a company and the company-external regulatory level are to be distinguished, whereby those involved in the company agreement are to take the requirements of the relevant collective agreements into consideration.

The company agreement has direct and binding force and, in this respect, it is similar to collective labour agreements. The direct effect of a company agreement means that it has the same impact on the employment contract as a statute. The regulations of the company agreement therefore have a legislative effect. The binding effect indicates that the company agreement may not be waived by the employee and employer (favourability principle). As long as nothing to the contrary has been agreed, the company agreement itself can be terminated within a period of three months. According to German law, only company agreements concerning matters of enforceable employee participation can continue to have effect. Company agreements concerning matters that are solely subject to voluntary employee participation have no continued effect. In Austrian law it is essentially the reverse.

According to German law, insofar as there are no statutory or collective regulations in place, the works council is to co-determine certain matters (eg the start and end times of the daily working hours as well as the introduction and application of technical systems, the purpose of which is to monitor the behaviour or performance of the employees (§ 87(1) Works Constitution Act)). If agreement cannot be reached, then the arbitration committee (Einigungsstelle) is to decide on the matter. This body performs the function of a mediator (mediation) and—in certain circumstances—also the function of a decision maker. The judgment of the arbitration committee replaces the agreement between the employer and the works council. Consequently, this means that the works council can enforce a corresponding regulation. However, the situation is different for the voluntary company agreement. An agreement of this kind cannot be enforced but can only be reached if both parties agree on an appropriate conclusion (§ 88 Works Constitution Act lists company measures that can be regulated in a voluntary company agreement, but that list is not exhaustive).

In company practice ‘semi-formal works agreements’ (Regelungsabreden) are very common. The agreement is an informal contract between the employer and the works council, which merely serves to entitle and obligate the parties to each other. Hence, the semi-formal works agreement displays no legislative effect. This is similarly applicable in Austria with respect to so-called ‘informal company agreements’ (freie Betriebsvereinbarung), ie a company agreement that regulates matters without a legal basis in law or in a collective labour agreement. Company agreements of this kind are invalid, but they can still result in contractual law effects.

2. Trends in the development of the law

The company agreement as an agreement between the works council and the employer was not provided for in the German Works Councils Act 1920 (Betriebsrätegesetz). Nevertheless, the agreement models regulated by this law were designated company agreements (or work rules) a few years later. According to the prevailing opinion they became part of the contract of employment. On the basis of the ‘Act on the Regulation of National Labour 1934’ (Gesetz zur Ordnung der nationalen Arbeit, also valid in Austria from 1938), the employer was responsible for issuing the work rules. The Kontrollratsgesetz No 22 (1946), which was enacted shortly after World War II, re-introduced the company agreement as an institution and works councils could be elected again. Legal standardization was only achieved in Germany through the Works Constitution Act 1952 (Betriebsverfassungsgesetz). Since then, the provisions of the Works Constitution Act 1972, as amended on 25 September 2001, have been applicable (particularly § 77(1)–(6)). A similar development can be found in Austria. In 1947, the legal institutions of the company agreement and work rules were newly regulated and were eventually incorporated into the Labour Constitution Act (Arbeitsverfassungsgesetz), enacted in 1973 (§§ 32 ff). Currently, no significant reforms or revisions to the company settlement are planned in Germany or in Austria. To what extent Union law will require the remodelling of company agreements under German and Austrian law remains uncertain.

The agreements between employer (company) on the one hand and employee or union representatives on the other are subject to less legislative and judicial control in other Member States, particularly France, Spain and the UK.

In these states there is no legal institution comparable to the company agreement of German and Austrian law. Essentially, it is to be assumed that in those states the negotiating structures that have developed on a company level have been only unsatisfactorily or not at all regulated by statute. This development raises many questions that will likely remain unresolved in the immediate future. In most cases, informal agreements are reached and/or written agreements are concluded (often with the participation of trade union representatives) between the employer and employee representatives.

In French law, the Convention d’Entreprise or d’Etablissement (business collective agreement) can be qualified as a functional equivalent of the company agreement inasmuch as it is concluded between the employer and the trade union representatives (Délégué Syndical) of the relevant trade unions. In contrast, the Comité d’Entreprise does not represent a functional equivalent to the works council; co-determination only takes place in the form of consultation and administration of social and cultural activities. However, the ‘Law on Social Dialogue’, adopted in 2004, does recognize the non-union company agreement. According to this agreement, employee representatives in the works council can also—in the absence of a union partner—conclude an agreement (Accord d’Entreprise) with the employer, which can also deviate downwards from higher ranking tariff provisions. This is under the condition, however, that a superordinate, generally binding branch level collective agreements (Convention Collective) permits such an agreement. The superordinate collective agreements also determine the subject matter of such an agreement. There are no restrictions on approval.

In Italy, a statutory regulation of agreements between the employer and the workforce (or the union workplace representatives) is also absent. Accordingly, it is not clear how company level negotiations are to occur or who, as negotiator, is to deal with the employer on this level. However, the ‘Interconfederal Accord on the Establishment and Mode of Operation of the Company Trade Union Representatives’ (accordo interconfederale in materia rappresentanze sindacali unitarie (RSU)) was reached in 1991 (and later updated in 1993). The RSUs that were established in line with this accord consist of elected representatives from the workforce (two-thirds) and union representatives (one-third). Generally, the competence to conclude contratti collettivi aziendali (ie collective business agreements) concerning individual matters is transferred to the RSU by the superordinate collective labour agreement. In company practice, in most cases, one or more union representatives are assigned to the RSU within the framework of company proceedings. In the ‘Interconfederal Accord of 23 July 1993 on Income and Employment Policy’ the unified company union representatives (generally together with the local union bodies that have signed the national collective wage agreement) are designated as legitimate negotiating partners on behalf of the employees within the course of negotiations and the conclusion of collective business agreements. Consequently, in Italy, the structure and scope of company autonomy is determined by the major trade unions (federations of trade unions). In particular, the three major trade union federations agreed in the above-mentioned Interconfederal Accord of 1993 on a division of responsibilities between the collective industry agreement and the collective business agreement. As a result, collective business agreements are not permitted to create or amend regulations concerning matters that have already been standardized in the national collective industry agreement, whereby the determination of performance-based supplementary payments is at the discretion of each company. In individual cases, deviations from the collective industry agreement are possible on the basis of the principle of speciality.

However, many questions remain open, eg to what extent the collective business agreement has an erga omnes-effect, or the question of the permissibility of adapting binding normative provisions to the particular characteristics of an individual company. It is therefore no wonder that the legally non-binding regulations of the Interconfederal Accord of 23 July 1993 are subject to broad criticism. Many of the commentators have called for reform of the company-level negotiation and agreement. In particular, they have called for collective business agreements to have direct and binding force and display an erga omnes-effect as regards all employees, and for a broadening of the range of matters that can be regulated by a collective business agreement.

The Spanish works constitution law is even more complicated than the Italian, particularly concerning agreements and informal agreements between employees and employers on a company level. Numerous variations of the collective agreement fall under the term Convenio Colectivo (eg the collective labour agreement, the collective business agreement or also the collective company agreement and the company agreement); therefore there is fundamentally no differentiation between collective business agreements and the company agreement. The Convenio Colectivo can also be concluded parallel to the works council and/or the workforce representatives and the union department in the company. Statutory regulation of the acuerdo de empresa (company agreement) has not taken place; for this reason it relies on the general law of contract and the solution is sought in the corresponding application of one or other of the provisions to the Convenio Colectivo.

Finally the legal position in the UK shall be briefly addressed. In general, a British ‘company agreement’ is an agreement concluded between the employer and the shop steward acting for his trade union (collective labour agreement). With regard to matters concerning working hours, the workforce agreement is also pertinent (see the Working Time Regulation 1999, Sch 1).

The collective labour agreement is applicable to the contracting partners if the contrary has not been expressly agreed, but not as a contract in the usual sense of the word as it is not binding. The content of the agreement is incorporated into the employment contract by virtue of presumed adoption. The objects to be adopted are the working conditions contained in the agreement. Their inclusion in the employment contract has the advantage that the entitlement remains if the employer withdraws the recognition of the union, however with the disadvantage that the parties to the employment contract are not prevented from agreeing on worse working conditions on the basis of ‘freedom of contract’.

From the brief overview of law concerning company agreements in key Member States, the following questions still remain unresolved and/ or contentious.

The relation between the regulations above the company-level on the one hand and the company-level regulations on the other is particularly problematic. This applies, for example, with regard to the barring clause of § 77(3) Works Constitution Act (Germany); to the restriction by law of the regulatory powers of the company parties in Austria; and to the ambiguities concerning the extent of the company parties’ authority of regulation regarding the specifications of the collective bargaining parties in Italy. From a legal policy perspective, an increased regulatory autonomy of the company parties, which is not overly limited by the branch-level collective labour agreement, is called for: the company parties know the company’s (enterprise’s) economic situation and the wishes and criticisms of the workforce better than the detached ‘trade union leaders’. These needs are to be met by the opening clauses established in Germany and (partly) in Austria. However, these clauses have not achieved the aims expected on their implementation; they are therefore not a gold standard in diffusing conflicts between the regulatory levels and/or between the industry collective wage agreements and the branch-level collective labour agreements on the one hand and the company agreement on the other hand.

The question remains whether the extension of company autonomy through legislation conflicts with the notions of employee protection, particularly, for example, in Germany and Austria, where strikes seeking the implementation of further regulatory measures by the works councils are not permitted. In any case, many employees can expect more from the company-external union than from the conclusion of company agreements.

In spite of this, projects to unify the legal institution of company agreements have been resisted at Union level. The relevant national institutions jealously guard their own systems and have shown no inclination of moving towards a standardized system. Even the much-lauded open method of coordination might not promote harmonization in this field.

3. Harmonization projects

Union law has, until now, not addressed the subject area of company agreements between the employer/enterprise and the employees and/ or union representatives. At best, Dir 2002/14 of 11 March 2002 can be qualified as a first step towards the development of common standards in Union law. The aim of this directive is to determine a general framework with minimum requirements on the employee representatives’ right to information and consultation from the enterprises and companies situated within the European Union. The information and consultation is to take place amid a spirit of cooperation between employee representatives and employers.

The term information refers to the ‘transmission of data’ from the employer to the employees’ representatives. This data is intended to give the representatives the opportunity to acquaint themselves with information and to examine it. Consultation, according to the Directive, means the exchange of views and establishment of dialogue between the employees’ representatives and the employer.

The information concerns the economic situation of the enterprise or company; information and consultation relate to the structure and foreseeable development of employment and decisions likely to lead to substantial changes in the organization of work or contractual relations.

The information and consultation are to take place in a way that the employees’ representatives are able to examine its contents and comment on it within a reasonable period of time.

Regulations which (could) affect company agreements are not to be found in this Directive. Therefore, the bottom line is that there are no provisions for the standardization of the various (normatively binding) agreements between employers and employees’ representatives and/or union representatives in European law. The written agreements between the particular negotiating bodies and the enterprise (corporation) management regarding the establishment of a European Works Council can only be partly qualified as a company agreement. This agreement only regulates the way in which European works council law should be organized and which functions it should perform.


Ulrich Runggaldier, ‘Flexibilisierung des Arbeitsrechts und Tarifvertragsrecht: Österreich und Italien im Vergleich’ [2003] Industrielle Beziehungen 41; Bruno Caruso, ‘Sistemi contrattuali e regolazione legislativa in Europa’ [2006] Giornale di Diritto del Lavoro e di Relazioni Industriali 581; Alberto Pizzoferrato, ‘Il contratto collettivo di secondo livello come espressione di una cultura cooperativa e partecipativa’ [2006] Rivista Italiana di Diritto del Lavoro 434; Franz Gamillscheg, Kollektives Arbeitsrecht, vol 2 (2008) 756 ff; additional literature regarding Spanish, French and English law on collective agreements in Franz Gamillscheg, Kollektives Arbeitsrecht, vol 2 (2008) 757–9; Hans-Christoph Matthes, ‘§ 328 ff, 1462 ff’ in Münchener Handbuch zum Arbeitsrecht, vol 2 (3rd edn, 2009); Rudolf Strasser, ‘§§ 29–32’ in Rudolf Strasser, Peter Jabornegg and Reinhard Resch, Kommentar zum Arbeitsverfassungsgesetz (looseleaf, 24th supplement, 2010).

Retrieved from Company Agreement – Max-EuP 2012 on 15 June 2024.

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