Remuneration issues may be regulated in collective bargaining agreements or employment contracts. However, it is also legally permissible for companies to conclude a "works agreement on company remuneration regulations".
The "works agreement on company remuneration regulations" is an alternative, in particular, if a company consciously decides not to become part of an employers' collective bargaining association (such as full membership in an employers' association) or if, from the company's point of view, the content of applicable regional collective agreements does not suit the company. The same applies if the possibility of a purely in-house collective agreement is ruled out because the trade union is not prepared to conclude permanent and more flexible solutions that deviate from regional collective agreements in order to protect the regional collective agreement.
In all these constellations and the further constellation of the effective withdrawal of the company from the employers' association, the so-called works agreement on company remuneration regulations is an alternative. It offers a number of advantages for companies. But under what conditions is it permissible for companies to conclude such a works agreement?
From a legal point of view, a works agreement on company remuneration regulations is always permissible if it does not conflict with any normative collective agreement regulations (e.g. normatively applicable regional collective agreements by virtue of membership in the employers' association or normatively applicable collective agreements on remuneration between the employer and the trade union).
It is also permissible if a company has effectively left the employers' association. Such a works agreement is permissible even for companies that are bound by a normative collective agreement for subsections of the workforce, for example, for salaried employees not covered by collective agreements, since their remuneration issues are regularly not conclusively regulated by collective agreements.
Role of the Works Council
In all the cases just mentioned, the introduction and conclusion of a works agreement on company remuneration regulations with the works council is permissible. In this context, the works council has the right of co-determination on "questions related to remuneration arrangements in the establishment" (Section 87 No. 10 BetrVG). The works council even has a right of initiative, i.e. it can proactively approach the company and request it to negotiate in this regard.
If, however, a works council does not want to negotiate with the employer despite the employer's request to negotiate because, for example, it has the legal misconception that only parties to collective bargaining agreements may conclude remuneration issues in collective bargaining agreements, the company can trigger the statutory conflict resolution mechanism of the German Works Constitution Act (BetrVG) as well as call the conciliation board and bring the works council to the negotiating table. There, a joint solution is sought and regularly found with the help of a neutral conciliation board chairman.
Advantages of the Works Agreement
But why should a company opt for a works agreement on company remuneration regulations? – The decisive advantage compared to the collective agreement is that the company can unilaterally determine the level of remuneration if the works agreement is structured correctly, because the works council only has a right of co-determination with regard to the structure of the pay groups and the principles of distribution, but not with regard to the actual level of remuneration.
Accordingly, the company alone determines the specific level of remuneration. The works agreement thus offers companies significantly greater flexibility than collective agreements, as they can - unilaterally without renewed negotiations with the works council - implement generous or small remuneration increases or even zero rounds, depending on the current economic situation.
There are also other advantages. For example, the parties to the agreement may jointly define the contents of the respective pay groups in a customized manner with regard to the occupations in the company and design a transparent company-specific structure among themselves that creates fairness in remuneration. A further advantage is that the parties to the agreement may agree on precise regulations, for example for the development of an employee's remuneration (e.g. in remuneration brackets).
In addition, certainly according to the author's negotiating experience, the works agreement on company remuneration regulations has regularly established itself in the company as an appropriate solution, at least after a certain period of implementation and adaption.
The works councils involved, and their workforces have also regularly accepted it. In addition to a detailed legal analysis of the initial situation, it is helpful to achieve this result by coordinating communication with the works councils when the works agreement is implemented (for example, by means of a works meeting or an explanatory flyer).
Companies should consciously decide which path they want to take on remuneration issues. In doing so, they should weigh up the respective legal, political, and other advantages and disadvantages of each path. They should include the works agreement on company remuneration regulations in their decision as a permissible, creative path.
Author: Dr. Wolfgang Lipinski, Head of the Practice Group Labor and Employment Law at ADVANT Beiten
Note: This article appeared also in F.A.Z.-Personaljournal 5/2021.