2.5  Employee Participation	65

2.5  Employee Participation

The term ‘employee participation’ describes methods and concepts utilized to ensure a certain degree of influence of employees in industrial relations.To this means the three strategies that may be distinguished are (1) collective bargaining, (2) shoplevel co-determination and (3) board-level co-determination.132

2.5.1  Collective Bargaining and the Role of Labor Unions

Labor unions (and with them collective bargaining) have a long and substantial tradition in Germany. The history of collective bargaining in Germany dates back to the second half of the nineteenth century century. In the aftermath of the revolution of 1848 national labor organizations, the labor unions, were founded, the first being the unions of cigar workers (1865), book-printers (1866) and tailors (1867). It was the book-printers who in 1873 succeeded in accomplishing the first collective bargaining agreement (Tarifvertrag) in Germany: the book-printers’ union and the association of employers in the printing business agreed that future employment of workers by the employers should be subject to the conditions negotiated by the two groups.133

Attempts of the Bismarck-regime to prevent the rise of the labor union movement remained futile. When, after the death of Bismarck in 1890, theAnti-Socialist Act of 1878134 was abolished, three large centralized labor unions (Socialist, Christian and Liberal) were established and grew rapidly in size. In 1913, the total number of members already approximated the three millions threshold,135 with 13,500 collective bargaining agreements in force.

After the end of World War I, this development continued, not least due to governmental legislation, which for the first time recognized collective bargaining agreements as legally binding and even allowed for individual agreements to be made generally binding through a declaration of the Labor Ministry.136 In 1919 the concept of ‘free’, i.e. without state intervention, collective bargaining was finally incorporated into the Weimar Constitution (Weimarer Reichsverfassung). However, divisions between the unions along their political and ideological orientation, as well as the economic crisis and subsequent mass-unemployment had a debilitating effect on the union movement. Under the Hitler regime both labor unions, as well

132  Of course the legal rules governing employee participation also apply to the GmbH. However, since in particular mandatory board-level co-determination rules apply only to companies with a higher number of employees (500, 1,000 or 2,000 respectively), which typically are organized as stock corporations, for the purpose of this book employee participation is dealt with in the context of theAG.

133  On the history of collective bargaining in Germany see Kronstein 1952, pp. 199 et seq.

134  Gesetz gegen die gemeingefährlichen Bestrebungen der Sozialdemokratie as of 21 October 1878, Reichsgesetzblatt 1878, p. 351.

135  Socialist: 2.5 million; Christian: 343.000; Liberal: 107.000; see Wehler 1994, p. 95.

136  Verordnung über Tarifverträge, Arbeiterund Angestelltenausschüsse und Schlichtung von Arbeitsstreitigkeiten as of 23 December 1918, Reichsgesetzblatt 1918, p. 1456.

66	2  Stock Corporation (AG)

as their counterparts—the employers’associations—were banned and thousands of union members were arrested or murdered. Instead of free collective bargaining, the Nazi regime introduced a centralized system of state control of labor conditions according to the Führer principle.137

In the early post-war years, labor participation mainly concentrated on the establishment level, flanked and promoted by the reinstatement of works councils by the occupying powers.138 At the same time, efforts were made on the side of the readmitted139 unions to overcome the ideological divisions which had weakened the trade unions in the Weimar republic. They finally led to an association of the sixteen largest unions under the auspices of the German UnionAssociation (Deutscher Gewerkschaftsbund, DGB) in 1949, and, consequently, the formation of the Federal Union of German Employer Associations (Bundesvereinigung deutscher Arbeitgeberverbände, BDA) on employer side in 1950.Also regarding collective bargaining, the year 1949 brought two major milestones: since the Constitution for the Federal Republic of Germany (Grundgesetz für die Bundesrepublik Deutschland, GG), entered into force on 23 May of that year, its Art. 9 para. 3 guarantees the right of every individual to form associations to safeguard and improve working and economic conditions, so-called Freedom of Coalition (Koalitionsfreiheit). Measures taken by the public authorities to restrict or impair these rights, especially directed against industrial disputes, are prohibited. The main implication is the freedom of collective bargaining from any form of state intervention (Tarifautonomie). This was paralleled by the enactment of the Act on Collective Bargaining Agreements. (Tarifvertragsgesetz) on 9April 1949, which was amended in 1969 and still constitutes the central legal basis for collective bargaining.

Under this legal framework and fueled by the historically grown political and social influence of labor unions, an extensive regime of collective bargaining agreements developed in post-war Germany. Furthermore, until the mid-1990s collective bargaining in Germany mainly occurred on a sectoral level. With large-scale regional or even nation-wide agreements covering a whole industrial sector (e.g. metalworking, chemicals and public services).140

However, with the growing global competition, changing working conditions resulting from technological innovations and, not least, as a side-effect of the unions’ effortstobringEast-GermanwagesuptotheWest-Germanlevelandthecorrespond- ing introduction of hardship and opening-clauses in collective agreements, a clear decentralization development towards company agreements. (Firmentarifverträge) began. Recent studies, therefore, show more of a mixed result of still prevailing

137  Gesetz zur Ordnung der nationalen Arbeit as of 20 January 1943, Reichsgesetzblatt 1943 I, p. 45.

138  Law No. 22 of the Allied Control Council as of 10 April 1946, Official Gazette of the Control Council in Germany, p. 133.

139  Directive No. 31 of the Allied Control Council as of 3 June 1946, Official Gazette of the Control Council in Germany, p. 160.

140  In doing so a high collective bargaining coverage was reached. Traditional estimations show a coverage rate of 90% for Germany; see OECD, Employment Outlook 1994, p. 173.

2.5  Employee Participation	67

sectoral agreements on the one hand, and a clear decline in union membership and bargaining agreement coverage ratios on the other.141

2.5.2  Shop-Level Co-determination

The second cornerstone of employee participation in Germany is co-determination at ‘shop-level’(betriebliche Mitbestimmung) as realized in so-called works councils (Betriebsräte).

The purpose of works councils is to provide an institutionalized set-up to enable employees to participate in decisions pertaining to the organization and management of the individual business unit (i.e. shop, plant or site) at which they are working. Although also pertaining to participation rights of employees, works agreements (Betriebsvereinbarungen) between works councils and employers are strictly separated from collective bargaining agreements as negotiated by the labor unions. While the latter mainly concern material working conditions, e.g. wages, the works councils are involved in decisions regarding the more formal working conditions, such as industrial safety. Furthermore, the management is obliged to consult the works council if it plans to dismiss an employee of the respective business unit.

Works councils in Germany are governed by the Works Constitution Act (Betriebsverfassungsgesetz, BetrVG ) of 1972. The history of shop-level employee participation, however, dates back to the Weimar Republic, when the first Works CouncilsAct was enacted in 1920. Shortly after the end of World War II, theAllied Control Council reinstated the work councils, which had been abolished under the Nazi regime for being incompatible with the centralized Führer principle.142 Although this re-installment primarily served the self-interest of the occupying powers, i.e. to provide a better supervision over German workers, many of which had played a dubious part under Hitler, this measure laid the foundation for the success story of shop-level employee participation in Germany.

The BetrVG applies to all private enterprises, regardless of their legal form.According to Sec. 1 BetrVG, a works council may be established in any business unit with at least five permanent employees of legal age, three of which have to have worked in the business for at least six months. If these conditions are met, the employees are entitled to form a works council, electing fellow employees as their representatives. The employer must refrain from any actions that could impede or interfere with the formation or work of a works council. A violation is considered a criminal offense under Sec. 119 BetrVG and is punishable with imprisonment up to one year.

The works council formed in a business unit represents only the employees who belong to that specific unit. The employer has to abstain from unlawful interference with its work and must not discriminate between employees elected to the works

141  See e.g. Fitzenberger et al. 2008.

142  Law No. 22 of the Allied Control Council as of 10 April 1946, Official Gazette of the Control Council in Germany, p. 133.