10.6092/issn.1561-8048/10138
The German system of wage-setting is based on the idea that workers bargain in a field of balanced powers through exercising collectively their freedom of contract. Works councils play an important role for enforcement and with concern to distribution of salaries in the plant. However, they cannot bargain wages. Parliament also refrains from wage setting on its own or influencing the wage setting process of the bargaining parties since both sides of industry set the labour standards autonomously. Nevertheless, according to the case law of the Federal Labour Court, the employer has to treat his employees equally. Moreover, for the purpose to overcome the structural imparity in the Labour relations, the State provides a collective bargaining system. On top of that, a Minimum wage legislation has been introduced in order to support the wage setting system, which is in the first place a system of self-regulation of collective labour organisations. Minimum wages, however, shall be only additional parts. They surely have to protect workers who are not protected by collective agreements.
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Olaf Deinert
Italian Labour Law e-Journal
Minimum Wage Legislation
Wage-setting in a System of Self-Regulation through Collective Private Autonomy
Text.Serial.Journal
https://illej.unibo.it/
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2019-12-17
2019-12-12
2019-12-17
2020-09-15
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ILLeJ
Olaf Deinert
2019/12/17
10.6092/issn.1561-8048/10138
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Georg-August-Universität Göttingen
1561-8048
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Minimum Wage Legislation
en
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Wage-setting in a System of Self-Regulation through Collective Private Autonomy
https://illej.unibo.it/article/download/10138/9997
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Wage-setting in a System of Self-Regulation through Collective                       Italian Labour Law e-Journal
Private Autonomy                                                                            Issue 2, Vol. 12 (2019)
Olaf Deinert                                                                                      ISSN 1561-8048
olaf.deinert@jura.uni-goettingen.de                                https://doi.org/10.6092/issn.1561-8048/10138




      Wage-setting in a System of Self-Regulation through
                 Collective Private Autonomy
                                                  Olaf Deinert


  1. Introduction. 2. Wage-Setting in the Civil Law System. 3. Equal Treatment. 4. Collective
  Bargaining. 5. The Role of Works Councils. 6. Minimum Wages. 7. Hierarchy of Legal
  Sources. 8. Conclusions.



                                                        Abstract

      The German system of wage-setting is based on the idea that workers bargain in a field of
      balanced powers through exercising collectively their freedom of contract. Works councils play
      an important role for enforcement and with concern to distribution of salaries in the plant.
      However, they cannot bargain wages. Parliament also refrains from wage setting on its own or
      influencing the wage setting process of the bargaining parties since both sides of industry set the
      labour standards autonomously. Nevertheless, according to the case law of the Federal Labour
      Court, the employer has to treat his employees equally. Moreover, for the purpose to overcome
      the structural imparity in the Labour relations, the State provides a collective bargaining system.
      On top of that, a Minimum wage legislation has been introduced in order to support the wage
      setting system, which is in the first place a system of self-regulation of collective labour
      organisations. Minimum wages, however, shall be only additional parts. They surely have to
      protect workers who are not protected by collective agreements.

      Keywords: Wage; Freedom of Contract; Collective Bargaining; Equality Principle; Minimum
      Wage Legislation.




  1. Introduction.

     The German system of wage setting is based on the idea that workers bargain in a field
  of balanced powers through exercising collectively their freedom of contract. Works councils
  play an important role for enforcement and with concern to distribution of salaries in the
  plant. But they cannot bargain wages. Parliament also refrains from wage setting on its own
  or influencing the wage setting process of the bargaining parties since both sides of industry
  set the labour standards autonomously.



  
   Professor of Labour Law, Civil Law and Social Security, Georg-August-Universität Göttingen. This article
  has been submitted to a double-blind peer review process.
Olaf Deinert                                                                             Italian Labour Law e-Journal
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                                                                                                       Section: Theme


2. Wage-setting in the Civil Law System.

   The amount of payment for the worker is, starting from a legal point of view, in the first
place a question of freedom of contract. The labour contract is a special kind of contract of
service of dependent workers. In 2017 the Parliament adopted an amendment to the Civil
Code (Bürgerliches Gesetzbuch – BGB)1 implementing a definition of employee and employer
and of their specific obligations - more than hundred years after coming into force of the
BGB!
   According to section 611a BGB the employee is obliged to work under the direction of
the employer and the employer must pay the “concluded” salaries. This amendment was no
real reform since the same legal situation followed from section 611 BGB which defines the
contract of service because the labour contract is only a specific kind of contract of service.
   Since the labour contract is a normal civil law contract the parties are free to conclude on
the payment, and especially on its amount, as return for the performed work. The parties
enjoy freedom of contract. For labour contracts this freedom follows from the fundamental
right of freedom to exercise a profession under section 12 of the Constitution (Grundgesetz –
GG)2. This freedom of contract is, however, not freedom without limits. There are numerous
limits in this regard. In the first place, the “normal” civil law limits for contracts appear. E.g.,
the parties may not conclude a remuneration which is incompatible with the law. According
to the section 134 BGB, unlawful conclusions are null and void. However, no statute exists
in relation to the employees’ remuneration. The legislator only adopted rules on minimum
wages which entitle the employee to a certain minimum amount of remuneration (infra 6).
Furthermore, according to the section 138 BGB, immoral legal transactions are also null and
void. This is significant also for the labour contracts. The Federal Labour Court has decided
that concluding a remuneration which is more than one third lower than the usual payment
must be considered immoral3. Such starvation wage is not easy to identify since it is not so
easy to discover which payment is “usual”. But the Federal Labour Court also decided that
the wages set out in a collective agreement should be deemed “usual” if the agreement is
applicable to more than 50% of the employers or of the workforce within its geographical
scope4.
   Another limit to freedom of contract in the sphere of wage setting follows from the section
107 para (2) of the Industrial Code (Gewerbeordnung – GewO). According to this statute, the
employee is entitled to money payment. Non-cash benefits are only allowed if this is
compatible with the interest of the employee or the peculiarities of the labour contract and
this may not go beyond the unseizable part of the remuneration.




1 Gesetzzur Änderung des Arbeitnehmerüberlassungsgesetzes und anderer Gesetze of 21 February 2017, in Bundesgesetzblatt,
I, 2017, 258.
2 See Benecke M., Personalauswahl, in Kiel H., Lunk S., Oetker H., (eds.), Münchener Handbuch zum Arbeitsrecht, 4th

ed., 2018, § 31 no. 1-3.
3 Federal Labour Court of 17 December 2014, Case 5 AZR 663/13, in Neue Zeitschrift für Arbeitsrecht, 2015, 608.
4 Federal Labour Court of 22 April 2009, Case 5 AZR 437/08, in Der Betrieb, 2009, 1599.



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3. Equal Treatment.

    The employer has if he follows a general scheme, according to the case law of the Federal
Labour Court, to treat his employees equally5. This means also that he has to pay equal wages
for equal work. Furthermore, the scope of antidiscrimination legislation expressly includes
wages as set out in the section 2 no. 2 of the General Equal Treatment Act (Allgemeines
Gleichbehandlungsgesetz – AGG). That prohibits direct and indirect discrimination with respect
to remuneration on the grounds of inter-alia sex, ethnic origin or age. Discriminatory clauses
are null and void according to the section 7 AGG and the employee is entitled to compensation
and indemnity in cases of discrimination. This must lead to the result that the victim of
discrimination of lower wages payment may not only claim for equal wages but also for
compensation and indemnity. Although not expressly mentioned in the statute it is out of
dispute that the victim is entitled to equal treatment with a comparable employee6, i.e. higher
wages. Finally, article 157 TFEU regulates equal treatment of men and women with concern
to wages and is directly applicable to employment relation7.
    Even if it is unlawful to discriminate on the ground of sex and the victims of
discrimination are entitled to equal treatment, the reality is different. In 2016 the
Government announced that the average remuneration of women was 21% lower than the
men average wages. Adjusted with concern to equal or equivalent work the difference still
came to 7%.8 The Parliament therefore adopted a statute that aims at promoting transparency
of wage schemes which should in the long-term lead to equal treatment of women and men.
    The Act on Transparency of Wages (Entgelttransparenzgesetz – EntgTranspG) explicitly
stresses the prohibition of unequal payment on the ground of sex. It obliges the employers
to set non-discriminatory wages systems. But if the employer applies a collective agreement
it is presumed that this system is not discriminatory (sic!). In the enterprises with more than
500 workers the employer has a duty to assess the equal payment of men and women. Some
bigger firms must publish the results of the assessment. However, there are some doubts if
these instruments will really lead to a change in practice. Therefore, one could think that
individual claims for equal payment would be a more appropriate instrument to bring about
gender equality in the field of payments. One of the most important problem in this field
seems to be the proof of unequal treatment. Sections 10-16 EntgTranspG therefore entitle the
employee to information about the average wages of comparable employees in plants with
more than 200 employees. The employer shall inform about the statistical median of the
wages of the other sex. The problem remains that the statistical median does not satisfy for
proving discrimination. But together with further facts it may lead to a presumption of
discrimination. In that case the employer has to bear the burden of proof according to the
section 22 AGG. Furthermore, the refuse of the employer to give the information about the
average wages of the other sex leads to a reversal of the burden of proof according to the
section 15 para (5) EntgTranspG if the employer does not apply a payment scheme concluded
in a collective agreement.

5 Federal Labour Court of 14 November 2017, Case 3 AZR 515/16, 2018 ECJ 367.
6 Deinert O., Pflichtverletzung, in Däubler W., Bertzbach M., (eds.), Allgemeines Gleichbehandlungsgesetz, 4th ed., 2018,
§ 15 no. 20.
7 CJEU, Case C-43/75 Defrenne II, ECLI:EU:C:1976:56.
8 18 Bundestags-Drucksache 11133, 1.



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4. Collective Bargaining.

   Freedom of contract means formally that the parties are free to agree on whatever content
they like. In cases of the structural imparity like in the labour relation, this freedom seems,
nevertheless, not to exist. If the employee has the only choice to accept the offer of the
employer or to be unemployed, he has no real choice. Moreover, the unemployment
insurance will not pay benefits if the employee decides not to accept an offer unless he
provides reasonable grounds. In this situation of structural imparity in the labour relation
only the employer enjoys effectively freedom of contract while the employee can be
considered free only formally. This leads to a threat for the employee’s contractual freedom.
In those cases, according to the case law of the Federal Constitutional Court, the State is
obliged to protect the fundamental freedom of the weaker party9. Although the fundamental
freedoms are directed towards the State this leads to an indirect effect of those rights in the
private relation of contract parties.
   This is the reason why there exist more limits to freedom of contract of the parties then
those normally set out in the Civil Code. In fact, the State arranged a set of rules aiming at
the employee professional freedom protection. In the first place the State provides a
collective bargaining system for the purpose to overcome the structural imparity in the
Labour relations. According to the Federal Constitutional Court collective autonomy is a
machinery that fits with the positive obligation of the State to protect the freedom of
profession of the employee10. This is only one side of the coin. One could think that the State
could be free to decide in which way he wants to fulfil his positive obligations and providing
a collective bargaining system would be one possible but not the only way of protecting the
employee effectively. But this interpretation would not be compatible with the Constitution
since its article 9 GG guarantees the freedom of organisation. This freedom includes the
freedom of the unions and the employers’ associations to bargain collectively. These
organisations have the right to primarily regulate the conditions for their members and the
State may not set labour standards if the collective parties do so. They enjoy a prerogative of
regulating labour standards through collective agreements11. For this reason, it is also
incompatible with the Constitution if the State sets indicators for wage levels. Censorship of
collective agreements through control of the contents would be a violation of the
Constitution12. Therefore, the guidelines for permissible wages would be inacceptable. For
this reason, the EU economic governance has no impact on wages bargaining.
   No such prohibited censorship of collective agreements lies in the fact that the social
partners have to respect superior law, especially EU law. Therefore, the collective actors may
not violate antidiscrimination law. As the CJEU decided in the preliminary ruling Hennigs and
Mai13, wages schemes in collective agreements discriminating against certain employees are

9 Federal Constitutional Court, of 7 February 1990, Case 1 BvR 26/84, 81 BVerfGE 242 - 255; Federal
Constitutional Court of 19 October 1993, Case 1 BvR 567/89, 89 BVerfGE 214 - 232; See Schmidt I., Einleitungz
um GG, in Müller-Glöge R., Preis U., Schmidt I., (eds.), Erfurter Kommentar zum Arbeitsrecht, 19th ed., Munich no.
38 with further references.
10 Federal Constitutional Court of 4 July 1995, Case 1 BvF 2/86, 92 BVerfGE 365.
11 Federal Constitutional Court of 4 July 1995, Case 1 BvF 2/86, 92 BVerfGE 365.
12 Federal Labour Court of 28 March 2006, Case 1 ABR 58/04, in Arbeitsrechtliche Praxis TVG, § 2 Tariffähigkeit

no. 4, 2006.
13 CJEU Cases C-297/10 and C-298/10 Hennigs and Mai, ECLI:EU:C:2011:560.



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therefore illegal. In the following the Federal Labour Court has decided that wage
differentiations on the grounds of age are unjustified. Discriminated employees may
therefore claim for the payment of the highest age grade14. But if the collective actors
establish a new, non-discriminatory scheme they may, during a transitional period, safeguard
the effective payments of employees which would is no violation of the antidiscrimination
legislation15.
   Wage setting is the predominant subject of collective bargaining. Usually the social
partners conclude on collective agreements in the different branches at the regional level.
But also, agreements with a nationwide scope appear like in the public sector for employees
of the Federal Republic and of the municipalities. Wage agreements are often concluded y
for two years while framework agreements on other working conditions (Manteltarifverträge)
have a longer duration of about five years. Collective agreements have the effect of a statute:
they have a direct and indispensable effect in the labour relation, but only for the parties that
are bound by the collective agreement. This is, according to the section 3 of the Collective
Agreements Act (Tarifvertragsgesetz – TVG), only the case if the employer is a member of the
employer's organisation or has concluded the collective agreement on his own and if the
employee is a trade union member. Collective agreements may be declared generally binding
by the Labour Ministry, but it happens rarely in cases of payment agreements. According to
the Posted Workers Act (infra, 6), only in relation to minimum wages, the possibility of
declaring collectively concluded wages as generally binding has a certain significance.
   This results in that only 46% of the workforce in Germany works in an entity of an
employer who is bound by the agreement16. But wage setting through collective agreements
has much more importance because individual contract parties are able to implement a
collective agreement in the labour contract. Accordingly, some further 23% of the workforce
enjoy rights set out in the agreement by way of orientation to the agreement in individual
contracts17.
   Employers who are bound by the agreement normally offer such possibilities to all their
employees in order to avoid incentives for outsiders to join trade unions.


5. The Role of Works Councils.

    The system of collective labour relations in Germany has a dual structure. The
representation of workers takes place in the first route by freely established trade unions.
Every employee has the right to establish and to join freely trade unions under the freedom
to organise according to article 9 section 3 GG. According to the case law it follows from this
stipulation also that no one can be forced to become a member of a union - negative freedom
to organise18. Therefore, the legitimacy of representation through unions follows from a legal

14 Federal Labour Court of 10 November 2011, Case 6 AZR 481/09, in Neue Zeitschrift für Arbeitsrecht, 2012,
161.
15 CJEU Cases C-297/10 and C-298/10 Hennigs and Mai, ECLI:EU:C:2011:560.
16 Ellguth P., Kohaut S., Tarifbindung und betriebliche Interessenvertretung: Ergebnisse aus dem IAB-Betriebspanel 2018,

2019, 290 - 292.
17 Ibid.
18 Federal Constitutional Court 14 November 1995, Case 1 BvR 601/92, 93 BVerfGE 352 - 357; Federal Labour

Court 19 September 2006, Case 1 ABR 2/06, in Betriebs-Berater, 2007, 163 - 164.

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transaction on a voluntary basis. Besides, the State provides a second system of collective
representation on a democratic basis through elected works councils. According to the section
1 of the Works Constitution Act (Betriebsverfassungsgesetz – BetrVG), the workers in all entities
with at least five employees enjoy the right to elect works councils. Works councils represent
the workforce of the plant and have different rights to involvement. The intensity of these
rights differs by the subject. In some fields works councils are entitled only to information
rights while in others they have also co-determination rights. Works councils can conclude
with the employer on works agreements which have direct and indispensable effects on the
individual labour relations of all the represented employees according to section 77 para (4)
BetrVG.
   Bargaining collectively on wages is predominantly the task of trade unions and employers’
organisations. Their regulatory prerogatives are founded on their constitutional right to
bargain collectively. The social partners in the works constitution have no comparable strong
right since works constitutional rights are not guaranteed by the Constitution. Nevertheless,
works councils are not completely excluded from the wage setting machinery. First of all,
according to the section 80 para (1) no. 1 BetrVG works council has the right and the task to
monitor compliance with the acts, collective agreements etc. to the benefits of the workers.
This includes monitoring the payment entitlements according to the collective agreement.
But this monitoring task does not cover co-determination rights. Additionally, the works
council has a certain co-determination right with respect to classification and re-classification
of employees in payment structure systems according to the section 99 BetrVG. This does
not mean that the works council has a right to bargain on the amount of salaries of the
individual employee. The employee's entitlement follows from the wage system. But the
works council is entitled to co-assess together with the employer in such classification
questions. If the works council dissents the employer has to claim in the labour courts for a
decision overruling the works council’s refuse to consent.
   A co-determination right on the collective wages structure in the plant is set out in the
section 87 para (1) no. 10 BetrVG. But this co-determination right exists only under the
expressly stated precondition that a collective agreement of organisations does not exist. If
this precondition is fulfilled the works council has, nevertheless, no right to co-decide on the
amount of wages. It is only entitled to co-determination on the distribution of a given amount
of wages within the entity. This concerns the salaries of employees in a comparable relation
to other employees.
   This legal situation results in that collective agreements and works agreements on wages
cannot concur in a plant. In the opposite! According to the section 77 para (3) BetrVG, wages
and other working conditions usually regulated through collective agreements cannot be
subject to a works agreement. This means that the social partners at plant level may not even
conclude on higher wages to the employees’ benefit. This rule aims to avoid that works
councils act as “alternative unions” since otherwise compulsory elected works councils
would compete with trade unions with a contribution duty for the employee19.




19Deinert O., Betriebsvereinbarung, in Deinert O, Heuschmid J., Zwanziger B. (eds.), Arbeitsrecht, 10th ed., 2019,
90-91.

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6. Minimum Wages.

    Germany has a long-standing tradition of abstention from legal intervention in the field
of wage setting. The Parliament for a long time fully trusted in a system of self-regulation by
management and labour through voluntarily established organisations. Only for the eventual
case that the system would fail completely in a certain sector the Parliament adopted an Act
which allowed to set minimum working conditions20. But this Act has found no application
at all till now.
    In the 1990s, during a phase of recession, a first evidence of structural failure of the system
was to be seen in the construction industry. Wage setting for construction sites failed to
cover a significant part of the workforce, the foreign posted workers. The Parliament, by
implementing the Posted Workers Directive21, adopted the Posted Workers Act
(Arbeitnehmerentsendegesetz – AEntG)22 which inter-alia made generally binding collective
agreements in the construction industry and in the harbour tug branch internationally
mandatory. Therefore, also the parties under the foreign contract statutes could not deviate
from these agreements.
    In subsequent years the structural problems of the collective agreement system became
more and more evident. Therefore, a political discussion in relation to the setting of statutory
minimum wages started. The unions realised that minimum wages could produce a stabilising
effect on the collective agreements system by setting a minimum standard which no one
could bargain. Nevertheless, conservative politicians were contrary to the statutory minimum
wages. This led to a political compromise through an amendment of the AEntG23. No
national statutory minimum wage should be established.
    Instead the model of the Posted Workers Act should get a wider scope allowing the
conclusion of minimum wages at branch level that could be declared generally binding by
the governmental regulation. Although the Act declares such regulations internationally
mandatory, the function of the Act changed to a certain degree. It is no longer only a private
international law instrument. Instead, the Act became an important part of the wage setting
system. For the areas not covered by collective agreements, the minimum conditions should
be possible by the governmental decree, according to the Minimum Working Conditions
Act24 which however – like the previous Act with the same name25 - has found no application
at all26. Five years later the political environment had changed. The Parliament adopted the
National Minimum Wage Act (Mindestlohngesetz – MiLoG)27. By means of this Act a minimum
wage of € 8.50 was established. Minimum wage legislation is from its structure a support
piece of the wage setting system which is in the first place a system of self-regulation of


20 Mindestarbeitsbedingungengesetz – MiArbG of 11 January 1952, in Bundesgesetzblatt, I, 1952, 17.
21 Directive  96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the
posting of workers in the framework of the provision of services, 1997.
22 Arbeitnehmerentsendegesetz of 26 February 1996, in Bundesgesetzblatt, I, 1996, 227.
23 Arbeitnehmerentsendegesetz of 20 April 2009, in Bundesgesetzblatt, I, 2009, 799.
24 Erstes Gesetz zur Änderung des Gesetzes über die Festsetzung von Mindestarbeitsbedingungen of 22 April

2009, in Bundesgesetzblatt, I, 2009 818.
25 CJEU Cases C-297/10 and C-298/10 Hennigs and Mai, ECLI:EU:C:2011:560.
26 The adoption of MiLoG was combined with the cancellation of the minimum working conditions act under

article 14 of the Tarifautonomiestärkungsgesetz.
27 Article 1 of the Tarifautonomiestärkungsgesetz.



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collective labour organisations. Minimum wages shall be only additional parts. They are
aimed to protect the workers who are not protected by collective agreements. They
furthermore shall support the collective bargaining system by excluding competition to
undercut in terms of wages. This explains why the title of the statute that introduced the
MiLoG and amended the AEntG is “Tarifautonomiestärkungsgesetz”28 (act strengthening the
collective economy).
    The National minimum wage is mandatory. Any employer seated in Germany or abroad,
has to pay the minimum wage according to the section 20 MiLoG, irrespectively of the law
governing the labour contract. According to the section 13 MiLoG a purchaser is liable in
the supply chain as a guarantor. The payment of the minimum wage is under the supervision
by the customs administration according to the sections 14-18 MiloG. Therefore, the employers
have to fulfil documentation obligations and for foreign employers a notification
requirement is applicable. The authorities may impose a fine in the case of failure to pay the
minimum wage (section 21 para (1) no. 9). Furthermore, in these cases tenderers may be
excluded from public tendering according to the section 19 MiLoG.
    The minimum wage was in the beginning € 8.50 per hour. The implementation of a
modification process for the amount of the minimum wage was highly discussed during the
legislation process. Politicians and economics and especially employers were afraid of a
never-ending interaction between increase of legislative minimum wage and increase of
collectively bargained wages. The final result is a procedure with involvement of an
independent commission (sections 4-12 MiLoG). The commission is composed of equally
represented three members of the confederations of employers and unions. Additionally, the
Government will appoint two scientific advisers without any vote and an independent chair
upon the proposal of both sides of industry. The commission will decide every two years on
adjustments (increase or decrease). The decision of the commission shall be the result of
balancing the protection interest of employees, fair and suitable competition a prevention of
unemployment. The commission shall take the evolution of wage bargaining in the past as
guidance. The decision of the minimum wage commission if the basis for a possible
regulation of the Government. This means that the commission cannot on its own change
the minimum wage. On the other hand, the Government has no right to change the
minimum wage autonomously. The Government has the only possibility to accept or decline
the proposal and cannot deviate from the commission’s proposal. The minimum wage
increased in the meantime up to € 9.19 and is expected to increase further from the beginning
of 2020 up to € 9.3529.
    The Parliament was also afraid that a minimum wage could have a counterproductive
effect and harm employment. After the intense debates several exceptions were set out in
the Minimum Wage Act. The apprentices were not entitled to the minimum wage. The same
is true for people working pro bono. Short-term trainees and trainees within an education
program are excluded from the scope of the statute as well. People younger than 18 who
have no professional education may neither claim for the minimum wage. Furthermore, long-
term unemployed people are not entitled to the minimum wage for the first six months of

28Tarifautonomiestärkungsgesetz of 11 August 2014, in Bundesgesetzblatt, I, 2014, 1348.
29Zweite Mindestlohnanpassungsverordnung – MiLoV2 of 13 November 2018, in Bundesgesetzblatt, I, 2018,
1876.

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their occupation. Finally, a limitation concerning the amount of the minimum wage existed
during a transition period until the end of 2017 in the newspaper delivery.


7. Hierarchy of Legal Sources.

    Although social partners enjoy collective autonomy which implies that working standards
should be fixed in the first place by employer’s organisations and trade unions the minimum
wages at branch level according to the AEntG and the national minimum wage according to
the MiLoG are indispensable also for collective actors. It follows from the philosophy of
minimum wage legislation as a certain degree of minimum protection for workers and as
pillars of the collective bargaining system that undercutting minimum wages must be
impossible also for collective agreements. These are standards of lowest level for all
respectively for the specific branch that allow on the other hand better protection through
individual and collective agreements
    The individual labour contract parties may deviate from collective agreements to the
advantage of the employee according to the favourability principle in the section 4 para (3)
TVG. This indicates the collective bargaining shall overcome the structural imparity in the
labour relation. The employee is free to conclude on wages, but not below the level set out
in the collective agreement.
    The Works Constitution Act does not contain such a favourability principle. The Federal
Labour Court has, nevertheless, decided that works agreements are governed in the same
way by the favourability principle30. According to the section 77 para (4) BetrVG the works
agreement has compulsory effects. But that shall not prevent the parties from the conclusion
of better conditions for the employee. In the field of wage setting this is, as we have seen, of
low importance since the works councils may not be engaged in bargaining earnings. As it
was described earlier, the favourability principle has insofar neither importance for the
relation between collective agreements and work agreements.
    The labour contract parties often conclude on payments beyond the collective agreement.
This leads to the question if the employer may reduce the additional payment in the case of
increase of the remuneration guaranteed by the collective agreement: in case of such increase
he may want to reduce the additional payment to the same extent with the result that effective
payment will remain the same and the increase of collectively guaranteed payment will cost
nothing. The courts interpret the conclusion on additional wages in a way that it contains the
implicit right of the employer to count it against later collective wage increases31. They,
furthermore, hold that a collective agreement may not prohibit the employer from doing so
since this is a question of the individual labour contract which cannot be governed under
collective autonomy32. Following this, the employer can freely decide if the employee will
enjoy the collective wage increase or not. If he does so, he must apply his decision uniformly

30 Federal Labour Court of 16 September 1986, Case GS 1/82, in Arbeitsrechtliche Praxis BetrVG, § 77 no. 17,
1972.
31 Federal Labour Court of 27 August 2008, Case 5 AZR 830/07, in Neue Zeitschrift für Arbeitsrecht, 2009, 49 -

52.
32 Federal Labour Court of 16 June 2004, Case 4 AZR 408/03, in Arbeitsrechtliche Praxis TVG, § 4 Effektivklausel

no. 24.

https://doi.org/10.6092/issn.1561-8048/10138                                                                        9
Olaf Deinert                                                                 Italian Labour Law e-Journal
                                                                                    Issue 2, Vol. 12 (2019)
                                                                                           Section: Theme


to all the employees in the plant. Otherwise the wage structure in the plant will change
because the distribution system changes. In this case works council has a co-determination
right according to the section 87 para (1) BetrVG concerning wages structure (supra, 5)33.
Again, we can see that works councils may not bargain on wages. They can only influence
indirectly on wages through co-determination on distribution of a certain amount. In
German language this is described as “Topftheorie” (pot theory) according to which the works
council has no influence on the contents of the pot.


8. Conclusion.

   The German system has a long-standing tradition to trust in the collective bargaining of
wages. The decrease of power of collective economy led to Parliament's intervention through
a system of a mandatory national minimum wage and the possibility to establish nationwide
sectoral minimum wages. This minimum wage policy aims at protecting individual workers
as well as setting pillars in order to stabilise the collective bargaining system. Minimum wages
based on collective agreements may override regulatory minimum wages, but only to the
advantage of the employee.
   The priority for social partners entitles only employer, employer’s organisations and trade
unions. Works councils may not establish their own wages policy. Their role conisists in
monitoring and to co-determining wage distribution (not the overall amount).
   Although antidiscrimination legislation prohibits unequal payments on the ground of sex,
gender pay gap still remains a challenge for the German system



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Benecke M., Personalauswahl, in Kiel H., Lunk S., Oetker H., (eds.), Münchener Handbuch zum
Arbeitsrecht, 4th ed., 2018, § 31, 1-3.
Deinert O., Betriebsvereinbarung, in Deinert O, Heuschmid J., Zwanziger B. (eds.), Arbeitsrecht,
10th ed., 2019, 90-91.
Deinert O., Pflichtverletzung, in Däubler W., Bertzbach M., (eds.), Allgemeines
Gleichbehandlungsgesetz, 4th ed., 2018, § 15 no. 20.
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Copyright © 2019 Olaf Deinert. This article is released under a Creative Commons
Attribution 4.0 International License

33 Federal Labour Court of 3 December 1991, Case GS 1/90, in Arbeitsrechtliche Praxis BetrVG, § 87
Lohngestaltung no. 52, 1972; Federal Labour Court of 3 December 1991, Case GS 2/90, in Arbeitsrechtliche
Praxis BetrVG, § 87 Lohngestaltung no. 51, 1972.

https://doi.org/10.6092/issn.1561-8048/10138                                                                  10
