Defensive agreements, open clauses: integrated strategies of worker involvement and collective bargaining against fragmentation and downgrading

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1 Defensive agreements, open clauses: integrated strategies of worker involvement and collective bargaining against fragmentation and downgrading Draft final report Volker Telljohann VS/2013/0379 Introduction Against the background of deep economic crisis, an increasing number of European countries are moving towards a radical change in collective bargaining patterns, characterised by state intervention, which may entail the undermining of long-standing bargaining structures. In most cases, the driving force behind these developments has been the so-called Troika of the European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF). The European Commission s recommendations are clearly oriented towards a general decentralisation of collective bargaining and the introduction of a wider scope for opportunities to derogate from industry-level agreements at company level. In the view of the current European Commission, these are crucial aspects of an employment-friendly reform. This orientation comes along with the conviction that the wage-setting power of trade unions has to be reduced 1. As a result, in the last years the European Commission s recommendations aimed at a radical decentralisation of collective bargaining contribute to the erosion of national and industry-level bargaining. In some countries there had been experiences with derogation agreements even before the crisis. In these cases the intervention of national governments and the pressure on economy deriving from globalisation processes led to the introduction of opening clauses and the possibility to derogate from standards laid down in sectoral collective agreements. In general, the increased use of opening clauses and derogation agreements can be put down to a deterioration in the balance of power between trade unions, on the one hand, and employers and their associations, on the other hand. The research activity culminated in this report which is aimed at deepening the knowledge of phenomena linked to derogation and defensive agreements and opening clauses, in order to better understand and manage their negotiation, implementation and monitoring procedures. Furthermore, the research tried to focus on the risks linked to the processes of decentralisation and to give suggestions about how to successfully strengthen the role of trade unions and employee representation bodies in order to enable them to defend sustainable working standards. 1 See ETUC documents: A different course for Europe: wages and collective bargaining as an engine for growth and stability, April 2014, ; Statement of the ETUC Collective Bargaining Committee on Country Specific Recommendations 2014 concerning wages and collective bargaining systems, June 2014, 14%20EN.pdf

2 A particular focus was placed on the question of how participation practices interact with collective bargaining dynamics linked to derogation and defensive agreements and to what extent information, consultation and participation rights represent an added value with regard to the development of coordinated collective bargaining strategies. Methodology In the context of the present research activity, ten case studies were carried out 2. The case studies involved six EU Member States, i.e. France, Italy, Germany, Spain, Sweden and Denmark. These countries have been chosen for various reasons. Most of these countries are part of the group of Member States 3 towards whom the European Commission issued country specific recommendations, in particular on wages and collective bargaining, since 2012, and more recently at the end of May This selection of countries, characterised by different collective bargaining systems, also allowed the analysis of cases concerning various levels of collective bargaining, i.e. - cross-sectoral collective bargaining (France); - sectoral collective bargaining (Sweden, Germany); - company-level bargaining (Italy, France, Denmark, Spain). With this in mind, the agreements selected for the analysis also cover different typologies of derogation agreement and opening clauses, the so-called defensive agreements. These are indicated as tripartite or bipartite agreements, allowing derogation from provisions set at legislative level or via national, cross-sectoral, industry or company collective agreements. These should occur within certain limits and under given conditions, such as the tie to overcoming a crisis, safeguarding employment, increasing competitiveness, and attracting investments. The six countries also represent different traditions in the field of worker participation, which imply different forms of relationship between employee representative structures and trade union organisations. Among the countries involved we find one-tier systems of interest representation (Denmark, Sweden, Italy) as well as two-tier systems (Germany, France, Spain). Thus, the chosen countries can be distinguished with regard to the characteristics of the respective collective bargaining and worker representation systems and the specific interlinkages between the two systems. Furthermore, there are significant differences among the chosen countries with regard to the concrete experiences in the field of defensive and derogation agreements. In certain countries the defensive purpose is less evident, and these agreements rather represent a different approach to certain issues. There are countries with long-standing and extensive experience in these kind of patterns and other countries where such agreements did not play a major role so far. With regard to the cross-sectoral level, the French National cross-industry agreement of 11 January 2013, for a new economic and social model to foster the competitiveness of the enterprises and the security of employment and the career paths of the employees has been examined. 2 See annexes, including the 10 national case studies and the texts of analised collective agreements 3 BE, DE, ES, FI, FR, IT, LUX, SI among others

3 At a sectoral level the experiences in the German and Swedish metalworking industry as well as in the German chemical industry have been investigated. Most cases, however, regarded the negotiation of derogation agreements at company level: Sanofi (ES), Bosch (ES), Renault (FR), Ceramic Cooperative of Imola (IT), the Cattle Farmers Association (IT) and Danish Crown (DK) have been analysed. The role of governments In most countries, the introduction of opening clauses and derogation agreements was fostered by national governments. In Germany, the negotiation of the agreement that introduced the possibility to derogate from sector-level standards in the metalworking industry, the so-called Pforzheim agreement, was to a certain degree a reaction to the political pressure that the then federal government had exerted by threatening to introduce statutory opening clauses which would have put an end to the priority of sector-level agreements typical for the collective bargaining in the post war period. Also in France the tripartite agreement originated from the French government s Social Conference asking the social partners to devise a social agenda roadmap for the years to come. In Spain national governments enforced a radical strategy of decentralisation via legislation allowing company-level agreements to have unrestricted priority over terms and conditions agreed at a higher level. To a certain extent, this happened in Italy too4, where relatively recent legislation also allows company-level agreements to derogate not only from sectoral agreements, but also from standards laid down by law. Cross-sector and sectoral collective agreements Increasingly, sector and cross-sector agreements have incorporated derogation clauses which allow companies to opt out of the standards specified, including on wages, under specific conditions and circumstances such as economic difficulties. The French cross-sector agreement, subsequently enacted as law, is very broad as it encompasses supplementary health insurance; unemployment insurance; minimum hours for part-time employees; individual training accounts; mobility rules; possibility of company level agreements to protect jobs; information and consultation rights, worker representatives at board level, etc. The agreement introduces the possibility of flexibility measures, also derogatory in regard to the Labour code for companies in economic difficulty, however subject to commitments to refrain from implementing redundancies. Such company agreements are to be concluded for a maximum of two years and during that period the employer cannot layoff any workers, except under specific conditions. At sectoral level, opening clauses permit derogation under certain conditions from the standards specified in sectoral collective agreements. In Germany and Spain, the collective agreements for the chemical industry as well as the Pforzheim agreement signed in the German metalworking industry provide for the possibility to derogate in 4 Article 8 of decree-law 138/2011 provides substantial scope for derogations, and there is evidence that decentralised collective bargaining is using such provisions.

4 exchange for safeguarding or increasing employment levels. The safeguarding of employment may also be linked to agreements on investments and innovation processes. In the case of the Swedish metalworking industry, in 2013, the social partners agreed on a permanent short-time work scheme, thus concluding a process spurred by the massive down-turn in Swedish manufacturing due to the financial crisis in The agreement allows working time reductions with accompanying reduction in pay if the local parties agree. The Liberal Swedish government responded to calls by social partners to propose and pass legislation on subsidized shorttime work. As a consequence, today two systems for short-time work exist one with public subsidisation and one without. In all these cases one can observe the embeddedness of the company level processes of negotiating derogations in higher level regulations defined by the sectoral agreements. Derogations and trade-offs When it comes to the concrete application of opening clauses laid down by law or sectoral collective agreements, company-level derogations mostly address wage components and working time arrangements. Regarding the six company-level case studies carried out in the context of the project derogations included - increase in working time flexibility; - increase in working time without pay increase; - reduction in working time and wages supported by state subsidies; - waiving of benefits above the collective bargaining standards; - cut in variable remuneration; - waiving of holiday pay; - waiving of seniority increases; - shifting of pay increases laid down in sectoral collective agreements; - wage freeze and wage moderation; - employee financial participation scheme to save jobs: setting-up an employee investment company paid through wage reductions; - internal mobility. In most cases derogations include temporary concessions. There are, however, also cases in which derogations have an open-ended character. Examples are the company-level agreements signed at Ceramic Cooperative of Imola (IT) and the Cattle Farmers Association (IT). With regard to the scope of application derogation agreements are usually applied to the whole workforce. One exception relates to the case of Sanofi (ES) where the derogation agreement does not apply to the production workers. This can be considered a positive discrimination clause insofar as the agreement excludes low-wage workers from the application of wage freeze measures. As far as trade-offs are concerned, they mainly focus on protection against dismissals, while a smaller number of cases also include investment guarantees or guarantees regarding production sites. In the case of Bosch (ES), for example, the trade off consists of the commitment that between 2013 and 2015 the company will carry out the investments required to launch the production of a new product.

5 Trade union criteria of application In order to avoid a completely uncontrolled decentralisation of collective bargaining, trade unions have made important efforts to develop clearly defined criteria that have to be applied by companies interested in making use of opening clauses contained in sectoral collective agreements. Here it should be mentioned that the application of opening clauses is not necessarily limited to companies hit by a crisis. As the German and the Spanish cases show, also profitable companies are able to derogate from collectively agreed benefits and regulations in order to improve their cost structure and competitiveness. In 2004, the agreements signed at Siemens and Daimler represented two of the very first cases of application of the scheme then adopted in the Pforzheim agreement. That means that in these cases derogations were already negotiated some years before the crisis and that they were aimed at increasing the competitiveness of the companies. That means that there can be crisis-driven agreements aimed at recovering competitiveness, as well as competitiveness-driven agreements aimed at improving a company s performance, its innovation capacity and the investment conditions. In any case, derogation agreements can only be stipulated provided that jobs are safeguarded or created. It is in fact a shared, dominant position within the European trade union movement that concessions are compensated by a clearly defined trade-off such as investments, employment protection or creation of new jobs. The Pforzheim Agreement, applying to the German metalworking industry, contains a number of further provisions, stipulating for example that derogatory measures should be scrutinised and negotiated by the bargaining parties both at company and industry level; that companies should make comprehensive information available; that the negotiating parties at industry level, rather than local management and works councils, should be in charge of concluding derogation agreements. The works council and the management of the applying firms are, however, directly involved in the bargaining process. Other trade-offs may include the right to further training or participation rights. The experience of German trade unions then shows the importance of a further condition: companies have to be obliged to prove the need for derogations. This also implies that companies have to provide detailed information regarding the economic situation. The employee side therefore should also have the possibility to develop autonomous proposals, thus the right to involve trade union-oriented external experts should be guaranteed, in order to allow meaningful consultation and support the collective bargaining process at company level. Another important aspect concerns the temporary character of derogations. Company-level agreements should thus clearly fix the start and the end of the duration of derogations. It should also be guaranteed that there is a return to collective bargaining standards after the expiry of the period of application of derogations. When it comes to the implementation, some case studies show that, on the one hand, labour concessions tend to have an immediate effect, whereas, on the other hand, the agreed trade-off seems to be less secured, as the effectiveness of employers obligation may be deferred. Such shortcomings show that there is a need to make trade-offs enforceable. Thus, it would be necessary to include in the agreements sanctions in case the trade-off is not respected by the company.

6 Furthermore, it should be guaranteed that derogation agreements cover the whole workforce and not only a part of it. That means that also employees with higher qualification levels should contribute to the concessions agreed upon in the derogation agreement 5. Finally, it is necessary to examine the impact of derogation agreements on competition at branch and regional level. There is, in fact, the risk that the request of one company to negotiate derogations might trigger similar requests of its competitors, and entail downgrading collective bargaining at regional level. Therefore, the single requests have to be examined very much in depth and it is important to apply clearly defined criteria in order to avoid chain reactions. Procedural aspects and coordination rules In order to increase control over derogation agreements, trade unions have been developing a strategy that guarantees an effective coordination between different levels of collective bargaining as well as between the different actors involved in the negotiation process. In the context of the application of the Pforzheim agreement, for example, a new approach to control of derogations was developed. According to the metalworkers union an effective control requires adequate internal procedural standards from the very beginning. As a consequence, coordination guidelines were drawn up which specified the procedural arrangements, respecting obligations to inform and decision-making competences, linked to the negotiation of derogation agreements. The guidelines include, among other things, that applications to negotiate derogation agreements have to be submitted to the union s regional headquarters and have to be decided on by officials at that level on the basis of in-depth information about the company in question. Furthermore, officials at regional headquarters can give local union structures the power to carry out the negotiations, to be supported by company-level collective bargaining committees, whose role consists in ensuring that union members take part in the negotiations. The outcome of the negotiations has to be communicated to the union executive at federal level who has to authorise and take responsibility for the agreement. These clearly defined negotiation procedures may entail a standardisation of negotiation processes and, as a result, also a higher transparency in terms of numbers and contents with regard to the signed agreements. The coordination strategy resulted in an improvement of the control of decentralisation processes and agreements of higher quality. In certain cases, these forms of decentralised collective bargaining have also triggered a stronger involvement of employees, provided trade unions with opportunities to prove their capacity of mobilisation and ensured greater visibility to their added value, thus encouraging trade union membership. This is also due to the fact that the trade union strategy focused on the organisation of membership participation as well as on continuous information of members through the organisation of assemblies and the publication of newsletters. It seems, in fact, to be important to guarantee the involvement of employees in all phases from the very beginning to the implementation phase. In this way the union succeeded in increasing its legitimisation and membership levels. 5 See page 4, reference to the Sanofi agreement, and its positive discrimination clause

7 Strategies of coordination between trade union organisations and company-level bodies of interest representation are also reported from Spain, Italy and the Nordic countries. The case studies have shown that there is a need for coordination between different actors and levels. However, coordination between trade union organisations and company-level structures of interest representations cannot be limited to the national context; it has to be guaranteed at local, national and European level. As the case of Bosch (ES) shows, especially in the case of Multinational Companies (MNCs) there is a need to develop transnational coordination processes in order to avoid a competition between production sites in different countries that necessarily entails a race to the bottom with regard to wage and working conditions. Such an approach would imply, among other things, setting up a European-level coordination group to ensure full transparency of information and not to sign derogation agreements at national level if an exchange and coordination at European level has not taken place. Among the analysed MNCs there has not yet been any attempt to introduce a European-level coordination strategy. Information, consultation and participation In the context of the research, the participative aspects were considered in relation to their capacity to set up and influence procedures to control deviations at the different possible levels at which above-mentioned agreements and clauses can take place. Furthermore, information, consultation and participation rights have shown to be useful in the phase of negotiation as well as in the phase of implementation of derogation agreements. In the case of Bosch (ES) the role and intervention of the employee representatives was supported by the rights regulated in the Labour Law: Workers Statute defines the information, consultation and participation rights of the employee representatives when companies request a substantial modification in the field of working conditions, or the derogation from a collective agreement. The information, consultation and participation rights have thus supported trade unions in the negotiation process. Similar mechanisms are also reported from the other countries involved in the project. In all countries trade unions are in charge of negotiation and in general they are supported by companylevel structures of interest representation that provide relevant information. In Sweden, for example, IF Metall counts on strong local union clubs at the workplaces. This is also the case in Germany where works councils are not authorized to negotiate remuneration and other conditions of employment that have been fixed by collective agreements. They receive, however, in-depth information on the situation of the company it the context of their involvement in the economic committee. Furthermore, works councils have the right to involve external experts which can also be trade union-oriented consulting agencies. These rights that are laid down in the German works constitution act have shown to be extremely useful in the context of the negotiation of derogation agreements. In these cases works councils actively support trade unions in the negotiation process by providing the necessary in-depth information. The expertise of external agencies can be of particular importance when the employee side intends to develop autonomous proposals which are alternative to management strategies. Although similar

8 rights exist in France, in the case of Renault the employee side was not given the possibility to order a counter expertise. In Italy, in the case of the Ceramic Cooperative Imola, management did not respect employee rights in the context of the application of the derogation agreement as it took unilateral decisions with regard to internal mobility. On the contrary, in France, Spain and Germany employee representatives played an active role in the context of joint committees and observatories that were in charge of monitoring and controlling the implementation processes. Conclusions The consequences of the strategy of radical decentralisation are already evident. Over the last ten years and especially after the crisis, trade unions in several European countries have negotiated tripartite or bipartite agreements providing for opening clauses at cross-sectoral and sectoral level, as well as derogation agreements at company level, aimed at safeguarding employment or supporting competitiveness through the reduction of labour costs (wage freeze). In most cases, productivity increases are the result of the extension and flexibilisation of working time. Systems of collective bargaining especially at sectoral level are going to be systematically eroded. The collective agreement itself as an instrument for collectively regulating wages and other employment conditions is increasingly at risk. The developments especially in Southern European countries show that the market-driven determination of wages and working conditions goes hand in hand with the strengthening of employers unilateral power. The risk might be that employers in other parts of the European Union will ask for the same freedom. Opening clauses and derogation agreements may produce negative dumping consequences if a series of conditions are not respected. One of these conditions concerns the full involvement of trade unions at the competent level in the process of negotiation, implementation and monitoring of the terms of such agreements. Given the current scenario, there is also an increasing necessity for trade unions both at national and at European level to reshape and make collective bargaining coordination strategies more effective. There is therefore the need to build facilities to support cross-border coordination of collective bargaining. The methodology of coordination should include a more structured and continuous exchange of information with the aim of developing joint trade union strategies. It might, thus, be useful to apply in the case of MNCs the ten principles of transnational restructuring that were developed by the European Metalworkers Federation in 2005 before negotiating national derogation agreements. At the European level it would, furthermore, be necessary to closely monitor trends and intervene in a coherent and coordinated way with regard to derogation practices and their impact. In particular, there is the need to deepen the knowledge of practice and functioning of such collective bargaining features, in order to properly manage the flexibility they entail. The analysed case studies have shown that company-level structures of interest representation can provide an important support for trade unions when it comes to the negotiation of derogation agreements at company level. In this context existing information, consultation and participation rights have to be defended and where possible extended. In particular, the case studies provided evidence that employee representatives - depend on in-depth information on the economic situation of the company; - need information and consultation processes in good time;

9 - should have the possibility to develop autonomous proposals alternative to those of the management; - need a right to involve external experts in order to be able to develop alternative proposals; - should have the possibility to set up monitoring processes in order to control the implementation of derogation processes; - have to be offered the necessary training measures in order guarantee their effective involvement in monitoring processes. In the case of MNCs these rights have to be guaranteed also at a European level. Times of crisis bring along the risk of compressed rights and working conditions, especially since collective bargaining focuses more and more on restructuring and anticipation of change. Derogation and defensive agreements and open clauses can contribute to the race to the bottom. On the other hand, they can also represent opportunities for trade unions to differently shape labour relations, to introduce innovativeness, to consider new needs of the working population and the whole societies which can represent the roots for new rights. The angle of view varies if one adopts the point of view of negotiators, whose effort tend to underline the added value of trade union, in terms of solidarity, for example. Through the full control of negotiating procedures, trade unions have also been able to drive collective bargaining in the context of derogations. That also means that information, consultation and participation rights are of strategic importance in order to support trade unions in such negotiation processes. Therefore, any attempt to undermine existing information, consultation and participation rights has to be impeded.