German Act on Compliance with Collective Bargaining Agreements passed – what companies can now expect
With the German Federal Council's approval on 27 March 2026, the German Act on Compliance with Collective Bargaining Agreements (Bundestariftreuegesetz, BTTG) has now been passed. This brings to an end a drawn-out and controversial legislative process. The Act entered into force on 01 May 2026. The most significant change is that, for the first time, the German government is making it mandatory for contractors to comply with collectively agreed working conditions as a prerequisite for being awarded contracts, even if the contractor itself is not bound by a collective bargaining agreement.
Scope of application – federal contracts with a value of EUR 50,000 or more
Principals covered by the Act include the German government or a legal entity under public or private law in which the German government has a majority interest or which are subsidised by the German government by more than 50 %. The procurement procedures of the federal states and municipalities – which, with the exception of Saxony and Bavaria, already provide for comparable arrangements – remain unaffected. At federal level, the Act's provisions apply to the award and performance of public works and service contracts with a value of EUR 50,000 or more (excluding VAT), and in exceptional cases EUR 100,000 or more. While earlier drafts still included simple supply contracts, these, along with services provided by the German Armed Forces (Bundeswehr) or defence-related contracts, are now excluded from the scope of application. Consequently, the Act will not apply, for example, to the numerous contracts expected in the coming years to meet the German Armed Forces' requirements as part of efforts to enhance defence capabilities.
Commitment to compliance with collective bargaining agreements
The core component of the Act is the "commitment to compliance with collective bargaining agreements": Federal contracting authorities must impose a binding obligation on their contractors, as well as their subcontractors and commissioned temporary work agencies, to guarantee the employees deployed for the duration of the contract at least the working conditions previously laid down by the Federal Ministry of Labour and Social Affairs (BMAS) by statutory instrument. These working conditions relate to
- remuneration (including collectively agreed minimum wages, pay grades and supplements for night work, shift work and extra hours),
- minimum annual leave,
- maximum working hours, minimum rest periods and breaks,
although requirements relating to leave and working hours do not apply to contracts only lasting up to two months.
If a company is already bound by a collective bargaining agreement, this does not exempt it from the obligation to adhere to collective bargaining agreements as set out in the BTTG. In the event of a conflict, at least the working conditions of the "more representative collective bargaining agreement" established by the statutory instrument issued by BMAS must be applied. In addition, the favourability principle applies, meaning that more favourable conditions arising from the company's own collective bargaining agreement continue to apply.
According to the explanatory memorandum to the Act, the above obligations apply only "to the extent and for as long as" employees are deployed to perform the public contract. This inevitably leads to chaos in practice, as employees are frequently deployed to carry out both federal and private contracts.
Contractors are also liable, regardless of fault, for ensuring that their subcontractors and temporary work agencies comply with these obligations. They are further required to document and provide evidence of compliance with the collectively agreed working conditions.
The Act provides for the possibility that the contractor may, in principle, be released from this liability under the BTTG by submitting certificates. However, this applies only insofar as no insolvency proceedings have been opened against the assets of the subcontractor or temporary work agency – which, in practice, is likely to be the main scenario for subcontractor liability. The pre-qualification option therefore does not provide any real protection.
Information and documentation obligations
The Act requires contractors to inform their employees of the applicable collectively agreed minimum working conditions set out in the relevant statutory instrument by the fifteenth day of the month following the first day of work carried out in performance of the contract. BMAS intends to provide a template for this purpose. If the employer fails to inform the employees, this in itself constitutes a breach of the contractual terms, which may result in contractual penalties and, depending on the severity of the breach, termination of the contract. Furthermore, the contractor must document and provide evidence of compliance with the relevant working conditions.
Monitoring and penalties
To determine which collective bargaining agreements must be complied with, the draft provides for a clearing committee with equal numbers of representatives for both sides, which BMAS must consult before issuing a statutory instrument. Monitoring compliance with the Act will be the responsibility of a newly established "inspection committee for compliance with collective bargaining agreements", set up within the German Pension Insurance Knappschaft-Bahn-See, which – unlike what was previously envisaged in the German 'traffic light' government's draft – will no longer act on a random basis, but only where there are sufficient grounds to suspect a breach. In the event of breaches, a contractual penalty of up to 1 % of the contract value per breach (up to 10 % in the event of multiple breaches) may be imposed and the principal reserves the right to terminate the contract without notice for good cause.
From 1 January 2028, the inspection committee for compliance with collective bargaining agreements will be authorised to request employees' remuneration data directly from the Data Processing Centre of the German Pension Insurance via an electronic request procedure. Until then, the standard documentation review procedure will remain in place.
Criticism: more red tape for no better collective bargaining coverage
The Act is being met with considerable resistance from employers' and trade associations. The Confederation of German Employers' Associations (BDA) criticises the fact that the Act forces companies into a disguised form of compulsory collective bargaining agreement, which undermines both their collective bargaining autonomy and their competitiveness. It argues that any company bidding for public contracts is effectively forced to apply certain collective bargaining agreements, with the result that existing, negotiated collective bargaining agreements lose their significance.
Similar concerns are raised by the General Association of Personnel Service Providers (GVP). The association, for instance, criticised the fact that collective bargaining agreements in the temporary employment sector – a sector with a collective bargaining coverage rate of around 90 % – are structurally disadvantaged compared to sectoral collective bargaining agreements in other sectors. It argues that personnel service providers bound by collective bargaining agreements will likely have to apply collective bargaining agreements from other sectors within the scope of the BTTG in future, which would contradict collective bargaining autonomy.
There is unanimous criticism of the additional bureaucratic burden associated with the Act. By establishing a clearing and inspection committee and imposing extensive obligations on authorities and companies regarding inspection, documentation and evidence, the Act creates new administrative burdens that place an additional strain on small and medium-sized enterprises in particular.
The construction industry also voiced criticism following the passing of the Act. The Central Association of the German Construction Industry (ZDB) rightly points out that the actual purpose of the Act – to strengthen collective bargaining coverage – is unlikely to be achieved: Anyone who fulfils collective agreement requirements on a project-by-project basis, without committing to a collective bargaining agreement on a permanent basis, is considered to be in compliance with the Act. A structural impact on the collective bargaining coverage rate is therefore not to be expected. The ZDB therefore called for an impact assessment to be carried out in a few years' time.
Smaller companies and those not bound by collective bargaining agreements in particular will be affected by the fact that calculating tenders will become significantly more complex in future, as for every potential federal contract it will be necessary to assess which working conditions under which collective bargaining agreements are relevant and what additional costs their application – broken down by pay grades, working time arrangements and leave entitlements – actually entails. Overall, this could lead to a weakening of competition, even though the BTTG was actually passed with the noble aim of strengthening competition by creating fairer framework conditions.
There are also interesting developments at state level. The Brandenburg state government (SPD/CDU) has announced that it will not raise the minimum wage for public contracts, which currently lies below the statutory minimum wage, but instead intends to rely on a collective bargaining compliance scheme, through which the minimum remuneration is to be guaranteed in future by relevant collective bargaining agreements.
Conclusion and recommendations for action
Through the BTTG, the legislature aims to strengthen compliance with collective bargaining agreements and prevent distortions of competition in public procurement.
It remains to be seen, however, whether the negative aspects will outweigh the benefits: increased bureaucracy for all parties involved, as well as stricter requirements for federal contracts. For companies not covered by collective bargaining agreements, as well as small and medium-sized enterprises in particular, such contracts are becoming significantly less attractive due to the additional documentation and information obligations, as well as the strict liability of subcontractors. In-house collective bargaining agreements are also being relegated to "second-class collective bargaining agreements", as companies will have to adhere to the working conditions set out in other collective bargaining agreements, despite being bound by their own.
Companies wishing to perform federal contracts – whether as contractors, subcontractors within the supply chain, or as temporary work agencies acting on behalf of a contractor – are advised to familiarise themselves with the working conditions laid down by statutory instrument at the earliest opportunity, to take them into account when calculating their bids, and to apply them while performing the contract. Similarly (irrespective of section 14 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany (AEntG) and section 13 German Minimum Wage Act (MiLoG), with regard to subcontractor liability under the BTTG, companies should evaluate their own compliance structures in order to ensure that working conditions are also adhered to by the subcontractors and commissioned temporary work agencies.
