German Act on Compliance with Collectively Agreed Pay? An outlook and an overview

What will change as a result of the planned German Act on Compliance with Collectively Agreed Pay?

Compliance with collective bargaining agreements to become a condition in public procurement practice

In its own coalition agreement, the Traffic-Light Coalition Government had agreed to create a legal basis for making compliance with collective bargaining agreements a condition for the awarding of public contracts. Such laws already exist at state level in all federal states except Bavaria and Saxony. However, due to the premature break-up of the Traffic-Light Coalition Government, the proposed legislation was not implemented.

The current coalition agreement also provides for the adoption of a German Act on Compliance with Collectively Agreed Pay (lines 553-556 of the coalition agreement).

The aim of the German Act on Compliance with Collectively Agreed Pay is to strengthen (autonomous) collective bargaining and to guarantee "fair wages" in Germany. In addition, this is intended to implement Art. 9 of the Directive on adequate minimum wages in the European Union (Directive [EU] 2022/2041) (for further information: Flächendeckende Tarifbindung durch die Hintertür?). The deadline for implementing this Directive expired on 15 November 2024.

As the coalition agreement between the CDU/CSU and SPD does not contain any detailed information on the structure of the law, this article is based mainly on the working draft of the Traffic-Light Coalition Government, taking account of the new conditions that have now been agreed in some cases.

New conditions for contracts with a value of EUR 50,000 or more

According to the draft, the award conditions were to apply to contracts with a contract value of at least EUR 10,000 excluding Value Added Tax. Under pressure from the CDU/CSU, the coalition parties have now agreed to raise the contract value to EUR 50,000 (EUR 100,000 for start-ups in the first four years after foundation) (lines 554 f. of the coalition agreement).

The core component of the German Act on Compliance with Collectively Agreed Pay is the "commitment".

The commitment to comply with collective agreed pay is expected to include a binding requirement for federal contracting authorities to ensure that the contractor, as well as its subcontractors and contracted temporary work agencies, grant employees at least the working conditions that the Federal Ministry of Labour and Social Affairs has previously stipulated by statutory instrument for the duration of their involvement in the provision of work and services.

Section 4 of the draft of a German Act on Compliance with Collectively Agreed Pay also grants employees their own direct claim against their employer to be granted the specified working conditions. Irrespective of the underlying contractual conditions, the employee can therefore demand these working conditions from their employer and take legal action if they are not granted.

The working conditions to be determined include remuneration (section 2 (1) no. 1; section 2a German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany), the minimum paid annual leave (section 2 (1) no. 2 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany) and the maximum working hours, minimum rest periods and break times (section 2 (1) no. 3 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany).

The relevant collective bargaining agreements and the working conditions to be observed are determined in accordance with section 5 of the draft of a German Act on Compliance with Collectively Agreed Pay on request by a trade union or an employers' association.

It can be assumed that no changes will be made to the draft legislation.

The awarding authorities of the federal contracting authorities will carry out random checks to ensure that contractors meet their commitment to comply with collectively agreed pay and that employers meet their obligations.

Contractors and subcontractors must prove and document that they are meeting their obligations. However, checks and obligations to provide evidence are to be kept to the necessary minimum. If the

• contractor culpably violates its commitment to comply with collectively agreed pay,
• contractor/subcontractor violates its obligation to provide evidence and documentation,
• employer culpably violates its obligation to comply with working conditions,

the federal contracting authority will establish this by way of an administrative act. The administrative act can be challenged in administrative (court) proceedings. This may lead to exclusion from participation in a procurement procedure for a period of up to three years.

Civil law sanctions are also likely.

The federal contracting authority must agree an appropriate contractual penalty with the contractor for violations as well as an extraordinary right of termination.

Section 11 of the draft German Act on Compliance with Collectively Agreed Pay also establishes subcontractor liability, on the basis of which a contractor is liable, as a guarantor against whom direct enforcement is possible, for violations by the subcontractor of the obligation to pay the minimum wage. Subcontractor liability is modelled on contractor liability as it currently applies under section 14 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany.

The draft of the German Act on Compliance with Collectively Agreed Pay does not include any provisions on fines. The consequences of a violation are potential exclusion from current/future procurement procedures as well as the civil law sanctions described above. The provisions on fines (in particular) in the German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany remain unaffected.

The German Act on Compliance with Collectively Agreed Pay brings some changes, even if the provisions "only" relate to the conditions in procurement procedures.

The German Act on Compliance with Collectively Agreed Pay gives the Federal Ministry of Labour and Social Affairs further scope to extend collective bargaining agreements to employers not bound by collective agreements by way of a statutory instrument. There are two aspects to this:

On the one hand, this already applies to a number of sectors for which the German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany provides for the application of collective bargaining agreements subject to certain conditions (sections 4 (1); 7 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany). In addition, a joint application by the parties to a collective bargaining agreement is required (section 7 (1) sentence 1 German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany).

In future, federal procurement procedures will no longer be limited to these sectors – the requirements will in future also apply to contractors in all sectors. An application by one of the parties to the collective agreement is also sufficient to bring about obligations – the hurdles are therefore lower than for a declaration of general applicability in accordance with section 5 German Collective Bargaining Agreements Act.

During the procurement procedures, increased checks are to be expected.

At present, whether or not the requirements of the German Act on Mandatory Working Conditions for Workers Posted Across Borders and for Workers Regularly Employed in Germany are met is exclusively monitored by the customs authorities. The German Act on Compliance with Collectively Agreed Pay would also place additional obligations on the awarding authorities of the respective federal contracting authorities. In addition to the federal government, the term "federal contracting authority" includes legal entities under federal public and private law. This will significantly increase the number of institutions responsible for monitoring whether the requirements are met.

The obligations of employers who are covered by a generally binding or extended collective bargaining agreement or who are themselves bound by a collective bargaining agreement to provide certain working conditions (section 8 German Act on Mandatory Working Conditions for Workers Posted in Germany) and subcontractor liability (section 14 German Act on Mandatory Working Conditions for Workers Posted in Germany) remain unchanged. For federal procurement procedures, this will (also) result from the German Act on Compliance with Collectively Agreed Pay in future.

Employers not bound by collective bargaining agreements should brace themselves for changes

Companies that (wish to) participate in procurement procedures or wish to be commissioned by companies involved in public procurement should therefore enquire about the relevant collective bargaining agreements and working conditions at an early stage and adapt their working conditions for the duration of the contract in order to meet the requirements of the procurement procedures. It will primarily be important, however, that contractors working on public contracts ensure that they pass on any obligations to which they are subject when awarding contracts to their subcontractors and that they also check that they are complying with these obligations. This is the only way to ensure that contractual penalties and exclusion from public procurement can be avoided. Compliance structures must be created for the awarding and performance of contracts which include (at least random) monitoring of compliance with obligations by subcontractors.