Labour and employment law challenges in the European automotive industry

The automotive industry holds a distinctive position within industrial economies, particularly in Europe, characterised by high capital intensity, complex global supply chains, powerful trade unions and a workforce combining traditional manufacturing roles with highly specialised engineering and software functions. 

In addition, European car manufacturers are facing significant challenges arising from the current technological transformation. The accelerated shift towards electromobility requires substantial investments in battery technology and software capabilities. At the same time, strict climate regulations, volatile energy prices and disrupted supply chains are increasing economic pressure. Intense competition – particularly from cost-efficient Chinese manufacturers – is significantly affecting margins and market share. 

From a labour and employment law perspective, these characteristics give rise to legal, social, and organisational considerations that distinguish the automotive sector from many other industries. These include:

• A strong tradition of collective bargaining and employee representation – In many countries where automobiles are produced, particularly Germany, labour relations are shaped by sector-wide collective agreements, negotiated between powerful trade unions and employers' associations. These agreements regulate wages, working hours, overtime compensation, shift systems, and numerous social benefits. In addition to collective bargaining, employee representation in works councils and on supervisory boards and other participation bodies impact management decisions regarding working time models, workforce restructuring, plant closures, relocations, and the introduction of new technologies. These structures often make it difficult for employers to adjust costs and react flexibly during economically challenging times – even as trade unions and works councils recognise the need for flexibility.
   
• Working time – Automotive production demands a high degree of flexibility to enable effective responses to fluctuations in demand, model cycles, and supply chain disruptions. This applies to the automotive supply industry, which, being dependent on original equipment manufacturers (OEMs), must, in some cases, make their working conditions even more flexible. Hence, the automotive sector makes extensive use of working time accounts, shift systems, weekend work arrangements, and flexible daily and weekly working hours. This creates a delicate balance between operational flexibility and worker protection, as such matters must often be negotiated with works councils or trade unions, requiring suppliers to continuously adapt processes while ensuring compliance with labour regulations and collective co-determination.
   
• High level of employment protection – This defining feature of the sector is traditionally enjoyed by its workers. Historically, automotive manufacturers have relied on a stable, long-term workforce with company-specific skills. Consequently, a high level of dismissal protection exists in the industry. During periods of economic downturn, companies often explore alternative options to layoffs, such as short-time work schemes, working time accounts, voluntary redundancy programmes, and early retirement arrangements. 
   
• Reskilling, redeployment, and qualification – An increasingly dominant factor is the structural transformation driven by technological change, especially the shift towards electric mobility, digitalisation, and automated driving systems, and away from internal combustion engines. From a labour and employment law perspective, this transformation poses significant challenges since traditional production roles are becoming obsolete or declining in number while demand for software engineers, battery specialists, and data analysts is growing rapidly. It is therefore essential that employment and labour law instruments in the automotive industry address reskilling, redeployment, and qualification. Collective agreements frequently include provisions obliging employers to offer training and further education, as well as guarantees that technological change will be managed in a socially responsible way.
   
• Job classification and remuneration systems – Conventional wage structures based on mechanical skills and manual labour are being supplemented and even replaced by digital, interdisciplinary and project-based work. Employers must ensure that these new classification systems remain transparent, non-discriminatory, and compatible with existing collective agreements. Conflicts often arise when new job profiles do not fit neatly into established pay scales, necessitating renegotiation between social partners.
   
• Occupational health and safetyregulations – Automotive production is a highly specialised process involving the use of heavy machinery, robotics, and the handling of hazardous materials. It also requires a workforce, making it a demanding industry. Labour law places a strong emphasis on risk assessments, preventive measures, ergonomic workplace design, and employee participation in health and safety committees. As automation increases, new legal questions arise concerning human–robot interaction, psychological stress and monitoring technologies. Ensuring compliance with occupational safety regulations when introducing advanced production systems is a key challenge for employers and regulators.
   
• Temporary workers, agency workers, and subcontracted labour – This dual workforce structure characterises the industry, particularly in logistics and supplier operations. Labour law seeks to regulate this segmentation by imposing limits on temporary employment, requiring equal pay and obliging employers to prevent the misuse of fixed-term contracts. In the automotive sector, where production peaks can be extreme, these rules are particularly relevant and subject to scrutiny by works councils and unions.
   
• Production plants, research centres and supply networks –The globalised nature of the automotive industry further complicates employment and labour law considerations. Manufacturers operate production, research, and supply networks across multiple jurisdictions, each with its own labour-law framework, giving rise to issues relating to cross-border postings, international transfers, the harmonisation of employment standards, and compliance with multiple regulatory regimes. In response, many multinational automotive companies have adopted global framework agreements with international trade unions or European works councils, setting minimum labour standards on issues such as working conditions, occupational safety, non-discrimination and freedom of association across all locations worldwide.
   
• Compliance with legal and ethical standards – This has become a key consideration in the automotive industry. In the wake of prominent scandals involving emissions, supply chain practices, and corporate governance, legislators and companies have reinforced their due diligence, whistleblower protection, and supply chain responsibility requirements. Employment and labour law increasingly intersect with corporate social responsibility, requiring automotive companies to monitor labour conditions within their own workforce, and also among suppliers and contractors, including those in low-wage countries.

In conclusion, the automotive industry exhibits labour and employment law characteristics that distinguish it from other sectors. These include strong collective bargaining structures, extensive employee participation, flexible working time arrangements, high employment protection, and proactive management of technological change. As the industry continues its profound transformation, employers must balance economic competitiveness with social responsibility and workforce stability. 

CMS is ready and able to help automotive businesses on this path.