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Employers bound by collective agreements – Court sets new standards for when employment contracts are newly concluded

Collective agreements are binding and employers may not dilute them by means of reference clauses. As a result of a ruling by the Federal Labour Court [Bundesarbeitsgericht, BAG] from 13.5.2020 (case reference: 4 AZR 489/19), a number of companies will have to make adjustments.

An employee had been a member of IG Metall [metalworkers’ union in Germany] since 1999. Her employment contract contained no reference to collective agreements as the employer had initially not been bound by a collective agreement. Subsequently however, in 2015, the employer concluded a collective agreement with IG Metall. Yet, there were only supposed to be entitlements under the collective agreement if the applicability of the collective agreements had been agreed in individual employment contracts. That is why the employer also made an offer to the employee to conclude a new employment contract with a dynamic reference clause according to which the employment relationship would be based on the collective agreement package as applicable to the business.

However, the employee did not accept the offer but, instead, instituted legal proceedings and sought payment directly from the collective agreement. The BAG ruled in favour of the claimant because she already had a right to entitlements under the collective agreement in view of the fact that both sides were bound by the collective agreement.

Conclusion: It should be noted that in a collective agreement it is not possible to effectively agree that the entitlements under the collective agreement, despite the fact that both sides are bound by the collective agreement, should only exist if reference is made in the employment contracts to the collective agreement.

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