Company Agreements: Content, Types, and Implementation in the Workplace
A company agreement provides a reliable framework for cooperation within the company. It sets out binding rules for how employers and employees work together and adapts existing regulations to new developments. In this guide, you’ll learn about the different types of company agreements and how to effectively implement one in your company.
Company Agreement: Key Points at a Glance
- A works council agreement is a written agreement between the works council and management that applies directly and mandatorily to all employees of a company.
- It addresses issues such as working hours, compensation policies, remote work, the use of technical systems, and employee benefits.
- The Works Constitution Act (BetrVG) distinguishes between enforceable and voluntary works agreements.
- Termination is possible with three months' notice; often, the agreement remains in effect on a transitional basis.
What is a works agreement?
A works agreement is a written agreement that the works council and management negotiate and sign jointly. It forms the legal basis for cooperation between employers and employees and is directly and bindingly applicable to all affected employees. Individual employment contracts do not need to incorporate these provisions separately.
The Works Constitution Act (BetrVG) provides the legal framework for every works agreement. Among other things, it governs:
- the form and effect of works agreements,
- the co-determination rights of the works council,
- the distinction between enforceable and voluntary works agreements,
- the relationship to collective agreements and
- the options for termination and the consequences after the term expires.
For a works agreement to be legally valid, it must be in writing and signed by management, acting on behalf of the employer, and by the works council (Section 77(2) of the Works Constitution Act (BetrVG)).
Company agreements set standards for the entire company or individual departments. For example, they govern the implementation of new IT systems, the scheduling of working hours, or the implementation of compliance guidelines. In companies with multiple locations, company-wide agreements or group-wide agreements address these issues across all locations. In the employer’s day-to-day operations, the company agreement often replaces individual, ad hoc arrangements.
Between whom is a works agreement concluded?
A works council agreement is reached between the works council and management. Both sides negotiate the terms together, bringing different perspectives to the table:
- The works council represents the interests of the employees and ensures that their rights to co-determination are upheld.
- As the employer, management represents the company's interests and assesses whether the agreement is economically viable and practicable.
Either side can initiate a new company agreement, for example, when new legal requirements take effect or the company introduces new technologies. lawyers then lawyers the draft to ensure it complies with applicable law.
There are no fixed deadlines for the negotiations; the duration depends on the complexity of the issue. Once an agreement is reached, the parties draft the final works council agreement. The signed agreement usually takes effect immediately. The works council informs the employees, and management ensures its technical and organizational implementation.
The agreement applies to all employees of a company or a specific department, including full-time and part-time employees as well as those on fixed-term contracts. New employees are also automatically bound by existing company agreements as of their first day of employment. Exceptions include temporary agency workers, freelancers, contract workers, and executives who have the authority to hire or fire staff independently.
What Do Workplace Agreements Cover? An Overview of Typical Provisions
Company agreements cover a wide range of workplace issues. They typically focus on provisions that directly affect day-to-day work and have a lasting impact on processes. They establish binding guidelines for both employees and employers. The most common areas covered include:
- Working Hours: Start and end times, distribution of daily working hours, break policies, overtime, and shift schedules
- Compensation Structures: Compensation Principles, Bonus and Piecework Rates, and New Compensation Methods
- Mobile Work and Working from Home: Extent of Mobile Work, Technical Equipment, Availability, and Tracking of Working Hours in a Hybrid Model
- IT Systems, Monitoring, and AI: Implementation and use of technical systems capable of monitoring employee behavior or performance, as well as transparency and training guidelines for the use of AI
- Privacy Policy: Nature, Scope, and Access Rights Regarding the Processing of Personal Data
- Occupational Safety and Health: Regulations on Accident Prevention and Workplace Health Protection
- Training and Continuing Education: Learning Times, Learning Locations, and Dealing with Learning Assessments, Such as When Implementing a Learning Management System
- Social benefits: additional voluntary benefits such as company pension plans or family support
Three real-world examples illustrate what such regulations might look like in practice.
Example: Company Agreement on Remote Work
A company agreement on remote work establishes the framework for working outside the office. It defines the scope of remote work, the necessary technical equipment, and availability. Key points also include occupational safety, data protection, and the tracking of working hours. The agreement also specifies how communication works within a hybrid work model and how teams collaborate.
Example: Company Agreement on the Use of AI Systems
This company agreement governs the use of artificial intelligence within the company. It specifies which AI systems are used and how they support employees’ work. The agreement ensures transparency regarding the use of employee data and sets limits on automated decision-making. In addition, it addresses employees’ training entitlements and the works council’s oversight rights when new AI features are introduced.
Example: Company Agreement on the Implementation of a Learning Management System (LMS)
A company agreement on the implementation of an LMS legal certainty regarding data protection and safeguards employees’ interests by establishing clear rules for the use of the learning management system. It defines the scope of application, the objectives of the implementation, as well as the nature and extent of the personal data collected and the rights of access to that data.
A key component consists of provisions regarding the location and timing of training, which generally ensure that continuing education takes place during working hours. In addition, it governs the assessment of learning outcomes and the handling of test results, with so-called fairness criteria ensuring that failing a test does not result in any consequences under labor law, such as written warnings.
What types of company agreements are there?
The BetrVG distinguishes between two types of works agreements: enforceable and voluntary. The main difference between the two lies in whether an agreement must be reached and who has the final say in the event of a dispute.
The conciliation board consists of an equal number of members from both parties and a neutral chairperson.
Mandatory codetermination in social matters is provided for in Section 87 of the Works Constitution Act (BetrVG). Mandatory codetermination in social matters is provided for in Section 87 of the Works Constitution Act (BetrVG). The provision specifies specific areas in which the works council has a right of codetermination, provided that no statutory or collective bargaining agreement exists. These include, for example, the start and end of the daily workday or the introduction of technical devices intended to monitor employees’ behavior or performance.
Where does the company agreement stand between the collective agreement and the employment contract?
German labor law follows a strict hierarchy of legal sources (the "pyramid of norms"). The works agreement fits into this hierarchy as follows:
- Collective Bargaining Agreement (Precedence of Collective Bargaining Agreements): The collective bargaining agreement takes precedence over the company agreement. Pursuant to the regulatory mandate set forth in Section 77(3) of the Works Constitution Act (BetrVG), company agreements may not govern wages or other terms and conditions of employment that are protected by collective bargaining agreements. An exception applies only if the collective bargaining agreement contains an explicit opening clause.
- Works Council Agreement: It takes precedence over individual employment contracts and is directly and binding on all employees of the company (Section 77(4) of the Works Constitution Act (BetrVG)). This means that individual employment contracts do not need to specifically incorporate these provisions in order to be valid.
- Employment Contract: It is subject to the company agreement. Provisions in the employment contract that are less favorable than those in the company agreement are automatically invalid. Deviations are permitted only if they are more favorable to the employee (principle of favorability).
The BetrVG also specifies certain matters that must be regulated by a works agreement, such as issues of workplace order or working hours. Other matters, such as the amount of compensation, are generally reserved for collective bargaining agreements. Even after such a provision expires, it may continue to have an effect if the matter is subject to mandatory codetermination.
Can company agreements be terminated?
Both the works council and management may initiate the termination of the works agreement. The notice period is three months, unless a different period has been agreed upon (Section 77(5) of the Works Constitution Act (BetrVG)). Special notice periods apply, for example, to the company pension plan.
Notice of termination must be given in writing and include a clear statement of reasons. Following termination, the works agreement often remains in effect for a transitional period, known as the “after-effect” (Section 77(6) of the Works Constitution Act (BetrVG)). This period allows time for renegotiation. However, not all provisions remain in effect: provisions regarding workplace rules generally cease to apply immediately upon termination.
How can you successfully implement a company agreement within your organization?
A works agreement is only effective if all affected employees are familiar with its contents and apply them in their day-to-day work. Under the BetrVG, the company is required to inform all affected employees, for example, by posting a notice or publishing it on the intranet. The method of notification must ensure that all employees are able to take note of the provisions.
A company agreement typically leads to the rollout of policies, as the provisions agreed upon must be communicated throughout the company and put into practice. The following points are crucial in this regard:
- Obligation to Implement: Employers are required to implement the company agreement and ensure that employees also comply with its provisions.
- Communication: The new guidelines must be made available to all employees. This can be done through bulletin board notices, digital platforms, or e-mail.
- Documentation: The rollout process should be documented so that it can be verified later that the policies were implemented properly.
Careful planning of the rollout prevents misunderstandings and reduces the number of follow-up questions in day-to-day operations.
FAQ
Who enters into a works agreement?
A works agreement is concluded jointly by the works council and management. Both parties must sign the document for it to be legally binding.
When is a works agreement invalid?
A company agreement is invalid if it violates higher-ranking law, such as a collective bargaining agreement without an opening clause or statutory requirements. Failure to comply with the written form requirement or the absence of a signature from either party also renders the agreement invalid.
Does a company agreement also apply to new employees?
Yes. New employees are automatically bound by the company’s existing works agreements upon joining, without the need for an additional provision in the employee’s employment contract.
How long does a company agreement remain in effect after termination?
The duration of the after-effect is not strictly defined by law. In matters subject to mandatory co-determination, the provisions remain in effect until the works council and the employer reach a new agreement or the conciliation board issues a decision. Until then, the provisions with after-effect remain binding on both employers and employees.
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