On May 14, 2013, a new collective bargaining agreement (Tarifvertrag) (“CBA”) for the Metal and Electricity Industry has been concluded between the Bavarian employers’ association for the Metal and Electricity Industry “VBM” and the Bavarian section of the nation-wide trade union “IG Metall”.

The chairman of IG Metall, Mr. Berthold Huber, has already confirmed that the federal executive board (Bundesvorstand) of IG Metall has approved the reached compromise. Mr. Huber, furthermore, stated that he has already recommended the other IG Metall sections in Germany to equally accept these improved terms and conditions. Before the start of the negotiations in Bavaria, employers’ associations and sections of trade unions of other federal states had announced that they were willing to accept the outcome of the negotiations in Bavaria (so-called “pilot agreement”). Therefore, it is to be expected that the results for Bavaria will similarly be adapted in other regions and hence are going to apply to employers and employees who are bound by the collective bargaining agreements of the Metal and Electricity Industry nation-wide.

CBAs apply directly to the employment relationships between employees and employers who are bound by the collective bargaining agreement, either due to memberships in trade unions and employers’ associations or by means of reference clauses in individual employment agreements. CBAs’ rules are enforceable in court and employees regularly make use of this right. Therefore, employers bound by collective bargaining agreements in the Metal and Electricity Industry must quickly acquaint themselves with the new additional requirements stipulated in the new collective bargaining agreement.

The collective bargaining agreement applies so far only in Bavaria. However, we expect that it will apply (retroactively) in all areas of Germany, effective as of May 1, 2013. It has a duration of 20 months. Its core content can be summarized as follows:

Salary Raise

A two step salary raise has been agreed as follows:

  1. With effect from July 1, 2013, the tariff salaries will be raised by 3.4% for ten months (i.e. until April 30, 2014).
  2. With effect from May 1, 2014, the tariff salaries will be raised by further 2.2% for eight months (i.e. until December 31, 2014).

Flexible Transition to Retirement

The previously agreed but then suspended CBA regarding the flexible transition to retirement has been reactivated. This CBA stipulates the basic requirements and conditions for an old-age part-time scheme (Altersteilzeit-Modell).

The scheme generally provides for the right to partially retire of, inter alia, such employees who are older than 57 and who have worked in a three or more shift-system (or under “strong environmental influences”) for a minimum of 9 years out of the last 12 years of service at their current employer.

Employees participating in the scheme continue to work full-time for the first half of the partially retirement period and are fully released from work in the second block of the partial retirement period. They receive up to 87% of their previous net income during the whole period (so-called “block model”).

Employers operating an old-age part-time scheme are required to provide for appropriate means of insolvency protection for the participating employees’ entitlements, e.g. by means of a Contract Trust Arrangement (which can also be used to fund pension liabilities).