Bill on compliance with collective agree­ments – New regulatory regime in procure­ment law and the challenges this creates for companies

On 6 August 2025, the federal government comprising CDU, CSU and SPD adopted a bill in the cabinet aimed at strengthening collective bargaining autonomy by ensuring compliance with collectively agreed wages in the awarding of federal public contracts (Tariftreuegesetz) (the “Bill”).

The previous government, consisting of the SPD, Greens and FDP, had already addressed the issue of introducing this type of law at federal level. To this end, it presented a corresponding bill on 28 November 2024 (Bundesrat documents 588/24 and 20/14345). However, due to the (premature) end of the legislative period, this bill was not passed in the parliamentary legislative process and thus fell victim to parliamentary discontinuity. A comparative look at the two bills shows that the new bill by the federal government barely differs structurally or substantively from its predecessor. With the exception of the now-removed section 18b of the Works Constitution Act (Betriebsverfassungsgesetz – BetrVG) (on online voting), any deviations – which were rare in any case – are mainly editorial in nature.

The proposed Bill is structured as an amending act and primarily introduces a Federal Collective Agreement Compliance Act (Bundestariftreuegesetz – BTTG). Correspondingly, the other changes involve the necessary amendments to various other areas of regulation (the Labour Courts Act (Arbeitsgerichtsgesetz – ArbGG), the Act to Combat Illegal Employment (Schwarzarbeitsbekämpfungsgesetz – SchwarzArbG), the Act Against Restraints of Competition (Gesetz gegen Wettbewerbsbeschränkungen – GWB), the Competition Register Act (Wettbewerbsregisterverordnung – WRegG), the Competition Register Regulation (Wettbewerbsregisterverordnung – WRegV), the Collective Agreements Act (Tarifvertragsgesetz – TVG), the Minimum Wage Act (Mindestlohngesetz – MiLoG) and the Employee Secondment Act (Arbeitnehmerentsendegesetz – AEntG)).

By enacting the Bill, the federal government aims to address the fact that companies not bound by collective agreements often have a competitive advantage over companies bound by collective agreements when public contracts and concessions are awarded: those not subject to collectively agreed working conditions can offer lower bids due to reduced personnel costs. By introducing the Federal Collective Agreement Compliance Act, the government hopes, firstly, to strengthen collective bargaining autonomy in general by ensuring that employers bound by collective agreements are no longer subjected to displacement competition in federal procurement procedures. Secondly, the government aims to provide incentives to encourage employers not yet bound by collective agreements – particularly in sectors where federal public procurement is especially significant – to sign up to such agreements. As a result, the Bill primarily relates to public procurement law, but is complemented by clearly recognisable employment law elements.

This article provides an overview of the scope of application of the Federal Collective Agreement Compliance Act (see A), then outlines the procedure for determining binding working conditions (see B), as well as the changes expected for contractors/concessionaires as a result of the proposed Bill (see C). Finally, it outlines the envisaged enforcement regime (see D) and offers an outlook regarding the relevant standards, particularly under constitutional and EU law (see E).

A. Scope of the Federal Collective Agreement Compliance Act

At the heart of the Bill is the introduction of the Federal Collective Agreement Compliance Act. The scope of application is set out in section 1(1) of that Act. In terms of personnel, the Act applies only to federal tendering procedures, with further details provided in section 1(1), sentence 1, and subsection 2 of the Act. In particular, the provision makes it clear that contracting authorities within the meaning of paragraph 4 of section 99 of the Act against Restraints of Competition (state-subsidised contracting authorities) are only covered if the majority of the funding comes from the federal government. In addition, the Act only applies where the service is provided within the territory of the Federal Republic of Germany.

In terms of subject matter, the Federal Collective Agreement Compliance Act applies to public contracts and concessions and, accordingly, to framework agreements. In addition, the Act generally also applies to public contracts or concessions below the EU thresholds, provided there is no direct award. However, the applicability of the Federal Collective Agreement Compliance Act is generally linked to exceeding a value threshold of €50,000. Below this threshold, only the provision in section 14 on optional grounds for exclusion applies.

The application of the Federal Collective Agreement Compliance Act is explicitly excluded in the case of awards made by a federal state as part of contract administration on behalf of the federal government, as well as for the procurement needs of the Bundeswehr (until 31 December 2032). Additionally, due to the lack of any mention, defence and security-specific public contracts are implicitly excluded from the scope of application (see the explanatory memorandum, p34). In this context, the reference to section 3 of the Defence and Security Procurement Regulation (Vergabeverordnung Verteidigung und Sicherheit), which only applies to public contracts as defined in section 104(1) of the Act against Restraints of Competition, is questionable. We previously reported on the planned acceleration potential for the planning and procurement of the Bundeswehr in our Noerr Insight of 25 July 2025.

The Bill is intended to become law on the day after its promulgation. According to section 16 of the Federal Collective Agreement Compliance Act, procurement procedures initiated before the date of entry into force remain unaffected by its scope, so the requirements will only apply to those procurement procedures that are initiated after the Bill takes effect as law.

B. Determining binding working conditions

I. Procedure for determining working conditions, section 5 of the Federal Collective Agreement Compliance Act

1. Jurisdiction and procedure

The Bill provides that, under section 5(1), the Federal Ministry of Labour and Social Affairs (the “Ministry”) will determine the minimum working conditions of a concluded collective agreement, and these will then apply to the performance of public contracts and concessions.

The determination is made upon application by a trade union or an employers’ association, unless there is, exceptionally, no public interest in such determination. Approval from the Bundesrat is not required. During the determination process, statements from umbrella organisations and affected employees and employers, as well as the clearing office to be established under section 6 of the Federal Collective Agreement Compliance Act, are taken into account.

The binding working conditions established by statutory regulation are published by the Ministry in the Federal Gazette. In addition, a website will be set up, on which the current working conditions pursuant to the applicable statutory regulations under the Federal Collective Agreement Compliance Act will be clearly displayed. The same applies to conditions that have been amended by a subsequent collective agreement. The register of collective agreements will also include working conditions made binding by statutory regulation; accordingly, section 6 of the Collective Agreements Act will be expanded.

2. Minimum working conditions

In terms of content, collectively agreed provisions on remuneration can be made binding. This includes not only agreed wages, but also supplements, bonuses, and rules regarding the due date of payment. These requirements also apply to workers seconded to Germany from abroad. In addition, the minimum annual leave can be set as binding. This comprises the statutory entitlement of at least 24 working days per year, as well as collectively agreed extensions, which are provided for in the majority of collective agreements in practice. The minimum leave entitlement likewise applies to workers seconded from abroad. Finally, maximum working hours, minimum rest periods and breaks can also be made binding (see the explanatory memorandum, from p40).

Minimum leave and working time conditions apply only where the contract period is at least two months (or if necessary, estimated to be), provided the duration has not been abusively agreed. An abusive arrangement could, for example, exist where the contract period is deliberately and repeatedly kept short in order to avoid the working condition requirements under the Federal Collective Agreement Compliance Act.

The same obligations also apply to employees when contracts are subcontracted.

3. Procedure in the case of competing applications

Section 5(3) of the Federal Collective Agreement Compliance Act governs the procedure in the case of competing applications. In such cases, the Ministry decides which collective agreement is more representative and should therefore form the subject of a regulation. The decision between competing collective agreements is made in accordance with section 7(2) and (3) of the Employee Secondment Act. In particular, consideration is given to the number of employees affected by the employers bound by the agreement and the number of members in the trade union that concluded the agreement. The regulators must pay special attention to balancing the constitutional interests involved and achieving a balance between the competing fundamental rights. A subsequent application that competes with an existing regulation is only permissible once a period of six months has passed since promulgation of the regulation. Therefore, for six months after the determination, adjustments are excluded.

According to case law, there is a certain margin of discretion when determining which collective agreement or agreements are to be considered representative. However, the declaration that a collective agreement is representative must be based on reliable fact-finding and not determined solely by trade union interests (Dusseldorf Higher Regional Court (Oberlandesgericht – OLG), ruling of 19/10/2015 – VII-Verg 30/13). Despite the requirement to base the assessment on established facts, in practice, the Ministry can, through argumentation, justify virtually any outcome.

4. Repeal of the regulation

If it is established that a collective agreement is more representative than the one previously stipulated in a statutory instrument, and their scopes overlap, the Ministry must, according to section 7(1) of the Federal Collective Agreement Compliance Act, revoke the old statutory instrument. However, overlaps in scope can also be prevented by including restriction clauses in the instruments.

According to section 7(2) of the Federal Collective Agreement Compliance Act, the Ministry must also repeal a statutory instrument, in whole or in part, if the working conditions stipulated therein are no longer regulated in the collective agreement or a replacement collective agreement – for example if the subject matter of regulation or the collective agreement ends without continuing effect.

The Ministry will also revoke a statutory instrument, in whole or in part, pursuant to section 7(3) of the Federal Collective Agreement Compliance Act if this is required in the public interest, in particular if the underlying collective agreement, or parts of it, have been declared invalid or are presumed to be invalid.

II. Promise of compliance with collective agreement, section 3 of the Federal Collective Agreement Compliance Act

Regulations on compliance with collective agreements are already firmly established in procurement law practice. Almost all federal states (except Bavaria and Saxony) have incorporated corresponding provisions on compliance with collective agreements into their state regulations. Therefore, the commitment to observe collective agreements stipulated in section 3 of the Federal Collective Agreement Compliance Act is not a novelty.

1. Mandatory conditions of performance

According to the design of the Federal Collective Agreement Compliance Act, contracting authorities and concessionaires are not bound by the prescribed working conditions by force of law. Rather, the prescribed collective agreements are intended to become part of the legal relationship between federal contracting authorities and contractors through a commitment to observe collective agreements, as set out in section 3 of the Federal Collective Agreement Compliance Act. For this purpose, the provision makes use of the options set out in sections 128(2), 129, 142, 147 and 152(4) of the Act against Restraints of Competition to stipulate mandatory social requirements for the performance phase. For contracting authorities or concession grantors, this means they are, in principle, obliged to include the commitment to observe collective agreements in the contract. Therefore, the performance conditions become part of the contract and, in the event of a contract being awarded, oblige the contractor/concessionaire to grant employees the working conditions set out in the collective agreement. However, this obligation to observe collective agreements does not apply without restriction: what is required is a sufficient connection between the activity and the specific subject matter of the contract. According to the explanatory memorandum to the law, such a connection is lacking in the case of services rendered prior to the award of the contract – that is, independently of a specific contract. Furthermore, according to the federal government’s view, there is generally no connection with the contract in the case of activities carried out to manufacture goods which are determined by measure, number, or weight, which are new, and which are produced serially or according to a template (see the explanatory memorandum, p38).

In order to prevent a contractor or concessionaire from evading a commitment to observe collective agreements by employing other companies, section 3(2), sentence 1, of the Federal Collective Agreement Compliance Act provides for a mandatory performance condition requiring the arrangement of an obligation to ensure compliance. Accordingly, contractors/concessionaires must require their subcontractors and ensure by appropriate measures that the subcontractors fulfil their obligations towards their employees under section 4(1) and (3) of the same Act. According to section 3(2), sentence 1, of the same Act, the contractor’s/concessionaire’s obligation to ensure compliance is limited in cases where suppliers are engaged whose activities do not have a sufficient connection with the actual subject matter of the contract. According to the wording of the law, this applies to direct and indirect suppliers within the meaning of section 2(5), sentence 2, paragraphs 2 and 3 in conjunction with subsections 7 and 8 of the Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz – LkSG), provided that the supplier is not fulfilling an obligation of the contractor.

2. Exceptions

The Bill (for the Collective Agreement Compliance Act) provides in paragraph 2 of Article 4 for an extension of section 129 of the Act against Restraints of Competition by adding a second paragraph. This provision allows contracting authorities, in cases of hardship, to waive the obligation to comply with federal statutory performance conditions within the meaning of section 129(1) of the Act against Restraints of Competition, but only under strict conditions. Although the proposed section 129(2) of the Act against Restraints of Competition is broadly formulated and thus applies to all federal statutory performance conditions, the Federal Collective Agreement Compliance Act is likely, at least at present, to represent the most practically significant case of application.

The provision of section 129(2) of the Act against Restraints of Competition initially requires, as a prerequisite, the unsuccessful completion of a prior procedure due to a lack of bids or unsuitable bids. The explanatory memorandum clarifies that financial or economic considerations alone are not sufficient to determine the unsuitability of an offer (see the explanatory memorandum, from p51). Furthermore, under section 129(2) of the Act against Restraints of Competition, the waiver must be immediately and strictly necessary to cope with a crisis situation or in preparation for a specific crisis. The explanatory memorandum emphasises that the term “crisis” is to be interpreted narrowly; at the very least, it includes armed conflicts and wars, pandemics, general emergencies, and disasters (see the explanatory memorandum, p51). With regard to the further requirement of the “strict necessity” of contract execution, the memorandum clarifies that this is present if, without such execution, there is a risk of serious impairment to a core function of the named sectors, the performance of governmental tasks in these areas, or the general public. The principle applies that the more closely the services to be procured are related to essential public services, the more likely it is that the necessity of contract execution will be assumed (see the explanatory memorandum, from p51).

III. Amendments to the Competition Register Act

The Bill also provides for amendments to the Competition Register Act. According to these amendments, final and binding findings within the meaning of section 13(1) of the Federal Collective Agreement Compliance Act must also be entered in the Competition Register. As a consequence, an inquiry under section 6(1) or (2) of the Competition Register Act will also cover established infringements within the meaning of section 13(1) of the Federal Collective Agreement Compliance Act. On the basis of the information obtained in this way, contracting authorities are to be enabled to decide on the exclusion of individual companies pursuant to section 14 of the Federal Collective Agreement Compliance Act read in conjunction with section 124 of the Act against Restraints of Competition.

C. Planned changes for contractors/concessionaires

For contractors/concessionaires, the introduced Bill results in changes in both procurement law and contract law, as well as changes in employment law.

I. Procurement law and contract law

The key changes in procurement and contract law include requirements for the verifiability of the obligation to comply with collectively agreed pay, as well as clarification regarding legal remedies in accordance with section 160(2) of the Act against Restraints of Competition.

1. Verifiability of the obligation to comply with a collective agreement

a) Obligation to provide evidence, section 9 of the Federal Collective Agreement Compliance Act

In order to subsequently verify compliance with the obligation to observe collectively agreed pay, contracting authorities/concession grantors must, in accordance with section 9 of the Federal Collective Agreement Compliance Act, contractually require contractors/concessionaires to provide proof of compliance with that obligation. On the basis of this evidence, the Federal Collective Agreement Compliance Monitoring Authority (Prüfstelle Bundestariftreue) can then carry out its inspections in accordance with section 8(2) of the Federal Collective Agreement Compliance Act. To fulfil their obligation to provide evidence under section 9 of the Federal Collective Agreement Compliance Act, contractors/concessionaires must document that for the duration of their performance they have granted the employees deployed to perform the contract the prescribed working conditions. According to the explanatory memorandum, depending on the specific service, payslips, proof of payment, employment contracts, and working time records of the employees deployed may be used as evidence in particular (see the explanatory memorandum, p45).

b) Simplification: Prequalification, section 10 of the Federal Collective Agreement Compliance Act

For employers who, as a rule, grant at least the relevant collectively agreed working conditions, section 10 of the Federal Collective Agreement Compliance Act provides a simplification of the obligation to provide evidence. According to section 10(1) of the Federal Collective Agreement Compliance Act, the obligation to provide evidence under section 9 of that Act does not apply to contractors/concessionaires who present a corresponding prequalification certificate. The certificate must be issued by a prequalification body as defined in section 6b(1), sentence 1, no. 1 of Part A of the Construction Services Procurement and Contract Procedures adapted to comply with EU law on public procurement (Vergabe- und Vertragsordnung für Bauleistungen, Teil A – VOB/A-EU) (currently the Association for the Prequalification of Construction Companies) or section 48(8), sentence 3 of the Procurement Regulation (Vergabeverordnung – VgV) (currently the joint directory-holding body of the Chambers of Industry and Commerce) and must prove that the contractor/concessionaire, as well as any engaged subcontractors or temporary agencies, grant the prescribed working conditions to the employees. According to section 10(2) of the Federal Collective Agreement Compliance Act, the contractor/concessionaire may also request a corresponding certificate from subcontractors or temporary agencies in order to fulfil their obligation to ensure compliance in accordance with section 3(2) of the Federal Collective Agreement Compliance Act.

2. Legal protection, section 160(2) of the Act against Restraints of Competition

Under the newly introduced section 2a(1)(5) of the Labour Courts Act in conjunction with section 98 of the same, only the labour courts will have jurisdiction to decide on the validity of statutory instruments within the meaning of section 5 of the Federal Collective Agreement Compliance Act. This also affects the public procurement review procedures, as clarified by section 160(2) of the Act against Restraints of Competition: companies cannot establish their right to apply by arguing that the statutory instrument stipulated for a specific procurement procedure is invalid.

This division of responsibilities between the labour courts and the public procurement review bodies is generally to be welcomed, as it helps to prevent divergent decision-making practice by the procurement chambers or senates and avoids overburdening them with issues unrelated to procurement law. However, if a labour court decision pursuant to section 98 of the Labour Courts Act on the (in)validity of a statutory instrument within the meaning of section 5 of the Federal Collective Agreement Compliance Act does not (yet) exist, such a decision will likely come too late in an ongoing procurement/review procedure, depending on the stage of the proceedings. This can, in particular, lead to conflicts with the principle of expediting proceedings in procurement law review procedures. So far, the public procurement review bodies lack an appropriate option to respond, e.g. by suspending the proceedings due to a prejudicial issue within the meaning of section 148 of the Code of Civil Procedure (Zivilprozessordnung – ZPO) or section 94 of the Code of Administrative Court Procedure (Verwaltungsgerichtsordnung – VwGO).

II. Right to be granted binding working conditions, section 4 of the Federal Collective Agreement Compliance Act

Section 4(1) of the Federal Collective Agreement Compliance Act obliges employers to grant the relevant working conditions laid down in the statutory instrument. Section 4(1) therefore creates a right for employees against their employer who performs public contracts and concessions.

It is further clarified that section 4 of the Federal Collective Agreement Compliance Act only sets a minimum standard and does not affect more favourable entitlements. If, on the basis of an employment contract, a works agreement, a collective agreement, or another provision, an employee is entitled to higher pay or more holiday, these entitlements take precedence according to the principle of favourability (see the explanatory memorandum, p39). However, provisions where no clear favourability can be established, such as the due date of remuneration claims, may be overridden.

The obligation to grant minimum working conditions applies to all employees engaged in fulfilling the public contract or concession, and is limited to the duration of its performance. It is also clarified that this obligation applies to temporary agencies if agency workers are employed in activities that fall within the scope of application.

Section 4(2) of the Federal Collective Agreement Compliance Act excludes the option for employees to waive minimum working conditions without the approval of the parties to the collective agreement. The forfeiture of claims is also excluded. Even after a considerable period of time, employers therefore cannot generally rely on employees being unable to assert claims to minimum working conditions, particularly claims to pay and holiday. Furthermore, it is clarified that limitation periods relating to working conditions can only be stipulated in the collective agreement underlying the relevant statutory instrument, whereby, in practice, many collective agreements do provide for such limitation periods. Standard limitation periods used in employment contracts, on the other hand, do not result in the forfeiture of claims under the Federal Collective Agreement Compliance Act and therefore, similar to the statutory minimum wage, cannot guarantee legal certainty merely through the passage of time.

Furthermore, according to section 4(3) of the Federal Collective Agreement Compliance Act, the employer must inform the affected employees in writing or in text form, and where appropriate in an accessible format, of their entitlements to the working conditions by no later than the 15th of the month following their first working day in connection with the public contract or concession, in order to enable the enforcement of these entitlements within any applicable limitation periods.

D. Planned enforcement regime

In order to ensure compliance with the various obligations under the Federal Collective Agreement Compliance Act, the act provides for a differentiated enforcement regime. A distinction is made between sanctions during the ongoing contractual relationship (contractual penalties, termination without notice for cause), for future procurement procedures (grounds for exclusion), and employment law sanctions (employer liability).

I. Civil law sanctions, section 11 of the Federal Collective Agreement Compliance Act

The Federal Collective Agreement Compliance Act adopts a contractual sanctions regime in the event of a culpable breach of the commitment to observe the collective agreement under section 3 of the same act or the contractual obligation to provide evidence pursuant to section 9 of the same act during the ongoing contractual relationship: such a breach triggers either a contractual penalty or a right to terminate for cause, both of which must be agreed in accordance with section 11 of the same act.

The contractual penalty is intended to encourage the contractor/concessionaire to comply with the collective agreement. The specific amount to be agreed upon is at the contractor’s/concessionaire’s discretion. According to the explanatory memorandum, the seriousness of the breach should be taken into account: in the case of section 11(1)(1) of the Federal Collective Agreement Compliance Act, this can be assessed, for example, by the number of employees affected by the breach, the degree of deviation from the required working conditions, or the nature of the fault. For breaches under section 11(1)(2) of the same act, the key factors are the extent of the potentially concealed misconduct and the contractual penalty that such misconduct would have triggered under section 11(1)(1) of the same act (see the explanatory memorandum, p47). Pursuant to section 11(1) of the same act, the penalty is limited in amount to a maximum of 1% per breach and, in the case of multiple breaches, to a maximum of 10% of the contract value. The Federal Collective Agreement Compliance Act thus differs from other sanctioning systems, such as under the Employee Secondment Act or Minimum Wage Act, in which breaches are only punished as administrative offences.

In addition, according to section 11(2) of the Federal Collective Agreement Compliance Act, the contractor/concessionaire must agree a right to terminate for cause in the event that the client is entitled to impose a contractual penalty. The explanatory memorandum explicitly clarifies that the contracting authority/concession grantor is not under an obligation to terminate the contract; rather, they must decide at their own proper discretion whether to enforce a contractual penalty, to terminate the contract, or to combine both measures appropriately.

II. Discretionary ground for exclusion, section 14 of the Federal Collective Agreement Compliance Act

Section 14 of the Federal Collective Agreement Compliance Act lays down a discretionary ground for exclusion within the meaning of section 124(2) of the Act against Restraints of Competition and, unlike the other provisions of the Federal Collective Agreement Compliance Act, is applicable to all procurement procedures of contracting authorities listed in section 98 of the Act against Restraints of Competition, regardless of the scope of application of the Federal Collective Agreement Compliance Act. This means that this provision also applies to contracting authorities of the federal states or municipalities and is not subject to the €50,000 threshold.

Section 14(1) of the Federal Collective Agreement Compliance Act requires, as a prerequisite, the final and binding determination of a violation by the Federal Collective Agreement Compliance Monitoring Authority pursuant to section 13(1) of the Federal Collective Agreement Compliance Act. The Federal Collective Agreement Compliance Monitoring Authority is both entitled and obliged to determine, by means of an administrative act, significant breaches of section 4(1) or (3), section 3(2), or section 9 of the Federal Collective Agreement Compliance Act. Although a breach of the obligation to observe collective agreements under section 3(1) of the Federal Collective Agreement Compliance Act is not expressly listed, the legislators assume that such a breach is included under a breach of section 4(1) of the Federal Collective Agreement Compliance Act (see the explanatory memorandum, p49). Section 13(2) of the Federal Collective Agreement Compliance Act additionally requires that such a determination may only be made in the case of a culpable breach of the aforementioned provisions, attributable to the employer or contractor/concessionaire. If the Federal Collective Agreement Compliance Monitoring Authority finds a breach within the meaning of section 13(1) of the Federal Collective Agreement Compliance Act, it is obliged to notify the register authority.

If a final and binding determination has been made, contracting authorities will generally exclude the company from the procurement procedure. An exception is only possible in atypical cases or for good cause. However, according to section 14(1), sentence 2 of the Federal Collective Agreement Compliance Act, the option of self-cleansing in accordance with section 125 of the Act against Restraints of Competition remains unaffected. Under section 14(2) of the Federal Collective Agreement Compliance Act, the possible exclusion period begins with the finality of the determination pursuant to section 13(1) of the Federal Collective Agreement Compliance Act and ends three years later.

III. Subcontractor liability, section 12 of the Federal Collective Agreement Compliance Act

A contractor is liable under section 12 of the Federal Collective Agreement Compliance Act, in the same way as a guarantor with direct personal liability, to ensure that subcontractors or temporary agencies engaged by them fulfil their payment obligations towards employees. This liability does not apply if the contractor can prove that the relevant requirements have been met through prequalification and that no insolvency proceedings have been opened against the assets of the subcontractor.

E. Outlook

The permissibility and design of state-level collective agreement compliance acts have already occupied German courts and the courts of the European Union on several occasions in the past.

At EU level, the decisions of the European Court of Justice (ECJ) of 3 April 2008 – C-346/06 (Rüffert), 18 September 2014 – C-549/13 (Bundesdruckerei), and 17 November 2015 – C-115/14 (RegioPost) represent major judicial milestones regarding the EU law requirements for national laws on compliance with collective agreements. At the heart of these decisions is the question of the compatibility of provisions on collective agreement compliance with the freedom to provide services (Article 56 of the TFEU) as well as the procurement directives. Essentially, the rulings establish that constitutive declarations on compliance with collective agreements are generally not permissible, whereas declaratory declarations on compliance with collective agreements are permitted. The distinction is primarily that constitutive declarations presume or create a binding obligation to a collective agreement, while declaratory declarations refer to obligations that are already applicable or permissible under general rules. Since section 5 of the Federal Collective Agreement Compliance Act is intended to establish a generally binding provision, there should be no concerns under EU law regarding the obligation on compliance with collective agreements in section 3 of the Federal Collective Agreement Compliance Act.

The Federal Constitutional Court, in its decision of 11 July 2006 (case 1 BvL 4/00), found the Berlin provision on compliance with collective agreements in the 1999 Berlin Public Procurement Act (Berliner Vergabegesetz) to be compatible with the constitution. However, it is unclear whether this ruling can be straightforwardly applied to the proposed Federal Collective Agreement Compliance Act since unlike the Berlin provision considered in the decision, the Federal Collective Agreement Compliance Act is linked to representative collective agreements. This could place smaller competitors at a disadvantage, as they may be required to comply with working conditions that are economically unsustainable for them. Furthermore, bidders would need to factor in potential changes to minimum working conditions after the award of the contract when preparing their bids, which poses significant economic risks, especially for long-term contracts and concessions. It therefore remains to be seen whether the Federal Collective Agreement Compliance Act will fully meet constitutional requirements.

Experience with the laws of the federal states on compliance with collective agreements has shown that compliance with evidence requirements often gives rise to practical challenges. Depending on the type and location of the contract or concession, and the number of employees involved, a contractor may have to implement a range of different working conditions. It is therefore advisable to focus early on the specific working conditions set out and upcoming collective bargaining rounds, and to establish structures that enable self-monitoring and subsequent documentation of compliance. Otherwise, companies risk severe sanctions, such as contractual penalties, rights to terminate for cause, or exclusion from future procurement procedures.

Interested companies should therefore specifically examine whether, in future, minimum working conditions under the Federal Collective Agreement Compliance Act must be expressly excluded from the effect of limitation periods in employment contracts in order to ensure the validity of such limitation clauses, particularly with the support of legal experts.

The Bill for the Collective Agreement Compliance Act is now due to be introduced to the Bundestag shortly and is expected to be passed during the course of the year. This is a constitutional exception, requiring an act of assent which, according to Article 77(2a) and Article 78, variant 1 of the Basic Law (Grundgesetz – GG), must be approved by the Bundesrat to enter into force. Companies and public contracting authorities should therefore closely monitor the legislative process, particularly to see whether, during parliamentary deliberations or via the Bundesrat, further adjustments to the procedures for setting working conditions, sanctions, or legal remedies are made or proposed.