Human Resource Management and Business Strategy





Conduct a comparative study of Industrial Relations in
not less than 3 countries and discuss the implications for
management practices











Anisia Ibekwe
Jonas Fogelberg
Phillip Scheibe
Bonnie Wang
David McKeownGermany, Sweden, and the Czech Republic, three sovereign nations, each with their own unique
history, culture, and politics, are brought ever closer together under the umbrella of the European
Union. Set in a different corner of modern day Europe each has developed a system of industrial
relations that is based on their own unique circumstances.

Whilst their respective systems are unique in size, operation and remit, they share similar themes
that are necessary for industrial relations both on a European and a Global scale.

This report aims to assess the developments in industrial relations within these three countries. It
will then proceed to outline the management implications these relationships have within each
country and the further implications brought as a result of a converging European Union.


Germany

After WWII, the defeat of the Nazi regime gave way to a new political and socioeconomic order
that was to provide more economic as well as political stability. In turn this also affected the
industrial relations system.

The separation of trade unions into several small ones was already considered a weakness of the
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Weimar Republic (1919-1933) . The rise of National Socialism between 1933 and 1945 was the
cause for their further divestiture. Thus, after WWII, to avoid a further split according to the
interests of the political parties, one big union eventually emerged.

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This union represented about 40 percent of the German labour force . It was the origin of DGB
(Deutscher Gewerkschaftsbund) which, to this day, is the main trade union in the country and
includes a vast number of smaller unions that represent workers in different industries.

The early 1980s gave rise to strong ties between trade unions and politics. Low unemployment
and high demand for workers gave high bargaining power to trade unions and employees.
Consequently, workers felt well represented, leading to rising membership rates. As members or

1
http://www.hertie-school.org/binaries/addon/330_die_erosion_der_gewerkschaftlichen_lobbymacht.pdf
2
http://www.britannica.com/eb/article-66897/industrial-relationsboard members of the unions also held political positions, they gained unprecedented power. An
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example of this was their role in the introduction of the 35-hour working week.
However, at the time of the introduction of the political party FDP and the new Chancellor Helmut
Kohl (1982-1998), the government granted the unions less rights and ended the strong ties between
politics and trade unions. As a result of this, unions began to lose power and political influence,
making it hard for them to push for changes regarding labour and employment laws.

The early 1990's saw the fall of the Berlin wall and Germany began the process of reunification. At
this time wages in East Germany were drastically lower than in the West. The trade unions' goal
was to put all sector agreements from West Germany into effect in the East by gradually rising
wages in the former DDR. Therefore, trade unions attracted new members from the East. However,
it became clear that productivity in East Germany remained substantially lower than in the West,
and that the government had failed to raise living and working standards to those in West Germany.
As an effect, trade unions could not push for higher wages, employees from the East rapidly lost
faith, and membership rates dropped substantially.

In summary, the end of WWII allowed the industrial relations system to reshape itself and form the
most important trade union DGB. Trade unions were closely tied with all political parties until the
reunification of East and West Germany. Since then, the government has deliberately distanced
itself from trade unions and their direct political influence has constantly declined. Today the trade
unions' political orientation is of no importance.


Legislative Developments

Under the concept of "Collective Bargaining Autonomy", employer and worker associations have
statutory rights to achieve collective agreements without intervention of the government (the so
called "tariff autonomy"). The government deliberately avoids respective legal regulations and
collective agreements have full legal status.

A distinctive feature in Germany is the absence of a minimum wage. In recent years, a national
minimum wage has become more typical throughout Europe while in Germany; it still does not

3
http://www.hertie-school.org/binaries/addon/330_die_erosion_der_gewerkschaftlichen_lobbymacht.pdfexist because of the strong history of tariff autonomy and collective bargaining. Both sides - trade
unions and employers - defend the way of finding consent without government influence.
Nevertheless, the government has the authority to declare minimum wage agreements between
unions and employers as compulsory for an entire industry. In practice, several sectors already have
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a minimum wage.

However, as employers start leaving their federations, agreements are covering less parts of a
sector. Additionally, since trade unions have lost power and influence due to the declining number
5
of members, there are many agreements which have a very low minimum wage below €6 per hour.
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At the moment, a governmental minimum wage is still under big discussion .

Generally, German labour and employment law is strongly biased in favour of employees and is
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best referred to as the "employee protection law" . However, structural rigidities in the labour
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market have made unemployment a chronic problem , triggering the reform of labour law.
Before the reform, laying-off workers was a difficult procedure and only possible under certain
strict circumstances. Many enterprises, especially those of small and medium size were reluctant to
employ personnel because they feared the expensive and protective consequences of the law.
Today, SMEs need only to adhere to the Dismissal Protection Act if they employ more than 10
workers. Two thirds of all employees in Germany work in entities of this size and 99% of all
enterprises belong to the group of SMEs. So a change in the law regarding the SME means a
decisive difference.


Collective Bargaining Developments

Germany's industrial relations system is known for its dual nature: the employee representation on
an industry or national level through trade unions - which we will focus on first - and on a
company level through works councils - which we discuss later.




4
http://www.eurofound.europa.eu/eiro/studies/tn0703019s/de0703019q.htm
5
http://dip.bundestag.de/btd/15/029/1502932.pdf
6
http://de.wikipedia.org/wiki/Mindestlohn#Deutschland
7
http://www.wilmerhale.com/publications/whPubsDetail.aspx?publication=159
8
http://www.eurofound.europa.eu/eiro/country/germany_2.htmNational Level

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Today, only one-fifth of German employees are union members. This is about average for the EU .
The vast majority of union members are in the main union confederation, the DGB, which recruits
all types of workers. Today, its political direction is a minor issue.

Within the DGB, individual unions enjoy considerable autonomy and have, to some extent, greater
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resources than the DGB. The two most important, IG Metall and Verdi are of similar size and
together cover most of the sectors.

The counterpart to the DGB is the BDA, the Confederation of German Employers' Association. It is
known for its monopolistic position and generally developed in much the same way as its respective
trade union. After a peak in the 1980s (covering 80 percent of all employees) it continues to lose
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many of its members. It now has less than 40 percent coverage.


Collective Bargaining

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Collective bargaining power affects 64% of the national workforce and is still primarily conducted
at industry level between individual trade unions and employers' associations. The agreements are
legally binding for the members of the employers' organizations and trade unions who sign them.
As mentioned before, there are also legal mechanisms for extending the results of collective
agreements beyond the parties. In addition, it is common for other independent employers of the
same industry to voluntarily adhere to the agreed terms.

However, both, employers' federations and trade unions have lost much of their influence since
their peak in the 1980s.

In the case of the trade unions this is due to two main reasons. Firstly, as mentioned before, they
have constantly lost their political influence which resulted in a great restriction of their power.

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http://www.worker-participation.eu/layout/set/print/national_industrial_relations/countries/germany
10
http://www.worker-participation.eu/layout/set/print/national_industrial_relations/countries/germany
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http://www.worker-participation.eu/layout/set/print/national_industrial_relations/compare_countries
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This number is substantially higher than the 20% of the workforce being members of trade unions. This is mainly
because employers often accept collective bargaining agreements even though they are not part of the federation.
Furthermore, as mentioned before the government sometimes makes agreements valid for the whole industry. Hence the
percentage of workers practically covered by these agreements is around 60%.Secondly, employers in East Germany are disappointed that the unions failed to raise working and
wage standards in the East, up to the level in West Germany.

Employers' federations lose members for very similar reasons. Employers have left the federation
after reunification as they consider the harmonisation between East and West highly unrealistic and
too rapid. Therefore, they were not prepared to negotiate with the trade unions to quickly reach
parity of wage levels. Additionally, employers feel that they can reach better agreements on a
company level that take into consideration their individual situation. They expect to be more
flexible in terms of negotiations and also hope to avoid possible strikes which otherwise would be
held on an industry level.

Collective bargaining at industry level is still the most common way of negotiation and will remain
to be so for the near future. One can notice, however, a general move towards greater
decentralization. This results in negotiations moving to company level to allow for more flexible
and highly specialized agreements.


Company Level and Workforce Level

The German system of codetermination for employees within a firm allows workers to exert
influence and engage in decision making in two ways: a works council and labour representatives in
the supervisory board.





Work Councils

Works councils are not legally able to negotiate collective agreements or to call for any industrial
action. Instead, they discuss with the individual employers how to put collective agreements into
action or how to handle additional issues not covered by the trade unions. Since collective
agreements today leave more room for local negotiations - another sign of decentralization - works
councils become increasingly important.Although formally separated from the unions, union members normally play a key role within work
councils so that the councils remain an area of trade union dominance. Generally, though, the law in
Germany does not provide a separate statutory structure for union workplace representatives as
exists in many other countries.


Board-Level Employee Representatives

Employee representatives are granted one third of the supervisory board's seats in companies with
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500 to 2000 employees and half the seats in enterprises with more than 2000. The latter figure is
quite a lot in comparison to other European countries. These representatives are normally all union
members to allow for a solid representation of the trade unions on a company level. Since the
supervisory board elects the firm's top managers, workers have a voice and influence even at the
highest level of decision making.


Management Implications

We have seen that the government is less involved in industrial relations, less than in most other
countries, and only provides a broad legal framework (e.g. not even a minimum wage). Due to the
tariff autonomy, responsibility for negotiations is shifted to trade unions and employer federations.
However, at the same time we can observe a move of negotiations from industry to company level.
For managers, this has several different implications.
Greater Flexibility

Firstly it means a greater autonomy for each firm. Employer and employees can negotiate on a
much more individual basis. Terms can become more flexible and adjusted to the situation of the
specific enterprise as management can tailor the solution to better fit their needs.

It also offers the opportunity of avoiding the escalation of disputes. Strikes for instance are a very
typical measure of trade unions today to emphasize the urgency of change. When this happens, the
trade union as well as the employer federation has to respect and take into account the demands of

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http://www.worker-participation.eu/layout/set/print/national_industrial_relations/compare_countriesall their members, which can make matters much more complicated and complex. Negotiations
often take up a lot of time; from first meetings to the usual decline of the other parties' suggestions,
to further talks that often go on for weeks.

On a company level, however, it is should be easier to find an agreement when only two parties -
employer and employees - are involved and therefore, issues should be resolved substantially
faster.

Perhaps this move towards company level negotiations will lead towards a greater involvement of
workplace councils which currently do not have a significant impact. In this case, management
could begin to look at developing a close relationship with the council, providing training and
development as was the case with HAECO. Developing a relationship with employees who are
eager to add value to the company would not only decrease the likelihood and length of industrial
action but would also add to the bottom line of the company.


Improved Image

If the organization can execute effectively its company level negotiations and maintain good labour
relations it can boost its image. Labour relations can become decision criteria for customers to
choose their suppliers. A firm known for its well maintained relations with staff might be chosen
over another firm because it can provide more reliability. In addition to this, potential employees
will look more favourably on the organization as it provides more stability and better relations with
its employees. All of the sudden negotiations with the labour force can become an important feature
for managers to distinguish themselves from other companies.
Decreased Efficiency

On the other hand, we cannot suppress the negative impact for managers, since they now have to
deal with issues that used to be handled by their federation. The system as it used to be has taken
conflicts out of the workplace to a different level. This is convenient for companies as it allows
them to focus on their everyday business.

When dealing with employees on a company level, managers have to consider the time they have to
spend on issues such as new negotiations. In addition, it is likely that their managers do not have the
necessary skill set to conduct high level employee negotiations. Organizations lacking in this skillmay have to think about employing specialists that can handle negotiations and set up a new
respective contract between management and employees. Leaving the employer federation therefore
means having to devote more attention to the employer-worker relationships, which might consume
considerable time of managers.


Increased Adherence to Industry Level Agreements

Once the unions and federations lose influence and no sector-wide negotiations are made, the
current tariff autonomy has lost its meaning. As a consequence, the state might consider stepping in
and introducing more stringent labour laws to take over what the unions and federations then miss
to do. An example of this may occur over the issue of a minimum wage. Since industry level
negotiations become less important, the government has no basis to make wage agreements
compulsory for the whole sector as it has done to this point. Consequently it is possible that a
national minimum wage will be introduced. If a minimum wage is imposed, the impact it has
depends on the level that is set. Not only can this increase costs depending on the new minimum,
but it will also restrict the managers' ability to set wages for their workers in the future.

In summary, current changes in the German industrial relation system can have significant impact
on managers. At the moment, companies are well represented by their employer federations, which
keep many labour issues on an industry level and allow firms to focus on their actual business. At
the same time, the tariff autonomy gives employers and employees the possibility to solve labour
issues without government intervention so that managers do have considerable impact on industrial
relations.

However, when negotiations are shifted to a company level, although enterprises can find more
custom-made solutions and might avoid major disputes through open and direct discussions, it also
involves more work. Industrial relations will consume more of the managers' time as they now have
to take over any work that used to be done by the federations. This can distract them from their
actual managerial tasks.

Finally, when unions and federations lose their meaning, the government might decide to put more
stringent labour laws into action, so that additional flexibility gained might quickly be lost again.Sweden

Industrial relations in Sweden have been formed on a spirit of collusion and co-operation ever since
the signing of the Basic Agreement in Saltsjöbaden in 1938 between representatives of the labour
unions and the employer's organization, where it was decided that hostile actions were not
permitted during negotiations of new labour agreements. This agreement has since been followed
up by legislation in the same direction. When you compare this with Germany it is a stark contrast
to the continued and lengthy strikes that take place.


Political Developments

The driving force behind industrial relations in Sweden has been the strong support for the Social
Democratic party, which has shaped much of modern Swedish society. The party has been in
control of the government for most of the past century and their strong connections to the largest
blue-collar union, LO, have played a major role in industrial relations. Organized labour has been
the backbone of the Swedish Social Democratic party.

The Social Democrats have been promoting a business environment where big corporations have
gained extra government support compared to smaller firms. A close relationship between big
business, a big government, and big unions has been a central part of the Swedish model, which has
guaranteed stable labour markets and moderate wage demands. This, in addition to the high level of
union membership made central, high-level negotiations for new labour agreements standard.
The high level of unionization is a key factor in explaining the Swedish system. During the 1990s,
90 percent of the blue-collar workforce was unionized, over 70 percent of white-collar workers, and
about 70 percent of supervisors were unionized. These figures were among the highest in the world.
An explanation for this is that unemployment and other social benefits are normally paid out
through the union, as opposed to the government as would be the case in many other countries.
High union membership also reflects an approach that sees union membership as a natural part of
employment. As most people are union members, it has been for many years considered a statement
if someone in the workplace chooses not to join the union.

It should be emphasized that much of the bargaining process for new wages occurs directly between
employers and unions without government involvement, very similar to the process in Germany.The sophistication of Swedish industrial relations has certainly been a key factor in the country's
global economic development.

The change of government in 2006 to a liberal-conservative coalition has had radical implications
on the industrial relations. In the latest budget bill, presented in the autumn of 2007, the new
administration is seeking to cut unemployment by reducing employment costs and increasing the
incentives for unemployed people to find jobs. Controversially, it is reforming the (largely trade
union-run) unemployment insurance funds and unemployment benefits. The government is seeking
to drastically cut state financing of the unemployment insurance system and handing over the
financing to the individuals by no longer considering union membership fees as tax deductible.
Although the increased costs for the individuals would be offset with income tax cuts later, experts
said they expected the measures would contribute to a decline in union membership due to the
increased cost. In addition, the government also wants to reform the sickness insurance to increase
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the incentive to return to work.

Some also argue that the balance between workers and employers that has been an important feature
of the Swedish labour market for a long time would be disturbed. Although unions would continue
to administer the unemployment insurance system, union leaders are concerned that the government
might later seek to take control.


Legislative Developments

The Swedish spirit of mutual understanding in the industrial relations was cemented by the
introduction of a number of labour laws in the 1970's. The goal was to provide employees and
unions more participation in workplace decision-making. To achieve these goals, one law required
the development of trade union safety representatives. Among the most vital laws was the 40-hour
working hours code, the Employment Protection Act (LAS) and a law that stated that an employer
cannot fire people unless the employer is able to prove just cause or a shortage of work. The most
important of these were the Employment Protection Act, which states that the employee who was
hired last also has to be the first one to leave the workplace if reductions in staff are being made.
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The law can be circumvented if the last employed person is a specialist or manager.

14
http://www.eurofound.europa.eu/eiro/2007/10/articles/se0710029i.htm
15
http://www.eurofound.europa.eu/emire/SWEDEN/ANCHOR-ANST-Auml-LLNINGSSKYDD-SE.htmLike Germany, Sweden has no legislation regarding a national minimum wage. Instead the term is
used in Sweden with reference to the minimum rate which must be paid in all circumstances for
certain work or to employees of a certain category determined by the collective agreement.
Contracts that are signed between individual employees and employers bound by a collective
agreement specifying such minimum rates but states lower wages than those in the collective
agreement are invalid, and an employer who pays rates below the minima incurs liability for breach
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of the collective agreement.


Collective Bargaining

National Level

Collective bargaining in Sweden is mostly done at the industry level, although more than 80 percent
of employees have part of their pay determined by local level negotiations. 10 percent have their
entire pay determined locally. The overall level of coverage of collective agreements is around 90
percent, which has to be considered very high in comparison to basically all other countries in
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Europe. The labour movement negotiates nationwide contracts that have the impact of legislation.
Swedish unions have traditionally supported the modernization of industries, the use of advanced
technology, and the improvement of efficiency at work. The unions themselves are well-organized
and well run.

For many decades the Basic Agreement was the building block of the centralized collective
bargaining system. The Basic Agreement was prepared in 1938 in Saltsjöbaden. It was a central
agreement between SAF (The Swedish Employers' Confederation) and LO (The Confederation of
Trade Unions).

Centralized bargaining between SAF and LO did for decades set the standards for the rest of the
labour market. LO pursued a solidarity wage policy that resulted in low wage disparity. Other trade
unions soon joined forces with LO to stand strong against the employers.


16
http://www.eurofound.europa.eu/emire/SWEDEN/ANCHOR-MINIMIL-Ouml-N-SE.htm
17
http://www.worker-participation.eu/national_industrial_relations/countries/swedenThere was a big labour market conflict in 1980, which showed a weakness in the prevailing
structure of the centralized collective bargaining system when SAF refused to accept all forms of
wage increases. Sweden had experienced higher exposure to international competition for many
decades and the country had a history of high nominal wage increases, high inflation, devaluations,
and therefore no real wage increases.

SAF stopped being a bargaining party in 1990. Since then collective agreements are sector-specific.
LO's strength compared to other unions also decreased. Two major reasons for this was the
increasing share of white-collar workers and the fact that public sector employment corresponded
to a third of total employment.

In October of 2006, 77 percent of workers were members of the unions. The corresponding month
in 2007 only 72 percent were unionized. This is an unprecedented drop in union membership due to
the changed policy on unemployment insurance, brought forward by the new government. The rate
of union membership is now at the lowest level since the 1960s. The biggest decline can be seen
among young people and older white-collar workers. Representatives for the unions are concerned
that this will lead to an unbalanced situation where the federations of employers and employees no
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longer can take care of their own business.


Company Level and Workforce Level

The single channel for workplace representation for employees in Sweden is through the local
union at the workplace. Legislation requires the employer to negotiate with the unions at the
workplace before making major changes in work environment. This negotiation is different in
Sweden because the procedure on how it should be conducted is left up to the parties to discuss and
agree on, whereas the procedure is normally legislated in other parts of Europe.

Employees are represented on the boards of all companies with more than 25 employees. Two or
three employees are members of the board and they account for around one third of board members
in most companies. These people are chosen by the union and are generally the key persons in a
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wide range of relations between the employer and the union.

18
http://www.dn.se/DNet/jsp/polopoly.jsp?d=678&a=724250
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http://www.worker-participation.eu/national_industrial_relations/countries/sweden/workplace_representationManagement Implications

Sweden and the other Scandinavian countries differ a lot from the traditional European Union
countries. Sweden has a very high union participation rate and the spirit of co-operation that
underlies industrial relations means that strike action is relatively uncommon. Employer
organizations and trade unions prefer, instead, to work toward finding a consensus in negotiations.
Traditionally managers in Sweden would work closely with the unions to come to a solution.
Employees do not strike and often seek a win-win solution for both the organization and the
employees. Organizations pay a premium in wages in order to maintain this balance but their
organizations generally benefit greatly from it.

The recent switch in Government, however, is bringing with it a new environment in which to
negotiate. Trade unions in Sweden are losing members, although not as dramatically as in Germany
or the Czech Republic. This is largely a result of the new liberal-conservative coalition
government's policy changes regarding unemployment insurance.

The Social Democrats, who, were in power for many years were the main advocates for Trade
Unions. With the shift in power away from the left, it seems there is a corresponding shift away
from support for the Trade Unionists. This is disrupting the status quo that has been present in
Sweden for nearly a century and with it will bring a new mode of negotiations.

Although at first glance it may seem advantageous to managers that Trade Union numbers are
decreasing this may not be the case.

If the government removes support away from trade unions then workers, used to having a forum
for discussion, will begin to look for new avenues through which to navigate. The relationship that
has been in place for many years between Big Government, Big Unions, and Big employer
organizations will break down. This may destroy the spirit of co-operation that underlies the
Swedish system which could lead to strikes or other action.

Swedish managers are going to need to develop their skills to negotiate directly with employees and
there may likely be a greater move toward negotiation at the workplace. This would necessitate a
big change in the relationship between managers and employees, similar to the implications we
have seen in Germany.This change in relationship may call for the introduction of works councils that would be able to
represent employee's interests at a company level. Currently these have no role in the Swedish
system but if the power of the unions decreases further then they may be a necessary part of the
system.

The existence of the strict Employment Protection Act (LAS) has called for managers to be very
careful when hiring and firing. It can be really costly for a company to find out that they have hired
a person that will not live up to expected standards. During the first six months it is no problem for
the company to break the contract, but after that it will cost them a lot of time and money. This has
led to a strong trend with more outsourced staff at companies that need more flexibility or are afraid
to hire.

Strict labour laws in Sweden also signal a rigid labour market which lacks flexibility for employers.
In an increasingly global environment, the need for a more flexible labour market seems more and
more important to cope with competition; otherwise the companies move their operations to other
countries.

That being said, the Swedish system is still unique in its high participation rate and it is unlikely
these changes will have too much of a dramatic affect on the system. It is far more likely that the
biggest issues face by Swedish managers will come as a result of further convergence of the EU,
which will be discussed later.


Czech Republic

The developments in industrial relations in the Czech Republic provide for us an interesting study
of industrial relations in a country that has moved from a Communist government to a Democracy.
It is, to a degree, representative of changes that have occurred in other eastern European countries.
It reflects the changes that occurred when the old mechanisms for incorporating social interests
within the structure of the state where dismantled.

Political Developments

The Velvet RevolutionThe events that brought about the end of communist rule in the former Czechoslovakia are today
known as "The Velvet Revolution." In November 1989 a peaceful student demonstration in Prague
was suppressed by riot police. This served as a catalyst for other demonstrations across the country,
culminating in a two-hour general strike involving the majority of citizens in the country on
November 27th. These events, coupled with the collapse of the soviet empire, led the communist
government in Czechoslovakia to stand down the following day. By June the following year, the
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first democratic elections in the country since 1946 were held.

One of the key elements to the success of the revolution were the workers in the factories and those
who were dissatisfied with the enterprises. It was these same people who went on to provide the
foundation on which the present trade unions in the Czech Republic were built

Trade unions under the old communist regime were very much under the control of the communist
party. Every person in the country had to be represented by a union but the majority of the decision-
making power lay with party leaders. The trade unions would enter into discussions with
management regarding working conditions and minimum wages.

After the breakup of the old structures, the members of the strike committee and civic forum began
to build a free and democratic trade union system. Apart from distancing themselves from the old
party system the main aim of the unions was "to secure the best working and living conditions for
the employees, legal aid where needed, cultivation of self-confidence and dignity." The main trade
union based on this foundation was the CSKOS which, to this day, remains the largest trade union
in the country.

Split of Czech Republic and Slovakia

Not long after the collapse of communism came the separation of the country into the Czech
Republic and Slovakia. This was mostly an amicable split, thought to benefit both regions. At the
time however, it was seen only as a temporary arrangement.

Whilst the split itself was not seen to have made an impact on the trade unions, the period of the
'separation' and the movement towards democracy and a market economy did.

20
http://en.wikipedia.org/wiki/Velvet_RevolutionThe biggest problem the trade unions faced was the lack of a social partner with whom to negotiate.
There was a lack of necessary labour laws and there was no real industrial relations infrastructure.






Czech Accession to the EU - 2004

The general belief in the Czech Republic is that joining the EU will allow the country to develop its
Political, Economic, and Social Structures. The Trade Unions and their members would be granted
rights that are enforceable under the EU treaties to which the Czech Republic are signatories.


Current Political Situation

The current government is made up of the Civic democrats, the Christian democrats, and the Green
Party. The minority cabinet, led by Mirek Topolánek, finally gained a vote of confidence on
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January 19th 2007, the first since September 4th 2006.

This vote of confidence gives an essentially right-wing government power. This may lead to the
removal of legislation protecting trade unions and may serve to give more power to the employers.

Legislative Developments

After the Velvet Revolution there was an initial lack of any meaningful legislation in the Czech
Republic. This was caused by the lack of legislative 'muscle' by any of the new rulers. Having been
dominated by communism for so long meant that the country did not know how to conduct this
process.


21
http://en.wikipedia.org/wiki/Politics_of_the_Czech_RepublicAs is the case in Germany and Sweden, industry level agreements can be extended to other
employers in the same industry even if they are not part of the employers' association. This came
into effect in 2005 after the CMKOS and the largest employers' association agreed upon it.

Unlike Germany and Sweden, the Czech Republic does have a minimum wage of 318.78 Euros per
22 23
month which applies to all employees but only covers 2 - 3% of all employees .

More recently, the coalition government has been embroiled in a debate over a new labour law
passed in April 2006 but that did not come into effect until January 2007. The proposal was drawn
up with the help of some of the trade unions and pushed through by the political left even though
the bill faced major opposition from the political right and many of the major employers. Even after
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the bill was passed there was a heated debate over the deferral of the bill for a further year.

This bill brought changes that would strengthen the contractual principle in labour relations and
give more room for collective bargaining. Those on the political right and the major employers
opposed to the bill believed it would lead to greater unemployment and voiced concern over the
25
growing influence of the trade unions, claiming it to be unconstitutional. This can be compared to
the hiring and firing legislation in Germany which actually cause employers too reluctant to hire
new people due to the high costs of firing them

Collective Bargaining

After the Velvet Revolution, the trade unions found themselves in an interesting situation where
they had no social partners with which to negotiate. The employers did not have any organizations.
As a result the trade unions helped to bring together employers to form Federations with who they
could negotiate national and enterprise wide collective agreements. This initiated a "tripartite"
relationship where the unions viewed themselves as partners with the government and the
26
employers' federations.


22
http://www.fedee.com/minwage.html
23
http://www.eurofound.europa.eu/eiro/2005/07/study/tn0507101s.htm
24
http://www.eurofound.europa.eu/eiro/studies/tn0703019s/cz0703019q.htm
25
http://www.eurofound.europa.eu/eiro/2006/10/articles/cz0610029i.htm
26
Employee Relations in the Czech Republic.The CMKOS, formed on the foundation of the velvet revolution, is the largest union confederation
in the country with 611,000 members in 2004. The CMKOS is formally politically independent
although it is close to the social democratic party

The next largest confederation is ASO with around 170,000 members and there are a number of
other smaller federations.

Altogether there are around 900,000 trade unionists within the country; roughly 22% of all
employees. There has been a dramatic decrease in all union members in recent years. The CSKOS
went from 2.45m members in 1995 to 611,000 in 2004. This is due to passive attitudes to trade
unions left from the soviet era as well as the perception that joining a trade union will bring
27
sanctions from an employer . It is estimated that this decrease in membership will continue along
with the rest of Europe in the near future.

The largest employer organization is the Industrial Union of Czech Republic. It was formed after
the Velvet Revolution with the help of many of the trade unions. Currently it covers 600,000 people
in 29 branch and professional associations and 1550 direct organization-members. The IUCR has
28
no affiliation with any political party.

In the majority of companies no bargaining occurs at all. In those companies where it does take
place there has been a move from national level agreements to enterprise level agreements. Figures
show that of the 44% of employees covered by CMKOS in 2004, 29% were at company level and
15% where at industry level. This shift has been caused by the unwillingness of employers'
associations to bargain on behalf of their members. In the public sector, any employer that is
involved in the negotiation cannot form an employer's association.

There has also been a general decline in employees being covered by any agreement. From
2,045,000 in 1995 to 1,100,000 in 2004 at company level and 771,000 in 1995 to 590,000 in 2004
at industry level.

Compared to Germany and Sweden, unions, employers, and the government also meet in a tripartite
council to discuss various industrial relations issues. This does not include binding agreements but
does allow for "general agreement" that provide a framework for collective bargaining. The last

27
http://www.eurofound.europa.eu/eiro/2004/11/feature/cz0411105f.htm
28
http://eng.icie.ru/association/europe/europe_21.html'general agreement' was signed in 1994 but the council still meets. Alongside other forms of
dialogue, the council continues to influence government policy.

In recent years pay has been the main subjective of negotiations but other issues also emerge
29
including working time, work organization, and employers' contribution to pensions.


Works Council

Where there is no trade union, a works council with reduced rights could be set up. This practice is
rare however, and most companies either have a trade union or nothing. Most of the legislation
reflects the fear that trade unions have of works councils taking power away from them.


Supervisory Board

Employees have a third of the seats on the supervisory board of medium and large public limited
companies. Employees have the right to elect one third of the supervisory board, provided there are
30
at least 50 employees .

Management Implications

The first implication for managers in the Czech Republic is the recent Accession to the EU in 2004.
This means that employment law in the country must abide by European labour law. Any directives
that are in place in the EU will override national legislation for public companies. As soon as they
are made national law they will also affect private companies. Management must therefore ensure
that practices in the workplace regarding labour are within European law.

Secondly, unlike Germany and Sweden, the Czech Republic has a minimum wage for all
employees; management must ensure that the minimum wage is granted to those workers who
qualify for it. They must also be aware of the changes to the minimum wage rate year-on-year.


29
http://www.worker-participation.eu/national_industrial_relations/countries/czech_republic/collective_bargaining
30
http://www.worker-
participation.eu/national_industrial_relations/countries/czech_republic/board_level_representationThirdly, there are many organizations in the Czech Republic where no bargaining takes place at all.
The trade unions are very weak. This means that managers can often dictate the terms. In
connection with the first issue, as the Czech Republic integrates more into the EU, the occurrence
of bargaining may increase. Also recent legislation has been implemented that means the
government can extend an agreement to the whole industry, regardless if an organization is
represented. This means that although a small amount of negotiation takes place between a small
number of groups, it has the ability to impact an entire industry. As a result employers may seek to
get more involved in the negotiations and may even begin to assist the trade unions in attracting and
retaining members, solely on the basis that they will have someone with whom to negotiate.

The tripartite relationship between employers, trade unions and the government is quite unique to
ex-communist states in Eastern Europe. Although the government's role has reduced greatly in
recent years, it still has the ability to influence decisions. As management enter into negotiations
they need to be aware that that the government has the ability to influence decisions.


Comparison of the Three Countries

The German system was founded on the back of Second World War in an attempt to maintain a
strong union. The Swedish system has been built on spirit of co-operation and has experienced high
levels of membership for nearly a century. The Czech Republic's system was founded in 1989 after
the end of communist rule and was created by the revolutionaries.
Government intervention is at a minimum within Germany due to the tariff autonomy. In Sweden,
while the previous government on which the system was built heavily supported the unions, the
current government does not and is seeking to restrict their power. In the Czech Republic the
government will take part in tripartite negotiations with employers and trade unions, although in
recent years its role has declined.

The Czech Republic is the only country of the three with a minimum wage although Sweden and
Germany both have agreements in place in many industries that has the same effect as a minimum
wage.

The unions' powers are strongest in Sweden, where for many years they were backed by the
government. In Germany they are strong but have begun to lose power in recent years and in the
Czech Republic they have quite limited power.All three countries have also experienced a dramatic decrease in members in recent years, much in
line with the European trend. Interestingly, the decrease in each country has been attributed to
different things. In Germany it was largely due to the economic disparity between the East and
West after reunification and the unions' inability to decrease this gap. In Sweden it is due to the
new liberal-conservative coalition government that has changed much of the unemployment
insurance legislation. On the other hand in the Czech Republic, it is due to a negative image of the
unions and a passive attitude that has remained since the communist days were in place and there
was not a high degree of worker participation. This decrease in members has contributed to the
decrease in union power.

In terms of strike action, Germany ranks as having the largest degree whilst Sweden, with its
consensus seeking system has the lowest.

Collective bargaining covers a majority of the workers in Sweden and Germany but fewer in the
Czech Republic, although the government can extend agreements across and industry. Collective
bargaining takes place largely on an industry level in both Sweden and Germany. This also occurs
in the Czech Republic although often no bargaining occurs at all.

In Germany Employee Representation takes place on two levels, through the trade unions and
through workplace councils. There are also works councils in the Czech Republic although they are
seldom used. In Sweden the trade union is the only vehicle through which workers can participate.
In Germany, employee representatives are granted one third of the supervisory board's seats in
companies with 500 to 2000 employees and half the seats in enterprises with more than 2000. In
Sweden, employees are represented on the boards of all companies with more than 25 employees.
Two or three employee members are members of the board and they account for around one third of
board members in most companies. In the Czech Republic, employees have a third of the seats on
the supervisory board of medium and large public limited companies. Employees have the right to
31
elect one third of the supervisory board, provided there are at least 50 employees .


Countries Germany Sweden Czech Republic

31
http://www.worker-
participation.eu/national_industrial_relations/countries/czech_republic/board_level_representationEssential After WWII Built on the spirit of Revolution after the end
foundation of cooperation of the communist rule.
the system
Union's power Strong but the power is in Strongest among the Limited
decline three
Reason of the Economic disparity Unemployment Negative image of the
decrease in between the East and the insurance legislation by unions and the
union power West and union's failure the new liberal- remaining passive
to decrease this gap conservative coalition attitudes of low degree
government of worker participation
Strike actions Highest among the three Lowest among the three
Minimum wage None. Though agreements exist in many industries Yes
that have the same effect as a minimum wage
Coverage of Majority, largely on industry level Few, although the
collective government can extend
bargaining agreements across and
industry
Government Minimum, due to the Previous government Government takes part
intervention tariff autonomy heavily supported the in tripartite negotiations
unions, while current with employers and
government is seeking trade unions, although
to restrict their power the intervention has
declined in recent years
Employee Trade unions and through Trade union Works councils, but
representation workplace councils seldom used
channelEmployee Employee representatives Employees are Employees have a third
representation are granted one third of represented on the of the seats on the
power the supervisory board's boards of all companies supervisory board of
seats in companies with with more than 25 medium and large
500 to 2000 employees employees. Two or public limited
and half the seats in three employee companies. Employees
enterprises with more members are members have the right to elect
than 2000 of the board and they one third of the
account for around one supervisory board,
third of board members provided there are at
in most companies. least 50 employees

Figure 1 Table summarising differences between the three countries


Implications on a European Level

As we have seen industrial relations across three European countries vary widely. There are
differences in union representation, strength of unions, levels of collective bargaining, and many
more issues. Different industrial relations structures can coexist within the EU. There will, however,
inevitably be a degree of convergence within the EU as more directives are put into effect, thus
trumping national level legislation. This convergence will be necessary for the successful
implementation of a free economic zone but will have an effect on management practices in EU
member states. This will affect Germany, Sweden, and the Czech Republic.

There are a number of trends that managers in the EU should be aware of:

General Decline

The first is the general decline of employees who are members of Trade Unions. This decline can
be seen across Europe. On average, three out of every four employees in EU states are not a
member of a union. Everywhere in Europe, apart from Scandinavia, trade union membership is in
decline.Whether it's a result of a gap in national economic standards as in Germany, changes in
Governmental policy in Sweden or an apathetic viewpoint toward Trade Unions as in the Czech
Republic, Trade Unions in Europe are experiencing the greatest decline in unionists since their
inception.

In Sweden were the Trade Union is still very strong it is unlikely this will have much of an impact
but in Germany and the Czech Republic, as well as other EU states, this means that employees may
seek alternative avenues through which to negotiate.

Decreased union power will lead to managers losing necessary skills for negotiating with
employees. This means that when a problem occurs, management may not be able to handle the
problem effectively. Management across Europe need to be aware of the alternative avenues
through which employees will seek representation. Once new avenues of negotiation are
recognized, management may then need to develop those skills necessary for successful
negotiation.


Movement to Company Level

Accompanied with this is the movement in negotiations towards company level. We have seen this
is happening more so in Germany and the Czech Republic than it is in Sweden although it is
happening in all three countries to a degree.

This means that managers in these countries are going to have to become more aware of different
levels of worker participation. As mentioned before there may be an increase in workers councils or
similar fora for discussion. This could be beneficial to managers as they can use the workers
councils more effectively to achieve organizational goals. If a relationship can be developed
between management and the council, they could use it as a vehicle to train and develop council
members.

EU Directives

EU directives hold authority of national legislations. This means that public companies operating in
Germany, Sweden, and the Czech Republic must operate according to the directives. Private
companies do not need to adhere to the directive until it is formally introduced into national law.The biggest issue that could arise would be if the EU decided to impose an EU-wide minimum
wage, whilst this is unlikely to happen in the near future it does raise questions about how far the
EU will converge and what affect this will have on organizations.

Another good example of this is the recent debate in Sweden over the rate of pay a Latvian
construction company based in Sweden is paying their Latvian workers. The rate was considerably
lower than what Swedish workers would receive. With government support the Swedish Trade
Unions demonstrated against the Latvian firm. The European Court of Justice ruled in favour of the
32
Latvian firm.

This issue raises the debate over which countries regulations to obey when a domestic firm is based
in a foreign country and reflects concerns over low wage foreign workers undercutting domestic
workers.

It used to be the case that managers merely needed to be aware of the appropriate legislation in their
own country. As the EU expands, managers also need to be aware of legislation on an EU level and
within each country that they are operating in. The EU has not converged to the point that one set of
industrial relations policies can be implemented across the region. If a Multinational Corporation
has a presence in more than one country within the EU, it must develop a different set of policies
for each country.


Multi-Level Bargaining

Not only can bargaining take place on industry, sector or enterprise level, it can also take place on
an EU wide level. Whilst the umbrella organizations for European Trade Unions and Employers
organizations have not currently negotiated many EU level agreements, this role may increase in the
future. This means that managers will have to learn to work under another level of bargaining. And
agreements made may not necessarily suit every organization. Managers will need to be flexible
when introducing future industrial relations policies.




32
http://www.iht.com/articles/ap/2007/12/18/business/EU-FIN-European-Court-Latvia-Sweden.phpBecoming a European Company (Societa Europea: SE)

An SE operates on a Europe wide basis and is governed by the European Community (EC) rather
than national law. That law requires a distinct form of two levels of transnational employee
participation; employee information and consultation through a representative body and
arrangements for board level representation referred to as 'participation' whilst at the same time
maintaining the existing involvement rights before the company became an SE. If a company
33
becomes an SE then management must be aware of and able to react to these requirements.


Conclusion

These three countries each have their own unique system of industrial relations, built on their own
historical development and culture. These systems differ in many ways yet share some similarities.
As the European Union begins to converge, the biggest success factors for management in these
countries is to adapt to a European wide system of negotiation. It is only a matter of time before the
EU is fully integrated and the organizations that succeed will be the ones that can adapt to the
changing environment.


33
http://ejd.sagepub.com/cgi/content/abstract/14/1/46