Update from February 25, 2026: After long negotiations, the SPDU and CDU have agreed on a collective bargaining law. The draft from late summer was slightly revised again. The following still applies: A federal contract worth at least 50,000 euros may only be awarded to companies that pay their employees a standard wage. But more companies are excluded from this law than were planned in the original draft law. Originally, this regulation was not intended to apply to defense and security-specific contracts. According to the Tariff Compliance Act now passed by the coalition, the regulation does not apply to start-ups and defense companies or to deliveries or orders for goods. The latter also includes, for example, cars and rail vehicles.
According to the Tagesspiegel, around 6,000 of the approximately 22,000 federal orders fall into this category. If you add the awards that are under 50,000 euros, more than a third of the orders are not covered by the law. The Tariff Compliance Act is due to go before the Bundestag this week, and the Federal Council will then vote on it in March.
Original article:
The Federal Cabinet has approved the draft for a Federal Collective Bargaining Act. In the future, federal public contracts should only go to companies that pay their employees according to collective agreements. The grand coalition would like to strengthen collective bargaining in Germany. The project has met with strong criticism from parts of politics and business.
What does the government expect?
The federal government sees the Collective Bargaining Act as a way to ensure good working conditions and wages in the Federal Republic. “We are putting a stop to wage dumping with tax money,” says Labor Minister Bärbel Bas (SPD) on the resolution of the draft. In addition, awarding contracts linked to tariff compliance would make competition fairer. According to the federal government, companies that are not bound by collective agreements can currently offer their goods and services more cheaply due to lower personnel costs.
The law applies to awards at the federal level of 50,000 euros or more. This excludes the awarding and execution of defense and security-specific public contracts. The following applies to all other companies: You must prove that collectively agreed working conditions apply to them – for example with regard to pay, vacation entitlements or rest period regulations. To do this, they will be in contact with a federal testing center that has not yet been set up.
Critic: The opposite of de-bureaucratization
Numerous critics not only doubt the usefulness of the law, but also see it as a contradiction to the government’s goal of de-bureaucratization. “Instead of promoting de-bureaucratization and acceleration, competition and diversity in awarding contracts, the law forces companies into a foreign collective agreement,” says Steffen Kampeter, general manager of the Federal Association of German Employers (BDA).
It is not a relief, but represents a compulsory control, which will make it complicated in the future, especially for medium-sized companies, to even apply for public applications. The federal government counters this: “Bureaucracy, documentation requirements and controls should be limited to an absolute minimum.”
What effects does collective bargaining really have?
There is also confusion among HR experts regarding the law. The law aims to increase collective bargaining coverage. According to the Federal Statistical Office (Destatis), this has fallen sharply over the past 20 years. While 49 percent of companies were bound by collective agreements in 2024, in 1998 it was 76 percent in western Germany and 63 percent in eastern Germany. HR consultant Lorenz Seidl asks whether it is really important to reverse this downward trend. “Is collective bargaining per se really that good? There are some tariffs that are simply not affordable without above-tariff allowances because they are too little,” he writes on Linkedin.
The fact is: In principle, people in companies that are bound by collective agreements tend to earn more than in organizations that are not bound by collective agreements. According to a study by the trade union-affiliated Economic and Social Sciences Institute (WSI), employees without a collective agreement earn on average eleven percent less than those with a collective agreement.
But aren’t there already enough other laws in this country that aim to achieve greater pay equity? Seidl also asks this question. “Why then the Pay Transparency Act and the increase in the minimum wage if suddenly tariffs are the ultimate thing?”
Collective agreements in temporary employment are not recognized
The temporary employment industry is also more than dissatisfied with the law. Especially because their collective agreements are not recognized and are not applied. “We have pay structures above the legal minimum wage and there are no longer any pay differences between the rest of the economy and temporary work,” says Florian Swyter, general manager of the General Association of Personnel Service Providers (GVP). “Therefore, there is no reason to ignore the collective agreements for temporary employment.”
Some observers also doubt whether the law will really help to increase collective bargaining coverage. The former Prime Minister of Hesse and current chairman of the Ludwig Erhard Foundation, Roland Koch, points out in a comment that, in his opinion, there is little effect of existing collective bargaining laws in individual federal states. In Berlin, collective bargaining coverage fell from 16 percent to 14 percent despite the regulations there. Even in Bavaria, which has no tariff compliance regulation, collective bargaining coverage fell from 29 to 25 percent over the same period. “The numbers suggest that a tariff compliance law alone will not reverse the trend,” says Koch.
However, praise for the planned law came from the German Federation of Trade Unions (DGB) and IG Metall. “With this decision, the federal government is finally sending an important signal for collectively guaranteed wages and working conditions,” says DGB chairwoman Yasmin Fahimi. “Hopefully it will ensure more fair competition, because the cheapest bids on the backs of employees will no longer be allowed to win public contracts.” However, the unions do not believe that the law excludes the Bundeswehr from meeting its needs.
The former traffic light coalition had already presented a very similar draft law in November 2024. However, due to the dissolution of the Bundestag, this draft was never passed. The current draft must be approved by the Bundestag and Bundesrat in the next step after the summer break.
(This post first appeared on August 7, 2025 and was updated on February 25, 2026.)
Lena Onderka is editorially responsible for the Employee Experience & Retention area – which also includes, for example, the topics of BGM and employee surveys. She also looks after topics in the areas of recruiting, employer branding and diversity. She is also the editorial contact for the German Human Resources Summit.
