As German Unions Struggle to Save Jobs, Worker Buyouts Are on the Rise

Germany's employment model is under attack, as mass closures and cost-cutting businesses make once-stable engineering jobs ever more precarious. Some trade unionists have turned to worker buyouts as a means of saving jobs — a move that hands workers more control of their situation, but also brings dangers of its own.

Smelters working at Huttenwerk Koenigsbronn GmbH, the product of an employee buyout of the 655-year-old Schwabische Huttenwerke in southern Germany.

Facing an unprecedented wave of mass workplace closures, Germany’s leading engineering union, IG Metall, now finds itself fighting a defensive battle to protect jobs. At the 655-year-old Schwabische Huttenwerke steel and iron smelter in the small southern town of Koenigsbronn, the union took the radical step of supporting an employee buyout — a takeover plan developed by shop-floor workers to save their jobs by buying the firm themselves. Reopened last April as Huttenwerk Koenigsbronn GmbH, the plan has saved 74 union jobs, and is now one-third worker owned. A contractual right of first refusal further paves the way for eventual full employee ownership.

In some ways, this isn’t entirely new. IG Metall is following in the footsteps of a number of its sister unions around the world, notably the Sindicato dos Metalúrgicos do ABC in Brazil (SMABC) and the United Steelworkers (USW) in America. These unions have each used employee buyouts, conversions, and cooperatives as early as the 1980s to successfully resist the effects of industrial decline. The German model of industrial relations and union practice itself have historically differed from each of these other contexts, placing much greater stress on sectoral collective bargaining, but as this model comes under significant pressure, unions like IG Metall are now being forced to look for other means of protecting jobs.

The German Context

Europe’s largest trade union and a trendsetter in improving workers’ conditions nationally, IG Metall is a force to be reckoned with. In 2018, it secured for its members the right to a twenty-eight-hour week, a 4.3 percent pay raise, and an extra eight days of vacation (or of extra pay) for workers with children. Unlike bargaining models in the anglophone world, the German model has unions negotiate primarily with employers’ associations rather than individual firms. This form of “sectoral bargaining” ensures collective agreements apply to vast swathes of the industry covering numerous firms. This model is based in large part on good faith and voluntary codetermination between the social partners rather than on law. IG Metall has thus tended to neglect strategies that may undermine or draw resources away from this highly successful model of collective bargaining, which has hitherto delivered increasing returns for its members.

Dependence on this model also comes at a cost. While IG Metall’s own constitution commits the union to the “democratization of the economy,” in practice any serious application of this policy has had to be left on the shelf. Far from seeking to establish a “cooperative commonwealth” or “solidarity economy” in which the union actively develops employee ownership, this clause has traditionally (though not universally) been interpreted as committing the union to codetermination and support for shop-floor–based “works councils” as institutions of workplace democracy. Ownership questions are subsequently not raised, and the union takes the mantle of a “loyal opposition” within the prevailing codetermination structure.

Unlike workers in most other countries, Germans have the right to elect a Betriebsrat, or “works council” — a body consisting of shop floor employees who represent staff interests within the company. The impressive “Works Constitution Act” (Betriebsverfassungsgesetz, BetrVG), which governs the practice of these works councils, gives them significant legal powers, including insights into the firm’s financial status, the right to review all hirings and firings, and to oversee the application of collective bargaining agreements at the company level. In best-case scenarios, these are composed of trusted union members and become a tool of union power within the company. A not insignificant portion of union activity is thus committed to ensuring that these works councils are able to effectively carry out their tasks on behalf of the employees, and that union candidates are elected to them every four years.

Despite the effectiveness of sectoral bargaining and the unions’ efforts to maintain it, this model is now under attack from a number of directions. As union membership declines, an increasing number of firms are either boycotting negotiations or leaving the employers’ associations altogether, abandoning the bargaining rounds and reducing overall coverage. Other firms are adopting an “observer status” which exempts them from actually implementing the agreements, while longstanding German manufacturers such as Volkswagen and Audi have begun relocating production to countries like the United States and Hungary, where they can avoid the codetermination system and the agreements resulting from it.

Resisting this process of offshoring was the basis for IG Metall’s 2015 “transnational partnership initiative” with the United Autoworkers (UAW), which resulted most notably in the botched organizing efforts at the VW plant in Chattanooga, Tennessee — seeing workers vote twice against union representation. An obvious takeaway from this is that while German employers expound the virtues of social dialogue at home, they engage in shameless union busting abroad and seek to undermine organized labor at every opportunity. This process of workplace relocations, which was previously slow paced, has been accelerated by COVID-19, with companies like Mahle announcing the closure of two thousand of its German workplaces in 2020 alone.

There is also the threat posed by newcomers such as Google or Tesla, the latter of which is set to open a new “gigafactory” in Brandenburg in 2021. This has sparked concerns that the firm may become a “second Amazon” in the automotive sector: busting unions, avoiding a works council, and opting out of both the employers’ association and traditional models of German codetermination. Billionaire publicist Elon Musk’s firm could thus set a dangerous precedent in the sector, which other firms would be keen to follow.

Part of the Volkswagen plant in Wolfsburg, Germany, its largest worldwide. (Wikimedia Commons)

The shifting terrain of industrial relations is not limited to the economic sphere, either. Having hemorrhaged significant votes to the Greens in the 2020 state elections, the future strength of the Social Democrats (SPD) is also in doubt. As the Greens make further inroads among the unions’ membership base, what this precisely means in terms of strategy is not yet clear, though it is hard to imagine the Greens supporting increased protections for automotive firms, even in line with IG Metall’s own pro-Green transition policies. The fractures on the center left are also internal, with the SPD party leadership condemning calls by its youth leader, Kevin Kühnert, to collectivize large manufacturing plants like the Wolfsburg VW factory.

IG Metall has not been passive during these developments, as its transnational partnership, resistance to closures, and efforts to address the establishment of companies like Tesla have shown. In November, they elected a new bargaining commission and continue to push for higher wages, secure workplaces, and rights for workers during the pandemic. The union remains powerful, influential, and pragmatic, and is thus in many ways at the forefront of efforts to respond to these challenges. But these are significant threats — and the role of employee buyouts is an uncertain component in the response. While the IG Metall “Learning Factory for Labour Policy” has worked with the Hamburg-based NGO “h3-o” to explore the potential use of worker buyouts as a form of succession planning (where retiring owners sell the company on to their own employees rather than to a competitor), the strategy remains on the fringes of union policy.

The Worker Buyout

This backdrop highlights why the decision by workers at the Schwabische Huttenwerke GmbH to secure their employment through employee ownership is quite so significant. The ancient firm had undergone three insolvencies in only the five years leading up to the 2020 buyout. As the plant had an effective, unionized works council, workers were acutely aware of three things prior to closure; that the plant had benefited from recent investment and was fitted with modern machinery, that it was producing high-quality iron and steel products, and that it had a full order catalogue. Thus, all the prerequisites for economic viability were there, despite the alleged financial mismanagement of the firm.

Ordinarily, the union’s practice in this case would be to discuss with management the restructuring of the company along with changes to the collective bargaining agreement. This may include some redundancies, a commitment to unpaid overtime or wage reductions, and other annulments of potentially “costly” sections of the collective agreement until the firm ends back up in the black. The principle behind this approach is to keep unionized firms in business and show a recognition that while bargaining agreements apply broadly to the entire industry, not all firms are in the same economic position to be able to fully implement them. When such cases become more common, the union has also emphasized the political dimension of its work, pushing for macroeconomic and policy solutions to prevent shutdowns or widespread redundancy. But even this is often not enough to save a firm — in which case the union’s main job is to ensure that the contractual and legal agreements regarding redundancy are honored.

In the case of Schwabische Huttenwerke GmbH, these avenues were fully exhausted by 2018. What made this case stand out, however, was the chance encounter between members of the works council and a local barman who happened to be a retired insolvency administrator. Together, they formed a draft restructuring plan which became the basis of the buyout. Having been supported by IG Metall, the union suggested collaborating further with the German-British restructuring consultancy One Square to develop a successful ownership agreement, which culminated in securing workers a one-third share in ownership. This comes with a right of first refusal over the other two-thirds, facilitating the gradual conversion of the plant to full worker ownership as private investors sell their shares.

Huttenwerk Koenigsbronn remains part of the Suedwestmetall employers’ association. It maintains a collective bargaining agreement, which temporarily deviates from the standard industry agreement in order to accommodate a 15 percent pay cut and the forgoing of Christmas bonuses — concessions which were used to finance the buyout. While these concessions could be cited by critics as a potential threat to industry standards and an argument against the widespread use of buyouts, closure would have been undoubtedly worse. They have secured seventy-four jobs, and with optimistic economic forecasts, the firm has been confident enough to rehire some of those who had originally not been part of the buyout itself.

Initially, then, this risky maneuver seems to have worked on almost all counts. Unlike other insolvency concessions, the cuts faced by employees have been in exchange for tangible ownership. Whether this results in long-term success, and whether this can form the basis of a wider response to insolvencies, remains, however, an open question. As the regional IG Metall representative Ralf Willeck notes, this strategy requires a workforce willing to adopt the risk of ownership. But this is not totally unchartered territory for organized labor in the metal sector, as examples abroad show.

A Legacy of Failure?

Union-led employee buyouts have often occurred in very unfavorable circumstances. They’re usually reactive, take place in economically distressed companies, are conducted at the last minute with little planning, and almost entirely depend on the individual enthusiasm of local leaders. These factors (concerningly apparent in this case, too) maximize the chances of failure and become, to an extent, self-fulfilling prophecies which fuel much of the reservation toward buyouts among union strategists. But successes are by no means rare, and their utilization, which stretches back to the very beginnings of the labor movement, have at times taken center stage in the fight for jobs.

The United Steelworkers (USW) have used buyouts since the 1980s, using Employee Stock Ownership Plan (ESOP) legislation — a form of employee benefit which gives workers share ownership in the company — to resist major shutdowns in American industry and bring firms under employee ownership. Their extensive experiences led USW to formalize this approach, passing Resolution No. 17 in 1986, which committed the union to actively support ESOP conversions under certain conditions — for example, requiring locals to pass through a two-step review designed to ensure the firm in question was economically viable. They began to negotiate conversion clauses into collective bargaining agreements in advance of insolvencies. This process of “investment bargaining” has subsequently played a key part in saving dozens of firms throughout the Rust Belt, including but not limited to Copper Range Co. (1983), Northwestern Steel & Wire (1988), Republic Engineered Steels Inc. (1989), Market Forge Industries Everett (1993), and Sharpsville Quality Products Inc. (1994).

The primary motivation of the USW, as with the IG Metall today, had never been to create worker ownership for ideological reasons, but to save union jobs and prevent closures. This ended the “reduce pay and working conditions or we’ll move shop” dichotomy faced in insolvency negotiations, and meant that reductions in pay and conditions could be exchanged for ownership. In some cases, worker ownership worked as a temporary stopgap solution until the market improved and another firm could repurchase the plant. In this sense, even firms which failed to remain employee owned actually succeeded in saving union jobs and in increasing union negotiating power in critical moments.

Where possible, USW also sought to build a more substantial “ownership culture” within these firms, which would give workers not only share ownership but also a level of shop floor democratic control. Learning from these shortfalls, in 2009, the USW partnered with the world’s largest worker cooperative, Mondragon, to develop a “union–co-op model” as a template for establishing a unionized cooperative sector, both in startups and bought-out firms. The “1worker1vote” movement, backed by Mondragon and the Steelworkers, has resulted in a number of employee ownership centers nationally, and is a model now championed by other trade unions such as the United Food and Commercial Workers Union (UFCW).

In Brazil, the SMABC — from which future president Lula da Silva would emerge as a political force — have long supported the recuperation of workplaces facing insolvency. While the successful recuperation of workplaces was, as with the USW, primarily motivated by the need to save jobs and prevent closures, successes led them to go further and establish the Union of Cooperatives and Solidarity Enterprises (UNISOL), networking cooperatives into a solidarity economy that now covers over seven hundred thousand workers nationwide. The development of legal and financial instruments to support the expansion of the union-cooperative economy became a central plank of the Workers’ Party’s development program under Lula. While these policies are currently suffering from attacks by Jair Bolsonaro’s ruling Social Liberal Party, the work of the SMABC, UNISOL, and the Workers’ Party still stands as one of the most successful examples of workplace recuperation in the Americas.

Forging Ownership

Employee ownership, and buyouts in particular, have never been a one-size-fits-all solution to the challenges facing trade unions in the twenty-first century. To paraphrase Rob Witherell of the United Steelworkers, the purpose of a kind of a worker-ownership focused “Unionism 3.0” should not be to replace the current industrial relations models but to supplement them. Employee ownership can and has been used as the basis of significant union revitalization around the world. To build from the success at Huttenwerk Koenigsbronn and apply this approach more widely, IG Metall would not only fulfill its constitutional commitment to the democratization of the economy more fully but ultimately sustain rather than undermine the codetermination system currently being disassembled by the cynical machinations of the employers themselves.

Rather than leave it to last minute chance, IG Metall has the power, resources, political leverage, and infrastructure to deploy this strategy coherently at the national level and produce examples of successful employee buyouts that parallel and transcend the achievements of unions around the world, outflanking automotive employers in the process.