A collective agreement, collective labour agreement (CLA) or collective bargaining agreement (CBA) is a special type of commercial agreement, usually as one negotiated "collectively" between management (on behalf of the company) and trade unions (on behalf of employees). The collective agreement regulates the terms and conditions of employees in their workplace, their duties and the duties of the employer. It is usually the result of a process of collective bargaining between an employer (or a number of employers) and a trade union representing workers.
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In Finland, there is universal validity of collective labour agreements. This means that a collective agreement in an economic sector becomes a universally applicable legal minimum for any individual's employment contract, union member or not. For this condition to apply, half of the workforce in that sector needs to be union members, thus supporting the agreement.
Workers are not forced to join a union in a specific workplace. Nevertheless, with 70% average unionization, most economic sectors are under a collective labour agreement. An agreement does not prohibit higher wages and better benefits, but establishes a legal minimum, similarly to a minimum wage. Furthermore, a Comprehensive Income Policy Agreement is often, but not always reached, which includes all trade unions, employer's unions and the Finnish government.
Collective agreements in Germany are legally binding, and this is accepted by the population, and it causes no alarm. Whereas in the UK there was (and arguably still is) a "them and us" attitude in industrial relations, the situation is very different in post-war Germany and in some other Northern European countries. In Germany, there is a much greater spirit of cooperation between the two sides of industry. For over 50 years, German workers by law have had representation on company boards. Together, management and workers are considered "social partners", a term that gives rise to bemusement in the UK.
In Sweden about 90 per cent of all employees are covered by collective agreements, in the private sector about 85 per cent. Collective agreements usually contain provisions concerning minimum wages. Sweden does not have statutory regulation of minimum wages or legislation on extension of collective agreements to unorganized employers. Non-organized employers can sign substitute agreements directly with trade unions, but many do not. The Swedish model of self-regulation applies only to workplaces and employees covered by collective agreements.
At common law, Ford v A.U.E.F. , the courts once held that collective agreements were not binding. Then, the Industrial Relations Act 1971, introduced by Robert Carr (Employment Minister in Edward Heath's cabinet), provided that collective agreements were binding unless a written contract clause declared otherwise. After the demise of the Heath government, the law was reversed to reflect the tradition in British industrial relations policy of legal abstentionism from workplace disputes.
The law is now contained in the Trade Union and Labour Relations (Consolidation) Act 1992 s.179, whereby In the United Kingdom, collective agreements are conclusively deemed to be not legally binding. This presumption may be rebutted when the agreement is in writing and contains an explicit provision asserting that it should be legally enforceable.
Although the collective agreement itself is not enforceable, many of the terms negotiated will relate to pay, conditions, holidays, pensions and so on. These terms will be incorporated into an employee's contract of employment (whether or not the employee is a union member); and the contract of employment is, of course, enforceable. If the new terms are unacceptable to any individuals, they can object to his employer; but if the majority of workers have acquiesced, the company will be able to sack the complainants, normally with impunity.
The British law reflects the historic adversarial nature of UK industrial relations. Also, there is a background fear by employees that if their trade union sued for breach of a collective agreement, the union could become bankrupt, leaving employees without representation in collective bargaining. This unfortunate situation may be slowly changing, partly through EU influences. Japanese and Chinese firms that have UK factories (particularly in the motor industry) try to imbue their workers with the company ethic.[clarification needed] This approach has been adopted by indigenous UK firms such as Tesco.