Collective Agreement with Normal Binding Effect

Collective agreements rank immediately behind law provisions as a source governing terms of employment relationships. If a collective agreement has not been declared generally binding in a business sector it is only binding upon those employers who belong to an employers’ association or union, which has been involved in concluding the agreement in question. This is provided for in the Collective Agreements Act. A collective agreement with normal binding effect is binding upon those employers, associations and sub-associations who have entered into the agreement as well as those employers and employees who are members of such associations.

Employers and employees subject to a collective agreement with normal binding effect must comply with its provisions. Compliance is supervised by employer and trade unions. The benefit of a collective agreement is the industrial peace obligation. This means that employees may not declare a strike, boycott or other similar action while the collective agreement is in force. A collective agreement is binding upon all parties thereto.

An employer and an employee being bound by a collective agreement may be ordered to pay compensatory penalty for breach of the agreement, for instance for declaring a strike while the collective agreement is in force. A prerequisite for establishing liability is that the actions resulting in the breach were intentional or at least reckless to the extent that the actions cannot be considered to have been undertaken in good faith. The penalty is ordered by the Labour Court. The maximum penalty for a breach of the agreement is confirmed for a three-year-period.  From the beginnig of 2012 the maximum penalty is 29 500 euros for an employer and 290 euros for an individual employee. In addition, the employee association may be ordered to pay a fine of up to 29 500 euros for e.g. beaching the industrial peace obligation.

Small companies are usually not members of an employers’ association, and consequently not parties to a collective bargaining agreement, unless the agreement in question is generally binding. For further information, see [2.1.2.3.2 Generally Binding Collective Agreement] and [2.1.2.3.3 Provisions of Collective Agreements]