A Tarifvertrag (collective agreement) is a legally binding contract negotiated between one or more trade unions and either an employers' association (Arbeitgeberverband) or an individual employer, governed by the Tarifvertragsgesetz (TVG). Flächentarifverträge (sectoral agreements) cover all member firms of an association, whereas Haustarifverträge (company agreements) apply only to a single employer. The substantive terms typically set minimum pay scales, working hours, holiday entitlements, and supplementary benefits above the statutory floor.
Collective agreements bind only the parties and their members by direct operation of law; non-member employees are covered only through individual contractual incorporation or if the Federal Ministry of Labour issues an Allgemeinverbindlicherklärung (general binding declaration) extending the agreement to the whole sector. Germany's collective bargaining coverage has declined over recent decades, but key sectors including construction, retail, and public services (TVöD) remain heavily regulated by Tarifverträge with direct pay-scale implications for payroll.
Employers covered by a Tarifvertrag must apply the agreed minimum wage scales even where an individual employee's contract is silent on the point. Derogation below the contractual minimum is void. International employers structuring German operations should identify applicable sectoral agreements early, as the resulting pay floors and overtime rules materially affect cost modelling and HR system configuration.