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Austria | KWR

Employment Law Overview Austria
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07. Termination of Employment Contracts

Grounds for Termination

As a general note: Austrian law distinguishes between immediate dismissal and ordinary termination. Immediate dismissal is an extraordinary form of termination of an employment contract. A dismissal always requires an important reason/good cause and notice of dismissal must be given without delay. A dismissal is effective immediately. An ordinary termination does not require an important reason/good cause (unless the termination is challenged in front of court) but notice periods and notice dates must be observed. There are many differences between these two forms of ending an employment relationship. It is very important to distinguish these forms and comply with the respective rules.

Grounds for Termination

It is not necessary and not common to state a reason for termination when giving notice (“freedom to terminate”). This freedom to terminate under Austrian law is however restricted by the fact that employees may contest the termination at the Labour and Social Court under certain conditions (e.g. because of social hardship or because of an unlawful motive for termination or because of discrimination – contestation of termination). In case of a contestation of a termination, the employer must substantiate and prove reasons and the factual justification of the termination. Against this background, an employer should have reasons readily available and the collection of evidence through documentation, warnings, interviews, witnesses etc. is very important and key in a possible contestation case.

An exception exists for employees with special protection against termination and dismissal: e.g. pregnant women, parents on parental leave and part-time parental leave, works council, beneficiaries with disabilities and apprentices. In these cases, termination or dismissal is only possible after court or official approval has been obtained and is also only permissible if certain reasons exist.

Collective Dismissals

In the case of mass terminations (e.g. an intended termination of at least 5 employees within 30 days, 5% of the employees in an establishment with between 100 and 600 employees, 30 employees in an establishment with more than 600 employees or 5 employees who have reached the age of 50 years), the early warning system applies. A written notification must be submitted to the relevant regional office of the AMS at least 30 days before the first notice is given.

The notification must contain:

  • the reasons for the intended termination;
  • the period of time during which the dissolutions are to take place;
  • the number of regularly employed workers and their use;
  • the number of employees likely to be affected by the intended dissolution and their use, age, gender, qualifications, length of employment;
  • other criteria relevant for the selection of the persons concerned; and
  • the accompanying social measures.

At the same time, evidence must be provided that the works council was consulted.

Terminations in disregard of the early warning system are invalid.

Individual Dismissals

Dismissal without notice is only permissible if there is good cause, otherwise it is invalid. The employer must be able to prove the reason. Dismissal must be pronounced without delay, otherwise it is invalid. A dismissal ends the employment relationship immediately. The dismissed employee can contest the dismissal in court.

If there is a works council, it must be informed immediately and demonstrably of a dismissal that has been pronounced.

Possible grounds for dismissal of white-collar workers:

  • Disloyalty in service: multiple violations of service instructions.
  • Unauthorised granting of benefits: the acceptance of gifts without the knowledge and will of the employer if this has not been expressly prohibited by the employer.
  • Unworthiness to be trusted: Theft, embezzlement, fraudulent acts, as well as the attempt of such criminal acts, excessive downloading of potentially harmful or copyrighted software and overuse of the company network, pursuing a second job despite an agreed non-competition clause during working hours, repeated fraudulent use of a time recording system to obtain credit hours.
  • Incapacity for work: incapacity for work caused by illness (through no fault of the employee) or misfortune if this leads to permanent incapacity for work.
  • Competitive business: the operation of a commercial enterprise, working for a competing enterprise during leave as well as within the notice period.
  • Failure to perform service: persistently arriving late to work, repeatedly failing to comply with working hours despite being warned, significantly exceeding leave, taking leave on one’s own authority, unexcused absence, failure to perform urgent work.
  • Persistent refusal to work: the employee’s refusal to temporarily perform work in another department, even if somewhat inferior to his or her other work, in order to clear backlogs; repeated refusal to work overtime without good reason; refusal to recognise a particular person as a supervisor; repeated sleeping by a supervisory employee; refusal to work in hours missed (twelve due to attendance at a driving school).
  • Persistent noncompliance with orders: “smiling” disregard of an employer’s directive when sustained, intransigence and persistence.
  • Incitement to disobedience: inciting other employees to disobey orders given by the employer.
  • Inability to serve for an extended period of time: an investigative detention of more than 5 weeks.

Possible grounds for dismissal of blue-collar workers:

  • Deceiving the employer when concluding the employment contract: by showing false or falsified identity cards or certificates;
  • Deceive about the existence of an employment relationship that obliges him/her at the same time.
  • Inability to perform the agreed work;
  • Drunkenness;
  • Theft, embezzlement or any other criminal act which renders the employee unworthy of the employer’s trust;
  • Betrays a trade or business secret;
  • Operating a detrimental secondary business without the consent of the trade owner;
  • Leaving work without authorisation; or
  • Persistently neglects his duties; or
  • Attempt to induce the other employees to rebel against the employer to a disorderly way of life, to immoral or unlawful acts;
  • Gross insult, bodily injury or dangerous threat against the employer, his household members or the other employees;
  • Careless handling of fire and light;
  • Affliction with a deterrent disease;
  • Incapacity for work through the own fault of the employee;
  • Imprisonment for more than 14 days.

The following employees are subject to special protection against dismissal: pregnant women, parents on maternity/paternity leave and part-time parental leave, works council members, beneficiaries with disabilities and apprentices. In these cases, termination is only possible after court or official approval has been obtained and is also only permissible if certain reasons exist.

Is Severance Pay Required?

Therefore, there are currently two different severance pay schemes that apply to employment agreements. The “old system” applies to employment agreements created on or before 31 December 2002. The “new system” applies to all employment agreements created after 31 December 2002.

Apart from these statutory forms of severance pay, voluntary severance payments are either agreed in individual contracts or upon termination in order to reach a mutual termination with a general clause.

Severance Pay – Old System

The “old system” uses a severance payment scheme that provides a sliding scale of severance pay, with entitled pay increasing in relation to the temporal seniority of the employee. Severance pay entitlements under this “old system” activate when the employee has worked for an uninterrupted period of three years for the same employee. The low end of the scale provides for two times an employee’s monthly remuneration upon termination when that employee was employed for over three years. The high end of the scale provides for twelve times an employee’s monthly remuneration upon termination if that employee was employed for over twenty-five years. Severance pay under the “old system” becomes due if the employer terminates the employee or dismissed him/her without legal basis. If the employee him- or herself terminates the employment without the employer giving him/her reasons or cause to do so, no severance pay is due. Severance pay under the “old system” is very attractive for employees since it is taxed with only 6%.

This system was revised because it prevented employees from making lateral career changes. If an employee wanted to terminate their employment agreement to take on a new job, they would not be entitled to their severance pay, and in most cases their new employer would be unwilling to cover this loss. Therefore, Austria adopted the “new system” with the Austrian Corporate Employee Retirement Act of 2002.

Severance Pay – New System

The “new system” mandates that employers withhold and pay 1.53% of each employee’s gross monthly wages (including special payments) and deposit that withholding to an independently-managed, severance pay provider (severance pay fund). These independent severance pay funds are usually managed by major banks or insurers. In companies without a works council, the selection is the responsibility of the employer. The employer informs the employees about the selection of the severance pay fund in writing. If at least 1/3 of the employees’ object within 2 weeks, the employer must propose a new severance pay fund. In companies with a works council, the works council can request a works council agreement on the selection of the severance pay fund.

This system offers more flexibility than the “old system” because it allows employees to shift their accrued salary withholdings from one severance pay fund to another upon a change in employment. Additionally, an employee may opt for a lump-sum pay-out or a lifelong pension at the time of retirement. Furthermore, it simplifies the system for employers.

Separation Agreements

Is a Separation Agreement required or considered best practice?

A written separation agreement is only required in specific cases, especially with pregnant employees, employees on parental leave, employees in parental part time, minor employees, presence and civilian servants and apprentices. It is, however, common and recommended that employer and employee conclude a (written) separation agreement. A separation agreement is considered best practice also in cases where it would not be mandatory.

What are the standard provisions of a Separation Agreement?

Separation Agreements typically contain the following items:

  • short description of the employment relationship that is being terminated
  • mutual termination date
  • (revocable or irrevocable) release from duty of work
  • payment of unconsumed leave/consumption of unconsumed leave
  • payment of outstanding overtime or time compensation
  • service certificate
  • confidentiality clause
  • return of work equipment
  • post- contractual non-compete
  • agreement on communication of the separation
  • release from/revocation of special functions and powers
  • (one or two sided) general settlement clause
  • severability clause

Does the age of the employee make a difference?

Yes, there are special requirements for minors and minor apprentices. Both legal representatives need to consent to the separation agreement.

Old employees (generally employees over 50) are more difficult to terminate since they are considered to be more severely affected by a termination than younger employees. Higher voluntary severance payments are common. Circumstances which are due to the older age of an employee who has been employed for many years in the establishment or enterprise to which the establishment belongs may only be used to justify the termination of the older employee if the continued employment would have a material adverse effect on the interests of the employer.

Are there additional provisions to consider?

There is a specific rule in the event of illness: If a mutually agreed termination is agreed during an illness, it does not cause the end of the entitlement to continued remuneration. This means that an entitlement to continued remuneration continues to exist beyond the end of the employment relationship even if the mutual end date is earlier (protection of employee in order not to prevent him/her from continued remuneration during illness).

Unlawful pressure or deception can lead to the invalidity of a separation agreement. Threatening a dismissal is qualified as unlawful pressure if there is actually no reason for dismissal. Sufficient time should be allowed for acceptance. If there is a works council, the employee can request a consultation with the works council before agreeing on a separation agreement. In this case, no legally effective separation agreement can be concluded within two working days of this request.

Remedies for Employee Seeking to Challenge Wrongful Termination

The employer has to inform the works council at least 1 week prior to giving notification in each individual case. The works council has 1 week to either approve or object the termination or to refrain from any feedback. Regardless of the works council’s statement, after elapse of the 1 week, the employer can issue notice of termination.

The employee’s options for challenging the notice of termination based on social unfairness are dependent upon the works council’s statement. If the works council approves, the employee cannot challenge the termination for social unfairness (but still for unfair motive). In all other cases, the employee can challenge the termination for social unfairness (if all other prerequisites for the challenge are fulfilled) and for unfair motive.

Most of the terminations are challenged by employees since the employees receive free legal advice from the Chamber of Labour.

An employee can challenge the termination for several reasons. The most common court cases against termination are based on the following:

  • termination period and/or termination date is incorrect à (a) termination invalid à reinstatement OR à (b) incorrect termination is accepted à compensation claim
  • termination is socially unfair à termination invalid à reinstatement
  • termination was made for unfair motive à termination invalid à reinstatement
  • termination was discriminatoryà (a) termination invalid à reinstatement OR à (b) discriminatory termination is accepted à compensation claim
  • open claims or entitlements (e.g. service certificate, unconsumed leave, open bonus etc.) à payment claim

The deadlines vary depending on the type of claim.

Social Unfairness and Unfair Motive

A termination or dismissal will be found socially unacceptable if the employee’s substantial interests are impaired, and the employer cannot show that the termination or dismissal was based on the employee’s inability to effectively perform the tasks associated with their employment, or there are economic reasons that necessitate the termination. For an employee to prove that their own substantial interests are impaired, they need to show that the termination will cause them financial loss (as termination of employment and the associated benefits of employment are wont to do) and that the employee will have difficulty finding new employment.

For an employer to show that the notice of termination was nevertheless valid, they must prove that reasonable business interests make the employee’s continued employment with the company impossible. If the employer is making broad cutbacks on its workforce, the court will not analyse the underlying financial reasons for making those cutbacks but will determine whether or not the employer exhausted all reasonable avenues to avoid laying off the appealing employee. Furthermore, an employer may rebut the employee’s claim of social unacceptability by showing that the employee was unable to perform their duties due to physical or psychological deficiencies, or if the employee committed a breach of duty.

Unlawful motives for notice of termination include, but are not limited to, the employee’s participation in trade union activities, participation in works council matters, and making justified claims concerning their employment agreement.

Whistleblower Laws

There has been no comprehensive legal obligation to protect whistle-blowers in Austria. While provisions have already been made in individual areas (for example, in the Banking Act and the Civil Servants Service Act), larger companies have so far been free to set up a whistleblowing system voluntarily. Once Austria implements the EU Directive (not yet the case), there should be a law according to which companies will have to set up reporting channels for whistle-blowers. This would protect service members, volunteers, interns, supervisors and contractors as whistle-blowers, provided they act in good faith. In addition to protecting the identity of whistle-blowers, no reprisals (dismissal, reduction in salary, mobbing, damage to reputation) may be imposed on them.

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