Termination of employment in Austria

United Kingdom
Termination indemnities to be paid in the case of the termination of an employment contract by the employer Basically, there are 3 different ways in which an employment relationship can come to an end:

- by expiration (of a fixed term employment contract)
- by a mutual agreement on the termination
- by unilateral termination

This paper shall focus on the question of how an employer can (unilaterally) terminate an employment relationship and at what cost.

1. Termination with notice by the employer:
As a matter of principle, only employment contracts for an unspecified duration may be dissolved by termination with notice. As regards employment relations for a fixed term termination with notice is only lawful if the parties have agreed on such a way of dissolution (which is the exception).

Termination with notice usually does not require a reason to be specified and it is subject to statutory notice periods that depend on length of employment and certain termination dates (see below). Occasionally periods of employment with previous or associated employers are taken into account by agreement. Notice periods and termination dates can also be agreed upon in collective agreements and the employment contract. Works agreements can provide only for notice periods. According to the "favourability principle" such provisions may differ from the statutory provisions only in favour of the employee.

According to the Act on White Collar Workers ("Angestelltengesetz") the employer has to respect the followingnotice periods for the termination of white collar employees:

Years of service - Notice period
0-2 - 6 weeks
2-15 - 2 months
15-25 - 4 months
more than 25 - 5 months

Employment can end only at the end of each calendar quarter (31st March, 30th June, 30th September, 31st December). This rule can be changed by individual agreement so that employment can also end on the 15th or at the end of each month.

Forblue collar workers the statutory provisions on notice periods are negotiable. The applicable notice periods and termination dates are usually established in the relevant collective bargaining agreements.

In many cases employer and employee agree on a probationary period during which any party may dissolve the employment relationship with immediate effect without having a valid reason. As a general rule such a probationary period may only last for the first month of the employment.

Non-compliance by the terminating party with the prescribed or agreed period or date of notice constitutes untimely notice. Although the employment will terminate prematurely at the wrongly stated date, the employee is entitled to claim pay in lieu of notice ("Kundigungsentschadigung"). This remedy originates from the law of damages and shall compensate the employee for the damages he has suffered because of the premature termination of his employment. Therefore, he shall be put into the same financial situation as if proper notice had been given to him. The pay in lieu of notice therefore consists of the remuneration that would have been paid during the period between the actual termination of the employment and the date of termination prescribed by law, collective agreement, works agreement or the employment contract.The employee is entitled to full compensation for notice up to three month's salary. If, however, the period for which compensation is due exceeds three months, everything the employee has saved by not working, has earned or has intentionally failed to earn, will be set off against the compensation from the fourth month.

2. Termination without notice by the employer (summary dismissal):
If the employer has a good reason which would make it unreasonable for him to continue to employ the employee this type of termination is referred to as "summary dismissal" ("Entlassung"). Some examples ofreasons for summary dismissal according to the Angestelltengesetz are:

- if the employee is disloyal to the employer
- if the employee is unable to perform the promised or appropriate (reasonable) services
- any breach of the prohibition of competition
- if the employee disobeys orders
- if the employee refuses to work for a period deemed reasonable under the circumstances without any legitimate excuse
- if he attempts to induce others to disobey the employers orders

The grounds for summary dismissal of blue collar workers are similar and listed exhaustively in the Trade Act.

In the case of fair summary dismissal, the employee receives his salary until the date of dismissal together with any pro rata share of special payments.

If an employer terminated the employment contract by summary dismissal, even though the requirement of good cause is not met, the employment will normally nevertheless end immediately. The employee will be entitled to pay in lieu of notice (Kundigungsentschadigung) in the same way as if the employer declares a termination with notice, but fails to meet the correct period of notice or termination date (cf. above).

3. Protection against dismissal and Severance Payment ("Abfertigung")
Albeit as a matter of principle the termination with notice does not need to be justified, the freedom of the employer to terminate is restricted by a system of general protection against dismissal incorporating the following principles:

In establishments with a works council the employer must inform the works council in advance of any proposed dismissal, and the council may state its opinion on the matter. Unless the works council has given its explicit consent to the proposed dismissal it may be contested before the court as a "socially unfair" ("sozial ungerechtfertigte") dismissal. The dismissal is unfair if it is prejudicial to the essential interests of an employee who had been employed for at least 6 months unless the employer proves a valid reason for the dismissal (regarding personal capability or conduct of the employee or business requirements such as redundancy). If the court rules that a dismissal was unfair, the employment relationship that was terminated unlawfully is resumed. As a general rule the employee is therefore entitled to be paid remuneration for the period that has elapsed since the dismissal.

In legal practice it is quite common that the parties settle court litigation by an agreement to pay the employee a certain amount of money calculated as a multiple of the monthly salary. Although there is no rule of thumb to calculate an appropriate amount it can be said that the period of service and the chances for the employee to find a new job on the one hand and the financial situation of the employer on the other hand are the crucial factors taken into account. This payment is often referred to as "voluntary severance payment" ("freiwillige Abfertigung").

Due to their increased vulnerability the following groups of employees enjoy a higher degree of protection against dismissals: women before and after childbirth, parents on parental leave, workers who are called up for compulsory military or community service, works council members, safety officers and employees formally classed as disabled persons. In most circumstances the dismissal of those employees requires the prior consent of the court or some other authority based on one of the reasons expressly specified by law.

Regardless of whether or not a dismissal is unfair the employee is statutorily entitled to receive a severance payment (Abfertigung) , if employment has lasted for three or more years. The amount due to the employee depends on the length of time the employee has been employed by the employer and is calculated as a multiple of the salary of the last month of employment, increased pro rata by any other payments the employee regularly received such as the 13th and 14th monthly salary, regular commissions or bonus payments, regularly paid over time work, etc.

Time of service - severance payment (months)

3-5 years - 2
5-10 years - 3
10-15 years - 4
15-20 years - 6
20-25 years - 9
above 25 years - 12

4. Collective Dismissal ("Massenkundigung") and Social Plan ("Sozialplan")
If the employer plans to carry out collective dismissals exceeding a certain number of employees the Employment Service has to be given advance warning of this. This procedure is generally referred to as "redundancies notification procedure" ("Kundigungsfruhwarnsystem"). Its purpose is to give the Employment Service, the employer and works council time to explore all possibilities to avoid unemployment of the employees concerned. Generally speaking, the relevant thresholds refer to the number of employees that are working in an establishment:

21 – 99 employees => at least 5 employees
100 – 600 employees => at least 5% of the workforce
more than 600 employees => at least 30 employees
irrespective of the size of the establishment=> at least 5 employees aged over 50

In establishing whether the relevant threshold has been exceeded mutual agreements on the dissolution of the employment relationship are also taken into account. If the employer fails to notify the Employment Service at least 30 days before the first dismissal is declared, the collective dismissals are null and void. A copy of the notification must be forwarded to the works council, which must be consulted on the matter.

In the event of collective dismissals or another major change to the establishment entailing serious disadvantages for a significant proportion of employees, the employer and the works council can conclude a so-called "social plan" ("Sozialplan"). Legally, the social plan is a works agreement which can also be enforced before the public mediation and arbitration board ("Schlichtungsstelle") if there are at least 20 employees working in the establishment. In practice, social plans mainly cover financial arrangements for attending or organizing re-training schemes and special severance payments for employees who have been or are to be made redundant.

For further information, please contact Bernhard Hainz at bernhard.hainz@cmslegal.at or on +43 1 404 430

Click the links below to read about the termination of employment in other jurisdictions:

England and Wales
The Netherlands