Foreign employment contract templates: Austria is not Germany

In this episode of our Arbeitsrecht podcast, Isabel Firneis and Magdalena Ziembicka discuss typical pitfalls in using foreign employment contract templates and how companies can adapt them to Austrian law, including how to avoid the most common mistakes.

EPISODE SUMMARY

Contract form
Unlike in some countries, an employment contract in Austria, with some minor exceptions, does not have to be concluded in writing. It can be concluded orally or even implied through conclusive actions. As long as the employer and the employee have agreed on essential points of the employment relationship (e.g. position, duties, salary), a contract is considered to be concluded. In practice, it is nevertheless advisable to have a written contract as clear evidence of what has been agreed.

Contract language
In Austria, an employment contract can be drafted in a foreign language, provided that the parties understand this language. When a foreign parent company is involved, the contract is often negotiated and drafted in English. However, there are certain risks associated with a contract without a German version. Firstly, some terms in the Austrian law are quite difficult to translate into other languages, which can lead to difficulties in interpretation. Secondly, if the contract is disputed in court, an official translation will be required. In such a case, an incorrect or not sufficiently precise translation can affect the chances of winning the proceedings. If drafting in a foreign language is nevertheless required, we usually recommend a bilingual version with the prevailing German text.

Minimum salary and minimum wage
Unlike in Germany, for example, there is no statutory minimum wage or minimum salary for employees in Austria. Minimum salaries are however stipulated by collective bargain agreements (CBA), which in most cases apply to entire sectors (e.g. retail, tourism, catering). Around 98% of employees in Austria are covered by such CBAs. If employees are paid less than provided by the applicable CBA, this can lead not only to claims under civil law but also to administrative penalties for wage dumping.

Monthly salary payments
Most CBAs in Austria provide for a mandatory entitlement to 14 monthly salary payments per year. This provision has to be included in the employment contract and often differs from the wording used in foreign employment contract templates. The calculation of the 13th and 14th month salary payments may differ from the regular monthly salary, and some tax benefits apply to them.

Our recommendation in relation to foreign employment contract templates would be to agree on a gross monthly salary and not, for example, an annual salary, and indicate that the amount of the 13th and 14th month salaries is determined by the applicable CBA.

Probation period
The probation period in Austria amounts to a maximum of one month. Individual contractual terms providing for a longer probation period would be null and void. A workaround to create a longer period for “testing” the employee could be an initial fixed-term contract (e.g. for six months) with again a one-month probation period. The probation period does not apply automatically and must be expressly agreed upon, unless the applicable CBA provides for it. During the probation period, the employer and the employee can terminate the employment relationship at any time without stating a reason.

Contract termination
In most cases, the termination of the employment relationship is not bound to any form in Austria. The contract may stipulate termination in writing, however there is no need for the employer to limit themselves and include such a provision. Regardless of employment contract provisions, our recommendation is to hand over a written notice of termination either in exchange for a signature confirming the receipt by the employee or by registered mail.

Reasons for termination
In Austria, with a few exceptions, the termination does not have to be justified in order to be effective. At the time of the dismissal, the employer does not have to disclose the reasons. We recommend against listing the reasons for termination in employment contracts, as they impose restrictions on the employer’s right to terminate the employment relationship.
However, it is advisable for the employer to actually have operational or personal reasons for the termination, in the event that the dismissal is challenged later. Furthermore, dismissals must not be discriminatory.

Fixed-term contract
Unlike in Germany, for example, where there is a separate law on part-time and fixed-term employment, Austrian law only regulates fixed-term employment in a very rudimentary way. With only a few exceptions, there are no statutory regulations on the permissible reasons for and the maximum duration of a fixed-term contract and on how frequently fixed-term employment contracts may be concluded.

The main principles regarding fixed-term contracts have evolved from case law, which is relatively strict regarding consecutive fixed-term contracts. The repeated conclusion of fixed term contracts is only permissible if it is justified by special social or economic reasons. Such special reasons can hardly be generalised or typified, and always depend on the circumstances of the individual case.

Termination at retirement age
At present there are different retirement regimes for women and men in Austria. Given that, we advise against including a clause stating that the employment contract ends with an employee reaching the retirement age. If contracts with female employees include such provisions and are therefore terminated earlier, this may be viewed as discriminatory and increase the risk of litigation.

Holiday year
Unlike in many other jurisdictions, in Austria the relevant time period for the holiday entitlement is the working year, and not a calendar year. A changeover to the calendar year is possible but can lead to a higher holiday entitlement for employees in the changeover year.
The conversion of the holiday year to the calendar year or another annual period is only possible if it is provided for in the CBA or in companies with a works council by way of a works council agreement. In companies without a works council, however, an individual written agreement for the changeover to the calendar year is necessary.

Transferring holidays
Contract provisions requiring the use of holiday entitlement in the current year or limiting the number of days that can be transferred to the next year are ineffective in Austria. According to the Austrian Holiday Act, at the earliest the holiday entitlement expires two years after the end of the holiday year in which it arose.

Holiday entitlement after dismissal
A requirement for the dismissed employee to use up his/her leave during their release from duty is not effective in Austria. Leave must always be agreed between the employer and the employee, and it cannot be unilaterally ordered to be used up. We would advise a concrete holiday agreement between the employer and the employee in the event of termination.

Variable remuneration
In some jurisdictions, the employee must be employed for the entire bonus year or until the due date of the bonus. Such cut-off date regulations for variable remuneration are void in Austria. If an employee leaves the company during the bonus period, they are entitled to the share of the bonus corresponding to the share of time they completed their services for the company during this period (subject to the target achievement).

Clauses stipulating the forfeiting of bonus entitlement in the event of dismissal will also not work in Austria, as the bonus already earned cannot be forfeited retroactively. Whether the employee leaves after the end of the period or during the period, they are either entitled to the whole bonus (depending on the achievement of the target), or the rule mentioned earlier applies.

Contract termination and (no) compensation for the duration of the contractual ban on competition
In Austria, unlike in Germany, employees have no legal entitlement to compensation for the duration of the contractual ban on competition, unless such compensation has been explicitly agreed in the contract. Such agreements are rather unusual and lead to additional costs.
The employer only pays such compensation if they themselves terminate the employment and insist on compliance with the non-compete clause. Only in this case the employer has to pay the employee the entire remuneration for the period of the contractual prohibition of competition.

Disciplinary measures
It is not advisable to refer to “disciplinary measures” in Austrian employment contracts. The imposition of disciplinary measures in Austria is only permissible if it is provided for in a collective agreement or in a works agreement. Disciplinary measures include a fine, exclusion from voluntary services, the omission of planned promotions and warnings with a punitive character. Immediate dismissal, regular dismissal, simple warnings or reprimands are not considered disciplinary measures in this sense.

References to foreign laws / Choice of law clause
If the contract references foreign laws or terms of another legal system, there is a risk that these references and terms could be interpreted as an implied choice of law clause in favour of such other legal system. A choice of law clause must however not have the effect of depriving the employee of the protection afforded to him/her by mandatory rules of law that would apply to the employee based on the objective contractual statute, i.e. the law of the state that would apply in the absence of a choice-of-law clause. This could create a so-called cherry-picking situation for employees, meaning that the laws most favourable for the employees of both jurisdictions would apply. Our advice would be to remove all references to laws and legal terms of other countries and avoided explicit or implicit choice of law clauses in employment contracts.