Redundancies: Tips & Tricks

In this episode of our Arbeitsrecht podcast, Ralf Peschek and Isabel Firneis dive into the complex topic of staff reductions and social plan negotiations in Austria. They discuss how a restructuring process is usually structured and which factors drive the timeline and costs. They also share tips and tricks from their practical experience, including an insight into social plan negotiations with the works council.

Episode summary

Depending on the level of a company’s preparedness and knowledge, the starting point for the process may differ. At the initial stage, the focus should be on identifying key legal aspects and developing a structure on the basis of these key elements.

Austrian labour law provides for a number of requirements that have to be met, in particular in cases where large numbers of employees are affected, although most of them are quite vague. Timing considerations are crucial, as they will also affect the financial side of the restructuring process. The costs of a potential social plan increase the restructuring costs considerably.

This summary covers some key considerations and observations discussed in the episode.

Consultation with the works council

The law provides that the works council must be informed about the planned restructuring and connected mass dismissals at a time, in a manner and with content that enables the works council to assess the possible effects of the planned measure in detail and to issue a statement on the planned measure. This wording is however rather vague and leads to several questions in practice e.g. in context with the timing of this information and the necessary content. 

In case of mass dismissals, by law the information given to the works council must however have a more specific content (reasons for redundancies, number and position of the employees who are expected to be affected, total number of employees and their positions, the timeline when it is planned that the redundancy measures will be completed by and planned mitigating / social measures if any) and must be provided in writing to the works council.

However, also in this context, there are several questions in practice. For example, the law does not provide an explicit time limit for the information obligation to the works council, and thus it is determined by the elements of the restructuring process. In practice, the works council is consulted at the latest before informing the AMS about the mass dismissal, as it has to co-sign the AMS notification (see below). However, there is for example no fixed time limit on how many days the works council has to review the AMS notification. In practice, the works council is usually given a few days to review the AMS notification, before signing the acknowledgement of its receipt. However, we have also seen cases where the works council was only given a few hours to sign the AMS notification.

Notification obligations with respect to the AMS – mass dismissal provisions

Under Austrian law the employer must notify the local AMS of a mass dismissal in writing that such terminations are intended within a 30-day term before actually giving notice. The notification triggers a 30 days’ period during which any dismissals are not allowed (stand-still period).

The mass dismissal provisions apply if the employer intends to dismiss at least five employees in a business with more than 20 and fewer than 100 employees; or at least 5% of the employees in a business with between 100 and 600 employees; or at least 30 employees in a business with more than 600 employees, or at least five employees aged 50 or older in any business. In this context “dismissal” also includes mutual termination initiated by the employer.

The notification of the AMS must indicate how many employment relationships are to be terminated, as well as the planned timeline for termination.

The AMS may initiate discussions regarding the redundancies but it is, however, not entitled to object to or prevent the planned redundancies. Therefore, the procedure before the AMS in the end only delays the redundancy process since notice of dismissal may only be given 30 days after AMS has been informed thereof. Violation renders the dismissals null and void. However, due to a new high court ruling, mutual termination agreements can be entered into during the stand-still period.

Social plan

In the event that redundancies or other rationalisation measures have material negative effects on a considerable number of employees of a business, an agreement called a “social plan” (“Sozialplan“) can be requested by the works council. Such social plan is intended to mitigate the negative effects of the rationalisation measures and usually mainly consists of voluntary severance payments.

By law, there is no definition of a “considerable number of employees” and there is no clear test relating to how many employees need to be affected. In an old court decision, 8% was not considered a “considerable number of employees”. For practical reason we suggest applying a 10% hurdle to be a “considerable number of employees”.

Social plans usually increase dismissal costs considerably. The law barely provides any guidance on how to calculate social plan entitlements of effected employees; i.e. there is no standard formula or tariff which could be applied. Often, point systems or formulas are used whose allocation algorithm largely depends on age and service time, and the social situation of the employee and his or her family. Ultimately, the social plan’s allocation algorithm is subject to negotiations with the works council.

Typically, we advise designing the social plan in a way that employees are only entitled to benefits once they enter into a mutual termination agreement including a general waiver of their rights with respect to the employer. Such a mechanism provides for the most legal protection of the employer. On the other hand, such a mechanism entails that each individual employee has to consent to the mutual termination agreement based on the social plan.

However, if a social plan has been negotiated and is perceived as a good compromise by all sides, the individual employees will in most cases sign the mutual termination agreements based on the social plan. Furthermore, once the social plan is negotiated, the works council usually supports the employer in getting these mutually agreed termination agreements signed. Individual cases, where employees disagree, are therefore a minority.

The law does not provide for a minimum or maximum duration of social plan negotiations. In practice, such negotiations can sometimes take less than 30 days, but we have also seen cases where they lasted over a year. In this context, it is important to note that regardless of the ongoing social plan negotiations, the employer can implement the intended restructuring measures, meaning that although the social plan is not yet concluded, notice of termination can be given, and mutual termination agreements can be entered into.

If the employer and the works council are not able to reach an agreement, the works council could apply for a binding social plan to be adopted by a conciliation commission (“Schlichtungsstelle“). The conciliation commission is an ad hoc authority which is formed for each individual case at the Labour and Social Court. In recent years, we have seen an increase in conciliation commission proceedings. Although such conciliation commissions hardly have to make a final decision on the social plan, as the parties usually come to an agreement, this instrument is often used to increase the pressure on the other side.

In terms of legal representation, most of the time, we see trade union representatives joining the works council on the other side of the table. The participation of trade unions in fact helps to accelerate the negotiations, as they have much more experience with the processes and mechanisms than the works councils involved and can guide the works council through them. On the company side, in most cases lawyers are used to represent the employer in such negotiations. From our experience, professional representation facilitates smoother negotiations.