Austria: Employment law developments

In October 2006, Austria's governing coalition, led by Chancellor Wolfgang Schüssel, suffered an unexpected defeat in the parliamentary elections. As a new government is being formed, we look at key employment law developments since Schüssel became chancellor in 2000.

In the elections held on 1 October, the ruling centre-right coalition was unseated. As EIRR goes to press, the configuration of the new government has not yet been decided, but the most likely outcome is a coalition between the social democratic party (Sozialdemokratische Partei Österreichs, SPÖ) and the Austrian people's party (Österreichische Volkspartei, ÖVP), under Alfred Gusenbauer, the SPÖ's leader (see Austria: Election result ). In this feature, we look at key developments in employment law during the past two government administrations.

Background

The elections in October 1999 marked a significant change in Austrian politics. Although the SPÖ remained the largest party in the federal parliament (EIRR 310 p.3), it was unable to form a coalition with its previous partner, the conservative ÖVP. Instead of nominating the federal chancellor - which it had done after every election since 1970 - the SPÖ was consigned to the opposition benches, when, after several months of uncertainty surrounding the configuration of the new government, the previous coalition was replaced by a controversial partnership between the ÖVP and the right-of-centre freedom party (Freiheitliche Partei Österreichs, FPÖ) in February 2000 (EIRR 313 p.3). The new chancellor was Wolfgang Schüssel (ÖVP).

Following dramatic electoral losses for the FPÖ at the first regional elections after the change of government, three leading FPÖ politicians left the party in autumn 2002, including the vice chancellor and the finance minister. Chancellor Schüssel dissolved parliament and called new elections in October 2002. Despite heavy losses suffered by the FPÖ, it still continued as a junior partner in the government coalition with the ÖVP.

In April 2005, the right-wing FPÖ politician Jörg Haider resigned, along with most of the party's leading politicians. They founded a new party, the alliance for the future of Austria (Bündnis Zukunft Österreich, BZÖ), which took over from the FPÖ as the ÖVP's coalition partner.

Industrial relations in Austria are characterised by a strong consensus between the social partners (see EIRR 368 p.17 for industrial relations background). Industrial unrest is rare - the first wide-ranging nationwide strike for 50 years was held in 2003 (EIRR 353 p.4) in protest at the government's planned pensions reform. Employment relations in Austria are highly legislated, although collective agreements play a central role in two key areas - pay and working time. Since Austria has no national minimum wage, collective agreements set minimum pay rates; and many collective agreements reduce working time to below the legal limit of 40 hours a week. They may also include provisions allowing the social partners at company level to calculate weekly working hours over a longer period of time.

When the SPÖ/ÖVP government was replaced by the ÖVP/FPÖ coalition, one of the declared intentions of the new administration was to reduce the social partners' traditionally high levels of influence on policy formulation. Critics claim that the government has succeeded with this aim, particularly in the area of employment law, where they maintain that measures have benefited employers, rather than workers.

However, in the face of unrest caused by planned pensions reform the government was forced to involve the social partners more; a 2004 reform, on which the government had consulted the social partners, was introduced in a less acrimonious political climate. The reform of severance pay was another issue on which the social partners were consulted.

The Austrian trade union confederation (Österreichischer Gewerkschaftsbund, ÖGB) has recently been embroiled in a political scandal surrounding the collapse of the bank for labour and economics (Bank für Arbeit und Wirtschaft, BAWAG), which it owns. This resulted in the resignation of its president, Fritz Verzetnitsch (EIRR 388 p.3).

The 2000-01 employment law reforms

One of the first sets of reforms introduced by the ÖVP/FPÖ government that took office in 2000 (EIRR 326 p.28) included a range of employment law measures, dealing with issues such as sick pay and compensation for outstanding holiday leave when an employee leaves a job.

The government had two main aims:

Changes to sick pay arrangements for blue-collar workers

During the 1990s, the ÖGB ran a campaign calling for the harmonisation of employment conditions for blue-collar and white-collar workers. Although the governing SPÖ/ÖVP coalition at the time failed to take up the cause, the new ÖVP/FPÖ coalition that took over in 2000 decided to increase (by two weeks) the periods during which employers are required to pay blue-collar workers their full wages in cases of sickness, thereby harmonising them with those in force for white-collar workers. As a result, the following conditions now apply: an entitlement to six weeks' sick pay during the first five years of service; eight weeks for those with between five and 15 years' service; 10 weeks for 15 to 20 years' service; and 12 weeks after 25 years.

However, the government did not change the rule whereby blue-collar workers' sick pay entitlement applies over a 12-month period and white-collar workers' over a six-month period. Other legal differences between blue-collar and white-collar workers, such as length of notice periods, also remain unchanged.

Abolition of the sick pay fund

At the same time, the government abolished the sick pay fund, which had been set up in the 1970s to assist employers paying sick pay to their workers. All employers were required to contribute the equivalent of 2.1% of the total paybill. In return, they were entitled to a 70% refund of sick pay, while small enterprises were entitled to a full refund.

Changes to leave compensation in redundancy

The reforms reduced the amount of leave compensation for employees made redundant. Previously, once employees had entered a new year of service, they were entitled to their full allocation of leave for the year in question if made redundant. Thus, an employee with two-and-a-half years' service was entitled to three years' worth of leave, with any days outstanding compensated financially. The reforms introduced a system of pro rata leave entitlement: an employee who, at the time of being made redundant, has only worked for three months of the year in question receives three-twelfths of their leave allocation for that year.

Reactions

These reforms were strongly criticised by the ÖGB. It claimed that, although the government had reduced the differences in sick leave entitlement for blue-collar and white-collar workers, significant inequalities remained. Further, it viewed the abolition of the sick pay fund as a clear indication that workers with poor health would encounter even more barriers to finding work. It was particularly critical of the fact that the government had abolished the fund without any consultation with the social partners.

The changes to leave compensation arrangements mean that many workers receive substantially less money when they lose their job, reducing employers' costs when they dismiss employees. Overall, the ÖGB estimated that these reforms would redistribute some €200 million from employees to employers, mainly through changing the leave payments.

By contrast, employers' representatives were for the most part content with this package of reforms, welcoming the reduction in their costs through the changes to leave entitlement compensation.

Changes to partial retirement

Specific measures allowing older employees to reduce their working time were introduced in 1999. In practice, however, the new rules were soon superseded as it became apparent that retirement age would be raised. In 2000, the age at which early retirement was possible went up by one-and-a-half years (EIRR 319 p.4). At the same time, the previous link between the subsidy for partial retirement arrangements and the hiring of replacement workers (conditional on the recruitment of an unemployed person or an apprentice) was abolished. New legislation provided for the unemployment insurance system to pay the following sums:

The new partial retirement arrangements were almost exclusively used by large companies and were so popular that payment of the subsidy increased to 16% of unemployment insurance spending. In 2003, access to partial retirement was restricted. Since then, the full subsidy has been paid only when the company takes on a replacement employee and when any reduced working time is spread over the entire period during which partial retirement conditions apply. This amendment led to a huge reduction in employees using this option. It contrasted significantly with the system that was in place between 2000 and 2003, when the full subsidy was also paid when employees worked full time during the first half of their partial retirement period and ceased working altogether during the second half - this had proved a highly popular option among employees and companies alike.

Changes to severance pay

In 1999, both the SPÖ and the ÖVP called for the wide-ranging reform of severance pay. In 2000, the new government made this a key aim in its programme of labour legislation reform. Initially, however, the government was divided on how to proceed and internal disagreements prevented it from drawing up a plan. In 2001, it took everyone by surprise, handing over the responsibility for working out a new severance pay scheme to the social partners.

The social partners' proposals were adopted more or less in their entirety by parliament in 2002; the new rules apply to employment contracts starting after 1 January 2003 (see box below for severance pay arrangements that apply to contracts that started before 1 January 2003).

Now, severance pay is paid to workers out of newly established funds, which, for the most part, are under the ownership of banks and insurance companies, although the funds also include union representatives as members of their supervisory bodies. All employers are required to pay 1.53% of each employee's wages into these funds, starting from the second month of service.

Under the previous system - which proved expensive for employers - some employees benefited from relatively generous severance payments, starting at two months' pay after three years of service and reaching 12 months' pay after 25 years. The new arrangements are designed to benefit all workers, fulfilling the unions' demands. However, severance pay has been shifted from defined benefit to defined contributions (1.53%), with a lower level of payments to employees expected in line with the employers' demands.

Other points are as follows:

The government and the social partners considered that this reform contributed to the ongoing modernisation of employment relations - for example, by facilitating worker mobility. Since the accumulated sums may be used, tax-free, as part of the employee's pension, the government also advances its aim to extend the occupational pension system.

Leave to take care of the terminally ill

Another new measure that came into force in 2003 covers unpaid leave to take care of terminally ill family members (Familienhospizkarenz). Workers are entitled to unpaid leave for three months; this period can be extended to six months. Should the family member die during the unpaid leave, the worker is entitled to return to work with two weeks' notice.

This measure has not been popular, only having been used by some 500 employees a year since it came into force. Analysts suggest that this is probably due to the inevitable loss of income suffered through taking unpaid leave.

Right to part-time work for parents

Giving parents the right to request to work part time has been a long-standing demand of the ÖGB.

Arrangements that came into force in 2003 giving parents the right to work part time until their children reached the end of their seventh year were, in the opinion of the unions, a step in the right direction. However, the new legislation only accords a statutory right to work part time to employees with at least three years' service working in companies with more than 20 employees. The legislation is less favourable for parents working in small companies or with shorter service records, and these employees are unable to insist on taking up the right to work part time against the wishes of their employer.

Parents taking advantage of the scheme are paid for the hours they work and there is no additional state funding available.

Protection from dismissal

Traditionally, Austrian workers have not been afforded strong protection from dismissal. Employers are able to terminate an employee's contract - regardless of length of service - without having to justify their decision, although they are obliged to give five days' warning to the works council. The worker's notice period varies according to length of service and whether the employee is a white-collar or blue-collar worker.

The only recourse for employees is to take out a case against their employer on the grounds of "social detriment" (Sozialwidrigkeit), providing they have worked at the company for six months when they are dismissed. To succeed, however, they have to be able to prove that they suffered a real detriment. If the worker's case convinces the court, the employer will be required to prove that the dismissal was justified, either on grounds that the employee was unable to continue fulfilling their obligations (for example, because of health reasons) or that there were compelling business reasons for the dismissal. In practice, few appeals are successful.

The 2003 pension reform introduced a further qualifying provision for new recruits aged 50 or over wishing to bring a claim of social detriment. They may not do this until they have worked for the company for two years.

Restriction of disadvantageous clauses

Certain types of clauses contained in employment contracts have been the subject of concerted criticism on the part of employee representative groups (EIRR 387 p.30). These include: competition clauses, which, for a specified length of time, prevent employees from carrying out an activity deemed to be in competition with that of their former employer; clauses stipulating that employees must repay training costs; transfer clauses that allow the employer to unilaterally change an employee's work; and all-inclusive clauses that allow the employer to avoid paying for overtime and other extra work.

Many such clauses are in general use in employment contracts and may not be rejected by employees for fear that they will not be hired or that they will lose their jobs.

The government decided to act on this issue in 2005 and introduced a parliamentary initiative that dealt with certain clauses on competition and repaying training costs, prohibiting the use of competition clauses for employees on pay of less than €2,125 a month. Clauses paying back training costs expire after five years at the latest, or, in exceptional circumstances, eight years.

Unions and employees' chambers are dissatisfied with the new legislation, which, they maintain, has made no attempt to rectify several other clauses considered unfair. Further, they claim that in some cases, the new conditions applying to the repayment of training costs by employees are less favourable than court settlements that have been won in the past.

Time will tell whether the new government will continue with the policy direction of the former coalition.