Severance Pay in Austria: Calculation, Regulations, and Employee Rights

On termination of their employment relationship, Austrian employees have for decades been legally entitled to severance pay, subject to certain conditions. The idea underpinning this statutory provision was, and still is, that in the event of loss of employment through no fault on the part of the employee, this severance pay will serve to provide a measure of interim financing to cover everyday expenditure.

Austrian law distinguishes between two severance pay models: one is applicable to all employment relationships established prior to 1 January 2003 (“old model”), and the other to employment agreements signed after that date (“new model”).

Old Severance Pay Scheme (Abfertigung ALT)

Employment relationships that started prior to 2003 are subject to the Old Severance Payment Scheme. The old severance pay model requires the employer to pay a sum based on the length of service at the end of the employment relationship unless it is the employee who terminates the contract or if the employee is dismissed without notice for good cause (i.e. summary dismissal).

Severance pay is calculated as a multiple of the monthly salary and depends on the years of service (12 monthly salaries after 25 years of service). If the employment relationship is terminated after three years of employment, the employee is entitled to severance pay of two months’ salary. After 25 years, the employee is entitled to twelve months salary.

New Severance Pay Scheme (Abfertigung NEU)

All employees who entered into a (new) employment relationship as of January 1, 2003 are subject to the new severance pay regulations and are automatically registered with the relevant provision fund:

• Workers and salaried employees
• Part-time and marginal workers
• Apprentices
• Vacation employees
• Independent contractorsetc.

The employment relationship ends on 18 March 2012. In this case, the employee must notify the occupational pension fund in writing of the desired disposal by 18 September 2012 at the latest.

Since 1 January 2008, freelancers have also been included in the Abfertigung NEU. This includes all freelance employment relationships that are subject to compulsory insurance under the Allgemeines Sozialversicherungsgesetz (ASVG) and that last longer than 1 month.

Financing of Abfertigung NEU

The Abfertigung NEU is financed by means of a defined contribution system. The employer pays a contribution amounting to 1.53 per cent of the monthly salary and any special payments. This amount is collected by the respective competent health insurance institution and forwarded to an occupational pension fund selected by the employer.

Provided that the employment relationship lasts longer than one month, from the first day of the employment relationship the employer is obliged to pay a contribution amounting to 1.53% of the monthly pay into an employee provision fund (Mitarbeitervorsorgekasse). No contributions must be paid for the first month, however (§ 6). The fund has to be selected in due time on the basis of a company agreement, that is between the employer and the works council. If there is no works council in the company, the employer has to select a fund and inform all staff members in writing within one week. If at least one third of the employees reject the chosen fund within two weeks, the employer has to suggest an alternative. Upon request of the workers concerned, an employees' organisation has to be consulted.

Employee Options and Notifications

The employee must notify the occupational pension fund of the desired disposal in writing within 6 months of termination of the employment relationship. There is no form available. If the worker wants to draw on the payment, s/he has to inform the fund in writing within six months following the termination of the employment contract. The worker can also opt for leaving the money in the fund for later use. In the latter case, contribution periods of different employers will be aggregated.

There are eight occupational pension funds in Austria.

Key Features of the New Scheme

• 100% capital guarantee on contributions paid in - It safeguards that your severance pay entitlement will in no case be lower than the sum of contributions paid by the employer.
• Tax advantages - You profit from the capital gains tax free investment of your credit balance and, in the event of a single pay-out, from the favourable taxation rate of 6%.

It is essential that the severance pay entitlement acquired through the occupational pension fund (the resulting capital amount) is secured by a capital guarantee at all times. The accumulated capital is preserved in all types of termination of employment, regardless of the duration of the employment. A loss of entitlement to severance pay, as in the case of the Abfertigung ALT (e.g. transfer of the severance payment to a pension scheme (e.g. In the event of claim to a pension from the statutory pension insurance scheme (e.g. old-age pension, corridor pension) or reaching the accrual age for claiming an early retirement pension or a corridor pension, the severance payment can be disposed of in any case, i.e.

Termination of Employment

Austrian employment law distinguishes between white-collar and blue-collar workers and provides for different termination models for the two. Also, grounds for summary dismissal vary slightly between those two groups. Generally, employers in Austria are not required to justify ordinary dismissals (Kündigungen). Nevertheless, they must observe prescribed notice periods and termination dates, which are defined by statutory law and collective bargaining agreements.

Notice Periods and Termination Dates

Unless otherwise stipulated in a collective agreement or employment contract, dismissals do not require any particular form. However, giving notice in writing is recommended. Although Austrian law does provide statutory minimum notice periods and dates, employers are free to designate their own notice regimes based on collective agreements and employment contracts. In case of conflicting regulations, however, employees will always benefit from the most favourable rule, pursuant to the “favourability principle” (Günstigkeitsprinzip).

The following uniform termination dates and periods apply. Employees are entitled to receive at least six weeks’ notice and up to five months’ notice, depending on the length of their employment relationship. The notice period is six weeks up to the completed second year of employment. After the second year of employment, the notice period is increased to two months, after the fifth year of employment to three months, after the fifteenth year of employment to four months and after the twenty-fifth year of employment to five months. These terms may be modified in favour of the employee.

In addition, employees benefit from statutory termination dates, ensuring that employment relationships may only end at the end of any given annual quarter. It is possible to agree contractually that a termination is possible on the 15th or last day of any given month. Termination dates may also be regulated in a works council or a collective bargaining agreement.

An exception for the notice periods displayed may apply in industries where seasonal businesses predominate. Collective agreements may contain different provisions and set shorter notice periods for blue-collar workers.

During the notice period, the employment relationship remains in force and the employee continues to be obliged to work and the employer to pay remuneration.

Summary Dismissal (Entlassung)

A summary dismissal (Entlassung) does not require observance of any particular notice periods but must be issued without undue delay. Summary dismissals are possible for good reasons only, as regulated by law. Disloyalty, untrustworthiness, or persistent refusal to carry out one’s contractually agreed duties are typical reasons for a summary dismissal. The reasons for summary dismissals are regulated by law, for blue-collar and white-collar workers separately, and with some differences.

Summary dismissals are effective even if they do not meet the above requirements. However, summary dismissal may then be treated as a regular dismissal, meaning that the respective protection against dismissal is applicable.

In companies with an elected works council, the employer must immediately notify the works council of any summary dismissal.

Works Council and Employee Protection

If a works council exists at an establishment, it has to be informed at least one week prior to termination. Failure to comply results in the invalidity of the termination. Within this timeframe, the works council may object, explicitly approve or refrain from commenting on the dismissal.

If an establishment employs five or more employees, however, those employees enjoy “General Protection against Dismissal”. An employee may challenge a dismissal if it has had a negative impact on the individual’s personal life. In these cases, the employer must justify the dismissal for reasons related to employee capabilities, conduct or operational requirements if challenged by the employee.

Certain groups of employees enjoy additional “Special Protection against Dismissal” and may only be dismissed for one of several specific reasons, often only with the prior consent of competent authorities. Obligatory only for certain groups of employees (e.g.

Mass Terminations and Collective Dismissals

When collective dismissals (Massenkündigungen) are imminent, employers are required to notify the Austrian Employment Service 30 days in advance (early warning system, Frühwarnsystem) For the sake of this notification procedure, collective dismissals are defined as employment terminations affecting:

• at least five workers in an establishment of 21 to 99 employees;
• 5% or more of the workforce at an establishment of 100 to 600 employees;
• at least 30 workers at an establishment of more than 600 employees; or
• at least five workers aged 50 or over, regardless of company size.

Mass terminations have to be notified to the labour market agency at least 30 days prior; any termination within that 30-day period is invalid.

The requirements of the notification procedure are met if the employer informs the competent agency in writing and waits one month before carrying out the intended dismissals.

Untimely Notice and Dismissal Compensation

Non-compliance by the terminating party with the prescribed or agreed-upon periods or dates of notice constitutes untimely notice. Although such untimely notice remains effective, it entitles the employee to dismissal compensation (Kündigungsentschädigung). Such compensation consists of the remuneration that the employee would have received had the dismissal been properly expressed (i.e. all due remuneration between the actual termination of employment and the date of termination prescribed by law, collective agreement, works agreement or employment contract).

The dismissal compensation is also due in the event of a unjustified summary dismissal (without good reason).

Employee Protections Against Dismissal

Austrian law stipulates a number of circumstances in which an employee enjoys special protection against termination. The most relevant are employees on maternity leave or parental part-time, works council members, disabled employees (degree of disability of at least 50 per cent) and employees on military or civil service.

An employee is entitled to General Protection against Dismissal and may claim reinstatement in court. Reinstatement is granted if it is proven that the termination of the employment contract has adverse personal effects on the employee's life (e.g.

Non-Competition Clauses

Non-competition clauses are only valid insofar as they last for no more than one year after the termination of employment. They are restricted to the employer’s line of business and to be valid the employee’s monthly income must be above a certain threshold at the end of the employment relationship (e.g. for 2025, EUR 4.300 gross for contracts concluded after the 29th December 2015).

Also, contractual penalties are limited by law to an amount of six net monthly remunerations (without taking into account the 13th and 14th annual salary). If the parties agree to such a contractual penalty, the right to observe the non-competition clause or the compensation of any further damage is excluded.

A non-competition clause may not represent an undue hardship on the employee’s career when weighed against the employer’s justified business interests. Judges may limit the scope of a clause, or the contractual penalty to be paid when violating the law.

Managing Directors

A valid shareholder’s resolution is required to revoke an appointment as managing director and to terminate a service contract.

• Revocation of appointment: this is possible without notice.
• Termination of the service contract: Austrian law provides statutory minimum notice periods and dates, and collective agreements and their notice periods and termination dates rarely apply unless a more favourable contractual agreement exists.

A summary dismissal (‘Entlassung’) does not require observance of any particular notice periods, but must be issued without undue delay. Summary dismissals are possible for good reasons or serious breach of duty, as regulated by law.

If there is no valid shareholder resolution, the revocation of appointment as managing director will be invalid.

It is possible for the revocation to be valid and for the termination of the service contract to be invalid.

Class and Collective Actions

For the most part, there are no class or collective actions in Austrian employment law. A works council can, however, demand a ruling on the existence or non-existence of rights if those rights concern at least three employees.

Mandatory Retirement Age

It is, in general, possible to terminate employment upon reaching the statutory retirement age (currently 65 years).

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