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Employment Law Implications of closure and restrictions of businesses and possibilities to reduce personnel costs

Last weekend, the Austrian Federal Government presented a package of measures to support the economy in the coronavirus crisis. A corresponding "collective law", which includes restrictions for businesses for large parts of the retail and gastronomy sectors as well as an economic package of measures, the Covid-19-Measures Act and the Covid-19-Fund Act will enter into force on 16.3.2020.  The draft has been adopted in a special session of the National Council on 15.3.2020.

Continued remuneration and compensation for loss of earnings in the event of official closures of businesses

The Austrian Federal Government announced that large parts of the retail sector (excluding the food retail) will be affected by comprehensive official closure measures from Monday, 16.3.2020. The same will apply to the entire gastronomy sector (with the exception of delivery services) from Tuesday, 17.3.2020.

The Covid-19-Fund Act lays down the framework conditions for the establishment of a coronavirus crisis management fund, initially endowed with four billion euros, to cushion the economic impact of the current crisis, as well as the use of the funds. The Federal Minister of Finance, in agreement with the Vice-Chancellor, is responsible for the distribution and disbursement of the funds.

The Covid-19-Fund Act (unlike the Epidemics Act) does not contain any regulation on loss of earnings for employees affected by official closures. It is therefore unclear whether and if so, who will have to pay for the ongoing remuneration of employees in the retail and gastronomy sector for the period of the comprehensive closure measures (the duration of which cannot be predicted at the present time). The employer’s obligation to continue to pay the remuneration would not apply in case of a total closure of businesses in our view. Since, however, inventory work and generally activities without customer traffic are still possible, it is also conceivable that in the event of non-engagement of the employee despite existing possibility of engagement, the employee’s claim to continued remuneration vis-à-vis the employer is given. It remains to be seen if this issue will be addressed (if so, then most probably before the end of the month and thus of the current wage payment period) by decree of the Federal Minister of Finance. It would be conceivable, for example, to introduce a regulation similar to the corresponding provisions in the Epidemics Act, according to which employees affected by official closures have an entitlement to compensation vis-á-vis the Federal Government, which is transferred to the employer upon payment of the salaries.

Voluntary closures of businesses

In the absence of relevant case law, it is not possible to give a clear legal answer as to whether employees are entitled to continued payment of wages if the owner closes the business voluntarily (i.e. without an official order), for example in order to contain the spread of the coronavirus, or for economic reasons.

In concrete terms, the question arises as to whether the employee retains his or her entitlement to continued payment of remuneration if he or she is willing to provide services but is prevented from doing so by circumstances on the part of the employer. Not only events for which the employer is responsible, but in principle also coincidences can trigger the obligation to continue to pay remuneration under the relevant § 1155 ABGB. However, there may also be coincidences or cases of force majeure in which the obligation to continue to pay remuneration pursuant to § 1155 ABGB does not apply.

In connection with events of force majeure, the assessment of whether the obligation to continue to pay remuneration is triggered is based in particular on whether an elementary event affects not only the employer but also the general public in a comparable manner and whether the event was not foreseeable or avoidable for the employer. In other words, it is a question of whether, in view of the special situation of force majeure, the "typical business risk" of the business concerned was realised. Only in this case would the economic risk lie with the employer.

In our view, the exceptional economic situation associated with the abstract "danger" of a viral disease suddenly appearing for the first time in China cannot be regarded as a typical business risk of an Austrian company, which would probably mean that the obligation to continue to pay remuneration would no longer apply. However, it should be noted that in individual cases, the obligation to continue to pay remuneration, if at all, can only be waived if the closure of the business is considered unavoidable once all mitigating measures have been exhausted. In this case, the farmer will probably have to present very good arguments as to why such a measure was necessary without the corresponding official orders. Purely economic considerations will certainly not be sufficient here.

Possibilities of reducing personnel costs

Even employers whose operations are not currently affected by the official closures or restrictions are faced with the question of how they can reduce their personnel costs in times of cancellation and postponement of existing orders and the absence of new ones. Apart from the possibility of reducing personnel (which often does not make sense due to the temporary nature of the situation), the following measures in particular exist

Short-time work

On 14 March 2020, the Austrian government together with representatives of the social partners (WKO and ÖGB) presented a specially developed corona virus short-time work model, which is to bring considerable advantages for both employers and employees compared to regular short-time work. The key figures of this model have already been presented, but the concrete implementation in the federal guideline for short-time work has not yet been conducted. Nevertheless, the WKO and the AMS have already put adapted application forms and information online.

In particular, in the given situation, the AMS should be able to handle the matter much faster and less bureaucratically with an effective application within 48 hours. However, the granting of short-time work is still subject to the condition that employees must first reduce their time credits and holidays. Within the scope of short-time work, a reduction of working hours by up to 100% and thus, under circumstances, a complete release of employees will be possible. However, the working time must be at least 10% within an initial averaging period of 3 months,  In addition, the short-time work support for employees and short-time work support for employers will be increased considerably compared to the regular amounts, so that employees on short-time work will receive 80-90% of their net remuneration.

Within the framework of the coronavirus crisis management fund, which is initially endowed with EUR 4 billion, an initial budget of EUR 400 million has been set aside for coronavirus-related short-time working measures. However, the Federal Government has already announced that it will increase the budget accordingly if necessary. We will inform about the details and first legal questions regarding the new model in a separate article.

Suspension agreements

There are essentially 2 possibilities:

On the one hand, the dissolving suspension, in which the employment relationship is usually interrupted by amicable termination and the employer at the same time gives a promise of reinstatement at a certain point in time. On termination, the employee is entitled to termination claims from the employment relationship on the one hand, and on the other hand, he is generally entitled to unemployment benefit for the period of suspension.

On the other hand, a genuine suspension with full retention of the employment relationship can also be agreed. In this variant, employer and employee essentially agree that the employee is released from his or her work obligation for a certain (or determinable) period of time and the employer from his or her obligation to pay remuneration.

Reduction of holiday or time credits

A unilateral order of holiday consumption or time compensation is not permitted, and even an exceptional situation such as the current one does not change this in principle. Of course, however, agreements on the reduction of vacation days or time credits are possible and useful if both parties agree.

Other models for reducing working hours

The possibility to agree with employees on educational leave, partial educational leave or partial retirement leads to a reduction or elimination of personnel costs and of course also exists at present. Full-time employment contracts can also be converted into part-time contracts for a limited period of time.


Please note: This newsletter merely provides general information and does not constitute legal advice of any kind from Binder Grösswang Rechtsanwälte GmbH. The newsletter cannot replace individual legal consultation. Binder Grösswang Rechtsanwälte GmbH assumes no liability whatsoever for the content and correctness of the newsletter.

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