CMS Expert Guide to employment termination law and legislation

Global comparison

1. Dismissal of employees

1.1 Reasons for dismissal

An employer may not dismiss an employee without a legally valid cause.

Dismissal may be based on personal grounds (e.g. disciplinary dismissal, dismissal due to professional inadequacy, dismissal due to incapacity) or economic grounds (e.g. economic difficulties, technological changes), or subject to specific conditions, without stating a specific motive.

The reasons for regular termination as set out in the Labour Act are as follows:

  • if the need for work ceases to exist for economic, technical or organisational reasons (‘notice due to business reasons’); or
  • the employee is incapable of fulfilling his employment-related duties due to certain personal characteristics or qualifications (‘notice due to personal reasons’); or
  • the employee intentionally breaches a contractual obligation (‘notice due to misconduct’); or
  • if the employee did not satisfy the employer’s requirements during the probationary period.

Generally, employers in Austria are not required to justify ordinary dismissals (Kündigungen). Nevertheless, they must observe prescribed notice periods and termination dates.

If an establishment employs five or more employees, however, these employees enjoy “General Protection against Dismissals”: an employee may challenge a dismissal if it has adverse effects 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 “vulnerable” 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. These include women who are pregnant or who have recently given birth, parents on parental leave, works council members and employees formally classified as disabled persons.

Discriminatory dismissals or dismissals due to “illegal reasons” can also be challenged by employees.

1.2 Form

The employee must be notified of the dismissal in writing.

Written form, including reasons for termination. Decision is to be delivered to the employee.

Unless otherwise stipulated in a collective agreement or employment contract, dismissals do not require any particular form. However, giving notice in writing is recommended. If “Special Protection against Dismissal” applies, rules may differ.

1.3 Notice period

In the event of dismissal, the law provides that an employee is entitled to a notice of a duration which varies depending on his seniority as follows:

  • Length of service of less than six months: no notice period applicable;
  • Length of service between six months and less than two years: one month;
  • Length of service of at least two years: two months.

For any dismissal, the employer may choose whether the employee works during the notice period.

In either case, employee is entitled to receive the same salary, including any benefits.

Regular termination: notice period ranges from two weeks to three months, dependent on the employee’s length of service with the same employer.

The three-month period is extended by an additional two weeks / one month for 50 / 55-year-old employees who have 20 or more years’ continuous service with the same employer.

Extraordinary termination (summary dismissal): no notice period. Termination during probationary period: notice period of at least seven days.

Termination by employee: notice period cannot be longer than one month if the employee has a good reason.

If the employment is terminated because the employee  breaches his contractual obligations, notice periods are halved.

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).

Austrian employment law distinguishes between white-collar (Angestellte) and blue-collar workers (Arbeiter), providing separate notice models for each.

White-collar workers are entitled to receive at least six weeks notice and up to five months notice, always depending on the length of their employment relationship. These terms may be modified, although no notice period may exceed six months. In addition, white-collar workers benefit from statutory notice 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.

If not otherwise stipulated by collective agreement, blue-collar workers are subject to a notice period of at least 14 days. In practice, however, collective agreements often guarantee more generous notice periods. 

From 1 January 2021, the notice periods and termination dates for white-collar workers will apply to blue-collar workers. In industries where seasonal businesses predominate, collective agreements may contain different provisions and set shorter notice periods. When concluding employment agreements with blue-collar workers, it is also possible to contractually agree on a termination on the 15th or last day of any given month.

1.4 Involvement of works council

Works councils do not exist in Monaco. A staff representative (if established) must be properly informed prior to a collective redundancies.

The works council must be informed of the employer’s intention to dismiss. The works council‘s consent is required for dismissal of the following employees:

  • members of the works council; and
  • candidates running for works council positions and members of the election committee for a period of three months following the announcement of the results of the election to the works council; and
  • employee representatives in a body of the employer; and
  • employees with diminished ability to work and employees in immediate danger of physical disability; and
  • employees over 60 years of age.

If a works council exists at an establishment, it must be informed of any proposed dismissals at least one week in advance. Within this timeframe, the works council may object, explicitly approve or refrain from commenting on the dismissal. The termination is void if the employer fails to comply with this requirement, either by failing to notify the works council or by failing to wait for its response within that week.

1.5 Involvement of a union

No involvement for dismissals.

If there is no works council, consent is given by the union commissioner (the union representative employed with the respective employer). The union‘s consent is required for the dismissal of a union commissioner during their period of office and for six months thereafter.

No involvement.

1.6 Approval of state authorities necessary

Mandatory for employees with legal protection because of their private life or their mandate.

This protection applies to staff representatives, union delegates, pregnant women, employees taking maternity leave, paternity leave, adoption leave or family support leave, members of the Labour Court, harassment referents.

The relevant Labour Authority has to be informed of projected collective redundancies prior to their dismissal, and grant prior approval.

If the works council or union commissioner do not consent, consent can be substituted by a judicial or an arbitral decision.

Obligatory only for certain groups of employees (e.g. severely disabled persons, works council representatives, pregnant women, and employees on parental leave).

1.7 Collective redundancies

The implementation of collective redundancies is mainly regulated by law and the National Collective Bargaining Agreement, which imposes some procedural steps prior to implementing any such decision.

Three main issues must be considered regarding the preparation and implementation of a collective social plan:

  • Drafting an information document containing all essential elements

regarding the decision to restructure, its motivation, its implementation and the measures taken by the employer to minimise any adverse impacts on employees;

  • Circulating the information to staff representatives, discussing it with them and collecting their comments and choices about measures taken to implement the restructuring (i.e., the measures adopted to minimise the number of dismissals); and
  • Implementing the restructuring plan, by obtaining the required authorisations as the case may be, notifying employees of their terminations and paying termination indemnities.

Employer who expects to terminate at least 20 employees, five of which due to business related reasons, all within a 90-days’ period, is obliged  to duly consult the works council / union commissioner in order to possibly reach an agreement to save the employees and / or limit the number of terminations. The employer is obliged to provide the works council / union commissioner with written information concerning the reasons for termination, total number of employees, number, professions and positions of employees who are supposed to be terminated, election criteria for such employees, amounts and way of calculating their severance payments and measures undertaken to prevent such terminations. Employer is obligated to consider and explain all possibilities and suggestions that may lead to avoidance of terminations. Also, the Croatian Employment Agency needs to be informed about the previously mentioned points and consultations with the works council / union commissioner.

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

  1. at least five workers in an establishment of 21 to 99 employees; or
  2. 5% or more of the workforce at an establishment of 100 to 600 employees; or
  3. at least 30 workers at an establishment of more than 600 employees; or
  4. at least five workers aged 50 or over, regardless of company size.

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. Any failure to observe these rules will render all pertinent dismissals void.

1.8 Summary dismissals

Dismissal without notice is only possible in case of gross misconduct. In such a case, the employee receives no dismissal indemnity or notice period indemnity. The employee is still entitled to unemployment insurance benefits.

Summary termination (summary dismissal) is defined as termination without notice, and is only lawful where there has been: 

  1. a serious breach of employment obligations, or
  2. the employment relationship between the parties is no longer possible for another important reason (there are, therefore, two possible reasons: (i) breach of employment obligations; or (ii) another important fact; in either case, the employment relationship must not be possible any longer).

The employee is to be dismissed within 15 days of the day of becoming aware of the fact / reason for dismissal.

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.

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 the respective protection against dismissal is applicable.

1.9 Consequences if requirements are not met

Should the employer dismiss an employee on personal or economic grounds without a valid cause, the employer would have to pay a dismissal indemnity.

In addition, the employee could claim damages for injuries suffered due to his / her wrongful dismissal.

If it is decided the dismissal is illegal, the employee is to be reinstated. Reinstatement is possible even before the end of the court procedure to determine the legality of the dismissal if the employee so requests. If the parties do not wish to continue with their employment relationship, the court shall at the employee‘s request determine:

  1. the date of termination of the employment contract; and
  2. compensation for damages, which ranges from three to eight times the employee’s average monthly salary over the previous three months (depending on the employee’s age, length of contract and obligations in relation to supporting family members or other dependants as defined by family law).

Non-compliance by the terminating party with the prescribed or agreed 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).

An employee is entitled to General Protection against Dismissal 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. little chance of finding employment of similar standing and income in a reasonable time) and the employer cannot adequately justify the termination.

1.10 Severance pay

Dismissal indemnity is payable unless the dismissal is for gross misconduct. The amount payable is mainly set by the collective bargaining agreement, but must not be less than the French legal dismissal indemnity (since 27 September 2017: 25% of the monthly gross salary until ten years of seniority and one third of the monthly salary as of the tenth‘s year). A higher indemnity is payable in case of dismissal without a stated motive. Indemnity is also payable for unused accrued paid holidays and for the notice period if the employer chooses to release the employee from performing it.

An employee with an open-ended contract who has two years’ continuous service with the same employer (and is not being dismissed due to an intentional breach of contractual obligation) is entitled to a severance payment. The statutory minimum severance payment is calculated by multiplying one-third of the average monthly salary in the preceding three months by the number of years’ continuous service with that employer. The severance payment is capped at six times the average monthly salary, unless otherwise provided for by law, by-law, collective agreement or work contract

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”).

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). If the employment relationship is terminated after three years employment, the employee is entitled to severance pay of two months salary. After 25 years, the employee is entitled to twelve months salary.

The new severance pay scheme requires the employer to pay a sum of 1.53% of every monthly salary into an employee severance fund (Betriebliche Vorsorgekasse). At the end of any given employment, the employee may then either request disbursement of the collected amount or leave it in the fund for further investment.

1.11 Non-competition clauses

Non-competition clauses are enforceable in Monaco provided they are appropriately restricted.

A non-competition clause must comply with five cumulative conditions:

  • it must be essential to protect the employer’s legitimate interests;
  • it must be limited to a specific time period;
  • it must be limited to a geographical area;
  • it must take the characteristics of the employee’s job into account; and
  • most importantly, it must provide for a financial counterpart.

Independent consideration is required for a non-competition clause.

Post-contractual non-competition clauses must last no longer than two years from the date of termination of the contract. The employer is obliged to pay compensation (at least one-half of the average monthly salary paid in the last three months of employment). The covenant will not be valid if the employee is a minor or if the employee‘s salary amounts to less than the average national salary.

The non-competition clause does not apply if: (i) the employee terminates the contract without notice period (extraordinary termination) and does not state that he does agree that the clause applies; or (ii) if the employee is dismissed without a justified reason, unless the employer undertakes to pay the prescribed remuneration for the duration of the clause.

Non-competition clauses are only valid insofar as they last for no more than one year after the termination of employment, are restricted to the employer’s line of business and if the employee’s monthly income is above a certain threshold at the end of the employment relationship (e.g. for 2020, EUR 3,580 for contracts concluded after 29 December 2015). Also, contractual penalties are limited by law to 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 cause undue hardship to 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. Non-competition clauses are generally rendered void when the employer carries out the dismissals.

1.12 Miscellaneous

Not applicable.

Not applicable.

Not applicable.

2. Dismissal of managing directors

It should be noted that the title ‘managing director’ is not recognised under the Croatian Companies Act or other relevant applicable legislation. The Croatian Companies Act recognises only a ‘director’, who is authorised to represent the company and obliged to be registered as a member of the management board with the respective commercial court.

A managing director need not to have an employment agreement with the company, or any other type of agreement, in order to be able to represent the company.

Where a managing director has a  managing / service agreement  which falls under the regulation of Croatian obligatory law, only the provisions of the managing / service agreement apply. If aspects of the relationship are not dealt with in the managing / service agreement, the relevant provisions of the Croatian Obligations Act will apply.

Where a managing director does not have any employment or managing / service agreement with the company, he shall be treated as a member of the management board only.

The table below sets out the position under Croatian law with respect to the managing directors of a limited liability company, with and without service agreements.

2.1 Reasons for dismissal

A company may generally revoke the appointment of the managing director without cause, unless stated otherwise in the by-laws of the company or the resolution of appointment. This is particularly the case for limited companies (‘SA‘). However, a just cause is legally required in limited liability companies (‘SARL’) when revoking a managing director who is also a shareholder of the company. In any event, revocation must follow mandatory steps to be declared valid.

No special reasons required (unless otherwise specified within the statute of the company or the contract itself).

Where the managing director has a service agreement, the provisions of that service agreement (and consequently the Croatian Obligations Act) will apply.

If the managing director is a member of the management board according to the statute of the company (and not only appointed by resolution of the shareholders), the company statute may set out that revocation is only possible for special reasons.

A company may revoke the appointment or terminate the service contract without cause, but must do so in compliance with applicable notice periods and termination dates.

2.2 Form

A resolution is taken by the shareholders and / or board of directors, depending on the form of the company and the internal organisation of the management. The managing director must be given the opportunity to explain himself or herself and the revocation must not be made vexatiously.

Valid shareholders’ resolution on revocation of appointment as member  of the management board. Registration of this revocation with the court registry. Termination of the service agreement in the same form in which the agreement has been signed (Obligations Act provisions shall apply).

A valid shareholder’s resolution is required on revocation of appointment as managing director and on termination of the service contract. A managing director has only to be notified in writing if so agreed in the service contract.

2.3 Notice period

No notice period, except where one is provided by the by-laws of the company or in the resolution of appointment of the managing director.

According to the Croatian Companies Act, the appointment of a director of the company can be revoked at any time without notice (for no special reason). Some restrictions (not strictly defined) can be set out within the statute of the company.

If the director has a service agreement, the notice period will be as set out in the service agreement.

Revocation of appointment: possible without notice.

Termination of the service contract: Austrian law does provide statutory minimum notice periods and dates, and rarely does collective agreements and their notice periods and termination dates apply unless a more favourable contractual agreement exists. Managing directors generally have fixed-term contracts or long contractual notice periods.

2.4 Involvement of works council

No involvement.

No involvement.

No involvement.

2.5 Involvement of a union

No involvement.

No involvement.

No involvement.

2.6 Approval of state authorities necessary

For limited liability companies (‘SARL’), appointment of a new director is subject to government approval. For all companies, the change of director must be registered in the Monaco Companies Register.

Respective commercial court brings a resolution on registration of the resolution in the court registry. The court’s resolution and registration are declaratory.

Not required.

2.7 Collective redundancies

Not applicable.

Not applicable.

Not applicable.

2.8 Summary dismissals

Not applicable.

Not applicable.

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. Disloyalty, untrustworthiness, or persistent refusal to carry out one’s contractually agreed duties are typical reasons for a summary dismissal.

2.9 Consequences if requirements are not met

Damages may be claimed, mainly:

  • for the lack of a just cause, in the event that such reason is legally required to revoke a legal representative; or
  • if the revocation is notified under hurtful circumstances (e.g. is very sudden and unexpected, or is publicly announced before the director is informed), or if the managing director has not been granted a reasonable opportunity to make his / her point before the board’s / shareholders’ decision to revoke him / her (absence of due process). However, the managing director cannot be reinstated.

If there is no valid shareholder resolution, the revocation will be invalid and the court will refuse to register it in the court registry. Where the managing director has a service agreement, he could claim:

  1. compensation for damages; or
  2. fulfilment of contractual obligations in accordance with the provisions of the Croatian Obligations Act.

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. If this is the case, the managing director is entitled to continued payment of salary and adequate employment.

2.10 Severance pay

Not applicable.

Severance pay may be specified in the managing director’s service agreement (this is usually a large sum).

Austrian law distinguishes between two severance pay schemes: 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’).

 The old severance pay model requires the employer to pay a sum based on the employee’s 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). If the employment relationship is terminated after three years employment, the employee is entitled to severance pay of two months salary. After 25 years, the employee is entitled to twelve months salary.

The new severance pay scheme requires the employer to pay a sum of 1.53 % of every monthly salary into an employee severance fund (‘Betriebliche Vorsorgekasse’). At the end of any given employment, the employee may then either request disbursement of the collected amount or to leave it in the fund for further investment.

2.11 Non-competition clauses

Non competition clauses are only valid insofar as they specify a restricted application in time and space. They also have to include financial compensation in order to compensate the director for the loss of revenue they cause him or her. If the clause does not include those elements, it is null and void. In that case, the director may still be held liable for unfair competition towards the company if it is demonstrated that the director resorted to fraudulent practices intended to disturb the company’s activity such as denigrating it or employing key members of its staff.

The managing director, as a member of the management board, is prohibited from doing the following without the approval of the supervisory board (or the shareholders, if the company does not have a supervisory board):

  1. being a member of the supervisory board or management board of another company with the same business activities; or
  2. performing business activities equal to those of the company for his or somebody else’s account; or
  3. using the company’s premises for performing business for his own or somebody else’s profit. The company is entitled to compensation for any damage caused.

Non-competition clauses are only valid insofar as they are concluded for the duration of no more than one year after the termination of employment, are restricted to the employer’s line of business and if the employee’s monthly income is above a certain threshold at the end of the employment relationship (e.g. for 2020, EUR 3,580 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 on 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. Non-competition clauses are generally rendered void when employers are responsible for dismissals.

2.12 Miscellaneous

Not applicable.

Not applicable.

Not applicable.