Employment issues in M&A transactions in Austria

 1. Check 

• any circumstances of the deal may trigger a requirement for a transfer of undertakings (‘Betriebsübergang’) pursuant to Council Directive 2001/23/EC and its Austrian counterpart, the Austrian Act on the Amendment of Employment Contracts (‘AVRAG’). Generally speaking, this will not be the case in the event of a share deal, as mere changes to the ownership structure of an enterprise do not change the identity of the employer. Austrian statute does not contain significant requirements relating to employment law in such share deal arrangements. See Section B. for important rules relating to asset deals.

 1. Check 

• any circumstances of the deal may trigger a requirement for a transfer of undertakings (‘Betriebsübergang’) pursuant to Council Directive 2001/23/EC and its Austrian counterpart, the Austrian Act on the Amendment of Employment Contracts (‘AVRAG’). Generally speaking, this will not be the case in the event of a share deal, as mere changes to the ownership structure of an enterprise do not change the identity of the employer. Austrian statute does not contain significant requirements relating to employment law in such share deal arrangements. See Section B. for important rules relating to asset deals.

1. Check 

• the circumstances of the deal do, in fact, trigger a requirement for a transfer of undertakings (‘Betriebsübergang’) pursuant to Council Directive 2001 / 23 / EC and its Austrian counterpart, the Austrian Act on the Amendment of Employment Contracts (‘AVRAG’). This will generally be the case in the event of an asset deal provided that an economic entity (an organised grouping of persons and assets exercising an economic activity which pursues a specific objective) is transferred to another employer whilst retaining its identity. All further comments in this section are based on this assumption;
• the parties to the deal can prove that no recent or upcoming employment terminations are a result of the deal. If they cannot, then the pertinent terminations will be deemed null and void
  (§ 3 (1) AVRAG);
• sufficient reserves have been accrued to cover all theoretical severance and company pension entitlements at the time of the deal. If these assets are sufficient and transferred to the purchaser, seller liability will be limited to a period of one year after the deal; if they are not, it will be extended to a period of five years (§ 6 (2) AVRAG);
• contracted service providers (‘Werkunternehmer’) and freelancers (‘freie Dienstnehmer’) are not, in fact, acting as employees and thus not entitled to the pertinent benefits. Claims raised in this regard may entail the obligation to provide additional social security contributions, taxes, bonuses, annual leave remuneration and other benefits. Similar rules apply to employees hired for consecutive, limited periods of time; such conduct is deemed an evasion of statutory rules on permanent employment.

2. Prepare:

• Since all affected employment relationships are transferred from the purchaser to the seller ipso jure, no contractual agreement is necessary for the transfer. Exceptions may apply pursuant to the requirements of company pension schemes or works agreements, and in the event that a different collective bargaining agreement becomes effective. 

3. Inform/ Notify 

All affected employees must be provided with certain written information in advance (if a works council has been set up, then this body has to be notified instead). Such information must include the date and reason for the transfer, the legal, economic and social consequences thereof, and any planned measures which affect the workforce (§ 3a AVRAG). 

4. Consult 

• Employees are only entitled to refuse the transfer of their employment relationships if the protective standards of the previously applicable collective bargaining agreement against dismissal or company pension schemes are not maintained by the purchaser (§ 3 – 5 AVRAG) or if they have been elected as works council representatives and would lose that office in case of transfer. In the event of such a refusal, employment with the seller remains in force, including the obligation to provide salaries and benefits. In this instance, the recommendation would be to consult with the purchaser and reach an agreement in this regard. 

5. Implement

• Subject to consideration of the above.

1.  Check 

• the circumstances of the deal do, in fact, trigger a requirement for a transfer of undertakings (‘Betriebsübergang’) pursuant to Council 
• Directive 2001 / 23 / EC and its Austrian counterpart, the Austrian Act on the Amendment of Employment Contracts (‘AVRAG’). This will generally be the case in the event of an asset deal, provided that an economic entity (an organised grouping of persons and assets exercising an economic activity which pursues a specific objective) is transferred to another employer whilst retaining its identity. All further comments in this section are based on this assumption; 
• the parties to the deal can prove that no recent or upcoming employment terminations are a result of the deal. If they cannot, then the pertinent terminations will be deemed null and void (§ 3 (1) AVRAG); 
• the seller has accrued sufficient reserves to cover all theoretical severance and company pension entitlements at the time of the deal. If these assets are sufficient and transferred to the purchaser, the seller will only remain liable in this regard for a period of one year after the deal; if they are not, its liability will be extended to a period of five years (§ 6 (2) AVRAG); 
• any employees enjoy special termination protection. This applies to employee representatives, persons registered disabled, persons on parental leave and persons performing military or community service. Such employees may only be dismissed with the prior consent of a competent court or authority; 
• a works council has been set up or pertinent agreements are in place. Depending on their distinction as optional, enforceable or necessary, such agreements may only be terminable upon consideration of statutory notice periods, certain amendments to relevant individual agreements or even non-terminable entirely (§ 96 – 97, Labour Constitution Act, ‘ArbVG’); 
• the seller has fulfilled all its obligations towards former employees, such as outstanding salaries, severance payments, company pensions, re-employment guarantees, etc. Any such outstanding obligations become the joint liability of the purchaser after the deal and are only recoverable by means of redress. 

2. Prepare:

• Since all affected employment relationships are transferred from the purchaser to the seller ipso jure, no contractual agreement is necessary in this regard. Exceptions may apply pursuant to company pension scheme or works agreement-related requirements, and in the event that a different collective bargaining agreement becomes effective. 

3. Inform / Notify:

• Every individual employee must be notified by the seller of any change to their working conditions as a result of the deal (§ 3, AVRAG).

4. Consult:

• Employees who notice any deterioration in their working conditions as a result of the deal and on the back of a change to the applicable collective bargaining agreement or works agreements may terminate their employment while still being entitled to all the benefits that would usually only apply in the event of an unfair dismissal by the employer (§ 3 (5) AVRAG). It is therefore recommended to consult any such employees to avoid the potentially costly consequences of employer termination without just cause.

5. Implement:

• Subject to consideration of the above.

 1. Check 

• the identity of the employer changes for the employees (this will always be the case for all employees in the event of a merger under which a newco is created); or 
• the identity of the employer remains the same for certain employees (this may be the case in the event of a merger by means of absorption); 
• in the event of a merger pursuant to the first paragraph of section 1, all pre-merger companies are subject to the obligations of the seller in an asset deal (see point B. I.), whereas the post-merger company is subject to the obligations of the purchaser in an asset deal (see point B. II, above); 
• in the event of a merger pursuant to the second paragraph of section 1, the company acting as the employer of any such employees does not need to meet the requirements of an asset deal regarding those employees as outlined in the third paragraph of section 1.