Legal pitfalls regarding collective redundancies

Legal pitfalls regarding collective redundancies

Hardly a week goes by without a company announcing extensive staff cuts. During the first months of the COVID-19 crisis, many employers reacted to the redundancy situation caused by the slump in sales by introducing government supported short-time working. Despite the extension of such state-subsidised short-time working arrangements (until 31 March 2021), more and more companies are now finding themselves forced to permanently adjust their staffing levels to the reduced demand for labour by terminating employment contracts.

In many cases these are “mass dismissals” for which a special notification procedure to the Public Employment Service (AMS) applies. This so-called “early warning system” requires employers to notify their regional AMS office in writing if they intend to terminate a certain number of employment relationships within a 30-day period. However, the term “mass dismissal” is misleading as – according to the relevant provisions – the (contemplated) termination of five employment relationships may already trigger the obligation to notify the AMS. If older employees are affected (over the age of 50), this applies irrespective of the size of the company.

Formal errors made by employers regarding the notification requirements can result in high costs for the company. In many cases, such errors invalidate all terminations of employment relationships during the relevant period. Notably, invalidation is not merely limited to dismissals. This was established by the Supreme Court in 2018 (9 ObA 119/17s) where it was made clear that violations of the early warning system’s regulations also invalidate amicable terminations (initiated by the employer). As such, the early warning system represents a “legal minefield” for employers which demands careful navigation.

Further to this, the Supreme Court stated that the obligation to notify the AMS may already have been violated if the intention to terminate a relevant number of employment relationships within the 30-day period has manifested itself in a sufficient manner. The facts of the specific case involved an employer offering a sufficient number of employees the amicable termination of their employment relationship and promised them a so-called “early termination bonus” if they accepted the offer by a certain date (less than 30 days).

In practice, therefore, when planning staff reduction measures, employers must pay the greatest attention to ensuring that they do not manifest an intention to terminate (e.g. by announcements in works meetings, press conferences etc) without complying with the relevant regulations of the early warning system. If the employer initially only wishes to sound out which employees would agree to a termination of their employment relationship by mutual consent, they should therefore make it clear that these “exploratory talks” do not yet constitute a legally binding offer (e.g. by making an explicit reservation) and that the final decision on the termination of the concrete employment relationship has not yet been taken.