Social partners discuss severance pay and holiday entitlements

During autumn 1998, the Austrian social partners have been debating a reform of the severance pay system. Trade unions seek to broaden entitlement to cover not only dismissals but also voluntary resignations and to include the seasonally employed without reducing the size of payments. Employers are demanding changes to holiday regulations in return.

Since February 1998, the Austrian Trade Union Federation (Österreichischer Gewerkschaftsbund, ÖGB) has been demanding an end to the restriction of severance pay entitlement to dismissals. Since May 1998, representatives of the Austrian Association of Wage and Salary Earners (Österreichischer Arbeiter- und Angestelltenbund, ÖAAB) - which groups christian democrat trade unionists - have been linking reform of severance pay to reform of private pension schemes. The Austrian Chamber of the Economy (Wirtschaftskammer Österreich, WKÖ) has been demanding a reform of holiday entitlements in return.

Current legal regulations

Severance pay (Abfertigung) is regulated by law. The 1921 Salary Earners Act (Angestelltengesetz) and the 1979 Wage Earners' Severance Pay Act (Arbeiterabfertigungsgesetz), as amended, set identical standards for the two groups of employees. Under these regulations, employees are entitled to severance pay if they are dismissed following employment with the same employer for at least three years. The entitlement is to a multiple of the final monthly pay packet inclusive of overtime, allowances and special payments: 2X after three years; 3X after five years; 4X after 10 years; 6X after 15 years; 9X after 20 years; and 12X after 25 years. Cases of summary dismissal prevent eligibility for severance pay. By contrast, certain cases of resignation may result in eligibility for severance pay. These concern mainly cases of retirement after at least 10 years' employment and, in certain circumstances, cases of resignation due to a birth or an adoption or to take care of a young child, after at least five years' employment. On the death of an employee, dependants are entitled to half the severance pay. Severance pay comes almost free of deductions: income tax of only 6% has to be paid.

The 1972 Construction Workers' Holidays and Severance Pay Act (Bauarbeiter-Urlaubs- und Abfertigungsgesetz, BUAG) was amended in 1987 to include severance pay regulations. Construction workers, in order to qualify, must have been employed for only 92 weeks during the previous three years, and not necessarily with only one employer provided that the work was made available through the Public Employment Service (Arbeitsmarktservice, AMS).

Employers have to make provision in their accounts for at least half the severance pay entitlements that could fall due and to hold securities for at least a quarter.

Proposals for change

The ÖGB has been demanding an entitlement to severance pay regardless of the way an employment contract is terminated. Furthermore, it states that there should be an entitlement from the first day of employment, growing evenly over the duration of employment. This is because the current regulations:

• carry the risk that employees may be made redundant the day before their entitlement passes through the next length-of-service threshold;

• exclude the seasonally employed - an important segment in Austria - from ever being entitled to severance pay; and

• become less and less applicable as the average duration of employment decreases.

The employers, instead of rejecting the demand outright, have connected it with one of their own long-standing demands - a reform of holiday entitlements. Currently, during the first six months of employment with an employer, an employee is entitled to a proportional share of the annual statutory paid holiday entitlement of five weeks. After six months the whole entitlement falls due. At the start of the second or any further year of employment, the entire annual entitlement again falls due. The WKÖ wants holiday entitlements to be generally proportional. They have been arguing that the current regulations are an unfair burden on enterprises and provide for an unnecessary number of dismissals the day before the first six months of employment are complete.

The ÖAAB, in October 1998, came forward with a proposal meant to appease both the WKÖ and the ÖGB. It suggested a scheme whereby, from 2000, in any new employment contract 2.5% of pay would be paid into a pension fund. On dismissal, the employee could choose either a lump-sum payment or to carry the account over to the next employer; on leaving voluntarily, the account would have to be carried over; and on retirement, payment could be made either immediately in full or in the form of a supplementary pension. The maximum contribution period would be 25 years, and membership of the scheme would start only in the 13th month of employment.

The WKÖ welcomed the idea but declared that it would consent only if the first 12 months were served with only one employer, and if holiday entitlements were made proportional.

The ÖGB was also critical. By 15 October 1998, it had drawn up a position paper detailing its concerns. They can, in the main, be summed up as follows:

• in cases of continuous employment with the same employer, the severance payment between the third and the 10th year of employment would be less than it is now. As a result, the new scheme would be attractive only as a supplementary pension scheme;

• as such it might contribute to an erosion of the existing pension system; and

• the severance payment would lose its current function of tiding a worker over the period of job search.

The ÖGB has rejected any attempt to link the severance pay issue with the holidays issue. In fact, it opposes any change to the holiday regulations. In other words, the ÖGB's position is that severance pay should be broadened to all dismissals and resignations. Furthermore, it should not under any circumstances be reduced below its current level and it should grow continuously from day one of each employment contract (presumably to a cut-off date after 25 years of continuous employment with the same employer). An additional demand is that employers' severance pay provisions should not be merely numbers on balance sheets but should exist as funds safeguarded by an agency or agencies outside the individual enterprise.

Commentary

The ÖAAB has not been able to satisfy either the WKÖ or the ÖGB. The ÖGB is inclined to pursue the issue, so it seems, but it remains unclear if, or when, and in what form any changes will be made. It may very well become a campaign issue in the 1999 general elections, as the Social Democrat Party (Sozialdemokratische Partei Österreichs, SPÖ) seems poised to adopt the cause. The chances that it will be settled before the elections are dwindling by the day, as tax reform appears to be displacing all other issues and as the signs pointing to an early election remain in place.

Any agreement on severance pay will certainly be turned into legislation. In terms of negotiations, the social partners, particularly in the tourism industry (AT9705111F), have been unable for a decade to make any progress on the issue. It is therefore unlikely that the social partners, without the assistance of the political parties, will be able to come to any joint agreement now. (August Gächter, IHS)