With the amendment of the Austrian Labour Constitution Act (Arbeitsverfassungsrecht; ArbVG), put into force on 1 January 2011, the Austrian legislator reacted to a highly controversial decision of the Austrian Supreme Court (Oberster Gerichtshof; OGH)1. But the amendment raises new questions.

The decision of the Supreme Court

The OGH had to answer whether a “performance-based bonus system” requires a shop agreement. According to the old version of the ArbVG, a shop agreement was needed to implement piece-work wages for wage plans that are similar to piece work and for miscellaneous performance- based bonuses and rewards.

The OGH ruled that a shop agreement is necessary if a bonus system regulates the payout of the bonus by reaching individualised performance goals. Furthermore, replicable criteria must be applied to measure the attainment of these goals and for third parties.

The works council thus received a veto power in connection with performance-based bonus systems since the employer needed the consent of the works council to implement such systems.

The amendment of the ArbVG

Pursuant to the amendment of the ArbVG, the term “miscellaneous performance-based bonus and reward systems” was moved from section 96 to section 97 ArbVG. The consequence was that, as of 1 January 2011, a shop agreement for performance-based bonus systems can, but need not, be concluded. So the works council lost its veto power.

If an employer wants to implement a performance-based bonus system, it can now choose between a shop agreement and an individual agreement. If a shop agreement is chosen, however, its termination may not affect employees covered by the shop agreement prior to its termination. The terminated shop agreement will continue to apply to such employees (“after-effect”). The application of the shop agreement for such employees may only end once a new shop agreement or individual agreements are concluded.

Shop agreements concluded under the “old law”

What happens to shop agreements concluded between the decision (2007) and the amendment (2011)?

This question especially comes up in connection with shop agreements concluded for an unlimited period. Shop agreements concluded for a limited period of time expire at the end of the period. An after-effect will not occur. But shop agreements concluded for an unlimited period of time could have been terminated instantly without any after-effect before the amendment of the ArbVG. After the amendment, such shop agreements can now be terminated with a notice period of three month and will have an after-effect on the employees.

The law does not provide an answer to this question, as a transitional law has not been issued. Hence, it is argued2 that this is a case for conclusion by analogy, because an unintended regulatory gap could be seen in the missing transitional law.3 Following this opinion, the transitional law that regulates the legal effect of shop agreements concluded before the ArbVG was set into force should apply by analogy. On the other hand, the silence of the law can be seen to mean that there was no need for a regulation. The amendment simply clarified that the law had never intended to make the conclusion of a shop agreement necessary to implement a performance- based bonus system.

Consequences

By amending the ArbVG, the legislator clearly underlined that a shop agreement is not necessary if the employer wants to implement a performance-based bonus system. Moreover, the works council does not have a veto power. Performance based bonus systems can be concluded directly with the employee. Shop agreements may still be concluded, but if they are for an unlimited period after termination, an after-effect will apply.

The question of how to treat shop agreements concluded between the OGH decision and the amendment cannot be definitively answered. They might be treated just like shop agreements concluded after the amendment. In that case, if the agreement was concluded for an unlimited period of time, an after-effect could follow termination.

If an employer wants to implement a performancebased bonus system, it can now choose between a shop agreement and an individual agreement. If a shop agreement is chosen, however, its termination may not affect employees covered by the shop agreement prior to its termination.