Austrian Supreme Court Decision on cross-border Dismissal Protection: What employees and Employers need to know.

The Austrian Supreme Court (OGH) has decided in a landmark ruling how Austrian dismissal protection under the Labour Constitution Act – ArbVG (eg challenging termination on grounds of social hardship under Sec 105 para 3 no. 2 ArbVG) is to be applied in cross-border employment relationships. Decision 9 ObA 94/24z brings both important clarifications and new problems that affect both employees and employers.

The Case and Its Significance for the Modern Working World

The specific case involved an employee who permanently worked from Vienna for a German company but was organizationally fully integrated into the German establishment (Betrieb). After his dismissal, the employee sought to invoke Austrian dismissal protection. This case is typical of the modern working world, where physical workplace and operational affiliation increasingly diverge.

The OGH first made an important clarification (after comprehensively listing the state of opinion): General dismissal protection under Austrian law follows the employment contract statute under conflict of laws rules (Art 8 Rome I Regulation). This means specifically that when Austrian employment law is applicable to an employment contract — for example, because the employee habitually works in Austria — Austrian dismissal protection rules (Sec 105 et seq ArbVG) consequently also apply. This decision ends years of legal uncertainty and follows the autonomous interpretation of the Rome I Regulation under EU law.

The Problematic Limitation

Despite this fundamentally positive clarification, onr decisive hurdle remains. According to the OGH, Austrian dismissal protection — even in cross-border situations — requires, under substantive law, the existence of an establishment located in Austria. This limitation means that even when Austrian employment law applies, the employee can only invoke Austrian dismissal protection if their employer actually has an establishment in Austria.

The court’s reasoning is based on the systematic embedding of dismissal protection in works constitution law (Betriebsverfassungsrecht). Specifically, general dismissal protection is anchored in works constitution law, specifically in the second part of the Labour Constitution Act regarding the powers of the works council. As a result, the court argues that Austrian dismissal protection conceptually requires the participation of staff bodies appointed under the Labour Constitution Act. Thus, the OGH builds a bridge from conflict of laws in individual employment law to conflict of laws in works constitution law.

Critical Assessment of the Jurisprudence

From a legal methodology perspective, this decision raises concerns, because the court effectively examines the same issue twice. First, when determining the applicable law under Article 8 of the Rome I Regulation, Austrian law is found to apply based on the rules of substantive law reference. Then, during the substantive application phase, the court again examines whether this law is actually applicable under conflict-of-laws rules. This repetition leads to a methodological contradiction and ultimately dilutes the otherwise clear structure of conflict of laws.

Instead, the OGH should have – with consistent allocation of individual dismissal protection – refrained from re-questioning works constitution law conflict of laws. After all, it makes no difference for employee-centered dismissal protection where their establishment is located – as long as such an establishment exists.

EU Law Dimension

The OGH anchors the “territorially principle” of works constitution law, which is dogmatically insufficiently developed, in the area of dismissal protection to be applied under Art 8 Rome I Regulation. The OGH seeks to prevent revision of its continued jurisprudence, which is now justifies differently, through preliminary ruling procedures. It views the restrictive interpretation of dismissal protection law as merely a limitation that is too uncertain and too indirectly effective to impair the freedom of movement of workers (para 73 f). Whether this view can be maintained (permanently) in light of Art 30 CFR is questionable.

Consequences of the Ruling

The practical consequences are known but nevertheless significant: Employees who work from Austria for foreign companies have no Austrian dismissal protection under the Labour Constitution Act, even when Austrian employment law is fundamentally applicable. This leads to the creation of protection gaps for remote workers and may tempt international companies to deliberately not establish Austrian establishments.

The decision illustrates the fundamental difficulties of traditional works constitution law in dealing with modern forms of work. On one hand, works organizations in such constellations literally reach the limits of the legal system, especially in Austria. On the other hand, it becomes clear in such organizational forms that (Austrian) works constitution law was developed for traditional, hierarchically and dualistically organized forms of work. Modern organizations (e.g., virtualized matrix organizations), however, are characterized by interwoven and interlinked instruction structures and a diffusion of classic establishment structures. This leads to problems even at the purely national level, not to mention the challenges when combining both scenarios.

Conclusion

The OGH’s decision represents a milestone in the conflict of laws treatment of cross-border employment relationships only at first glance. However, while the clarification regarding the individual legal classification of dismissal protection is welcome, the subsequent limitation to employees in Austrian establishments is required neither on the basis of the wording, the systematics, nor conflict of laws.

That employment law in cross-border situations is complex and often incomplete and thus poses challenges for courts is well known. Regardless of dogmatic reservations, the OGH with the present decision in no way does justice to the realities of the digitalized working world. It remains to be hoped that the decision marks not the end, but the beginning of a necessary discussion about the future of international employment law in an increasingly networked and virtualized working world.

Contact our partner Christoph Ludvik (Employment) if you have any queries regarding termination protection in cross-border constellations.