An employment relationship is fundamentally characterised by the employee's obligation to provide manpower and the employer's obligation to pay the employee in return. Frequently, employees are given (irrevocable) garden leave during their notice period when an employment contract is terminated. What are the rules applicable when a terminated employee finds a new job during garden leave? The Austrian Supreme Court recently ruled on this question (9 ObA 52/23x).
1. Facts of case
The employer intended to terminate an employee’s employment relationship. For this reason, the employee was offered two options for termination by mutual consent:
- Option 1: Irrevocable and immediate garden leave, with salary to be paid until the termination date on 31 January 2021, a bonus and voluntary severance pay as well as an option to terminate the employment relationship before such date. Early termination was to result in a reduction of the voluntary severance pay.
- Option 2: Irrevocable garden leave up to a termination date on 30 April 2021, no voluntary severance pay.
Option 2 was agreed upon. The employee started a new employment relationship on 01 March 2021. The question now was whether or not the income from the new employment relationship would have to be taken into account. The Supreme Court ruled in favour of an obligation to offset.
2. Background and ruling of the Supreme Court
Section 1155 of the Austrian Civil Code (ABGB) not only states that the employer is obliged to continue paying remuneration, but also that the employee is obliged to offset. Among other things, this obligation applies to income which employees earn from other employment at the time of their absence from work or garden leave. However, section 1155 ABGB may be contractually excluded.
In the opinion of the lower instances, that had been the case. Accordingly, the application of the offsetting rule in section 1155 ABGB had tacitly been excluded. The lower-instance decision was essentially based on a comparison of the two options.
The Supreme Court did not share this view. According to the Supreme Court, tacit exclusion would only be possible if there were no reasonable grounds to doubt the intention of the parties. In the specific case, the Supreme Court found that there were insufficient grounds to assume a tacit exclusion of section 1155 ABGB.
The Supreme Court also held that the obligation to offset pay would also exist in case of unjustified garden leave. The only reason for not applying the obligation to offset would be an objection in abuse of law by the employer. In the opinion of the Supreme Court, even wilful non-admission to work would not qualify as an abuse as would exclude offsetting. Rather, this would require specific unconscionable motives, with the burden of proof being on the employee.
The employee also argued that section 1162b ABGB should apply mutatis mutandis; according to this provision, other income will be offset against the compensation for termination in the event of unjustified dismissal without notice or justified resignation after three months only. However, the Supreme Court rejected the application of this provision to garden leaves during the notice period by analogy due to lack of an unintended loophole.
3. Conclusion
The Supreme Court's ruling confirms that employees must take into account what they earn elsewhere during garden leave and offset it against their continued pay under the previous employment contract. Furthermore, the Supreme Court once again clarified that such offsetting is to happen immediately, not only after three months. Nevertheless, it is advisable to agree upon rules on offsetting in the event of garden leave in order to avoid disputes.
The KWR Employment Law Team will be happy to answer any questions you may have.