No additional annual leave indemnity payment due to receipt of a scholarship

If an employee is unjustifiably dismissed, he is entitled to compensation for notice of termination. So far so good and familiar. However, what is an employee, who enters into a new employment relationship while receiving the compensation for notice of termination and additionally receives a scholarship that is not connected to any employment relationship, entitled to? One searches in vain for supreme court decisions on this exact constellation, but – as a case recently dealt with by the Higher Regional Court of Linz (as court of the second instance), that we were involved in, shows – the principles underlying this question, that were developed by the supreme court, still lead us to the answer.

The case in question concerned an employee (the claimaint) whose fixed-term employment relationship was terminated contrary to the time limit, which is why she was entitled to a compensation for notice of termination including an annual leave indemnity payment, which was duly paid by her “old” employer. Subsequently, the claimant entered into a new (marginal) employment relationship and additionally received a scholarship that was not linked to any employment relationship while receiving the compensation from the “old” employer. Due to the new employment relationship, the “old” employer credited the claimant’s “new” annual leave entitlement against the indemnity payment, which made the claimant sue for the difference of the annual leave indemnity payment based on the receipt of the scholarship. She did that on the grounds that the receipt of the scholarship was equivalent to self-employment and that it should therefore not be credited against the indemnity payment in an “overall view”. Further, from her point of view, the annual leave entitlement against the new employer should only be credited against the indemnity payment in relation to the extent of her “new” working time.

If an employee enters into a new employment relationship during the period in which he receives compensation for notice of termination, including an annual leave indemnity payment, he must, – pursuant to Article 29 of the Austrian Salaried Employees Act (“Angestelltengesetz”) – in principle allow all deduction of what he has saved as a result of not working (for the old employer) or has actually earned by using his workforce elsewhere (for the new employer). This also includes annual leave entitlements against the new employer, irrespective of the amount of remuneration and the extent of the working time with the new employer, because according to the Austrian Holiday Act (“Urlaubsgesetz”) the total annual leave entitlement calculated in weeks is decisive. A contrary view, on the other hand, would lead to the employee having full annual leave entitlement (new employment relationship in the context of which holiday can be consumed) and additional claims for monetary compensation (indemnity payment from the old employer) for the same period, which would result in unjust enrichment of the employee.

The argument that an “overall view” – as it is required by case law – would result in the “old” employer having to pay an annual leave indemnity payment to an employee who receives a scholarship – which is not connected to any employment relationship – in addition to a new employment relationship, because the scholarship was to be equated with self-employment, is therefore groundless.

If a scholarship is granted without being connected to any employment relationship, the employee has no annual leave entitlement based on the scholarship from the outset. The receipt of the scholarship therefore has no effect on the accrual (and possible crediting) of the employee’s annual leave entitlement. This would even be the case if one were to equate the receipt of a scholarship with self-employment, which would also not give rise to any annual leave entitlement from the outset.

Thus, if an employee has a creditable annual leave entitlement against a new employer and additionally receives a scholarship during the term of this new employment relationship, he cannot argue that he has no creditable holiday entitlement on the basis of the scholarship and must therefore receive an (additional) annual leave indemnity payment from the “old” employer.  For illustration, in such a case one only needs to bear in mind the following:

If the employment relationship had not been unjustifiably terminated by the “old” employer and if the employee had (additionally) received a scholarship while still working for the “old” employer, he would not be entitled to any additional annual leave entitlement on the basis of the scholarship against the “old” employer. So why should this be the case with the annual leave indemnity payment (as part of the compensation for notice of termination), since the compensation serves the purpose to merely put the employee in the same financial position as if his employment relationship had been duly terminated? If an additional annual leave indemnity payment was to be granted to the employee, this would represent nothing else than unjust enrichment of the employee.

On the other hand, a constellation in which the employee only receives a scholarship, that is not connected to any employment relationship, during the period of payment of a compensation for notice of termination, but does not enter into a new employment relationship at the same time, would most probably have to be assessed differently. In such a case, there would be no creditable annual leave entitlement from the outset, which is why the annual leave indemnity payment would (still) have to be paid by the “old” employer.

However, even in such a case, it would be wrong to speak of an additional annual leave indemnity payment due to the receipt of a scholarship. On the contrary, this would only represent “the normal” annual leave indemnity payment to which the employee is entitled, because there is no new employment relationship from which he would have any creditable entitlements pursuant to Article 29 of the Austrian Salaried Employees Act.

Written by Alexandra Prodan.

For questions and inquiries, do not hesitate to contact Árpad Géréd and Alexandra Prodan.

29.11.2021