Employment and employee benefits in Switzerland: overview

A Q&A guide to employment and employee benefits law in Switzerland.

The Q&A gives a high level overview of the key practical issues including: employment status; background checks; permissions to work; contractual and implied terms of employment; minimum wages; restrictions on working time; illness and injury; rights of parents and carers; data protection; discrimination and harassment; dismissals; redundancies; taxation; employer and parent company liability; employee representation and consultation; consequence of business transfers; intellectual property; restraint of trade agreements and proposals for reform.

To compare answers across multiple jurisdictions, visit the Employment and Employee Benefits Country Q&A tool.

The Q&A is part of the Multi-jurisdictional Guide to Employment and Employee Benefits law. For a full list of jurisdictional Q&As visit www.practicallaw.com/employment-mjg.

Contents

Scope of employment regulation

1. Do the main laws that regulate the employment relationship apply to:
  • Foreign nationals working in your jurisdiction?

  • Nationals of your jurisdiction working abroad?

Laws applicable to foreign nationals

The conflict of law rules of the Federal Statute on International Private Law (PILA) apply. The law of the country in which the employee mainly works applies (irrespective of their nationality) (Article 121, PILA). If this cannot be established, the law of the state where the employer has a branch office or, if there is no such branch office, where the employer has its seat, applies.

Contractual choice of law clauses apply, provided the law of the employee's usual residence or the law of the branch office or seat of the employer is selected.

If Article 121 of the PILA applies foreign law to an employee who is working for a Swiss employer, Article 18 of the PILA states that important mandatory provisions of Swiss law always apply. This reservation mainly applies if collective bargaining agreements (Gesamtarbeitsverträge) or normal employment contracts (Normalarbeitsverträge) have been declared to apply uniformly by the Federal Government. Mandatory Swiss public employee protection law always applies to a person working in Switzerland. Special legal provisions exist relating to social security (see Question 29, Social security contributions).

Laws applicable to nationals working abroad

See above, Laws applicable to foreign nationals. Article 19 of the PILA allows for the application of mandatory foreign law (even if Swiss law otherwise applies to the contract) in exceptional circumstances, if this seems necessary to protect the employee.

 

Employment status

2. Does the law distinguish between different categories of worker? If so, what are the material differences in entitlement to statutory employment rights and are there any maximum time periods for which each category of worker can be engaged?

Categories of worker

An employee or worker provides services to the employer based on an (oral or written) employment agreement which must fulfil, in principle, the following criteria:

  • The employee must provide services to the employer, but does not have an obligation to be successful.

  • The employee is remunerated for the time he has been working.

  • The employee stands in a subordination relationship with respect to the employer, and is integrated into the organisation of the employer, who can give them instructions.

  • The relationship is intended to last for a continuing period of time (however, this can be limited).

The qualification of a contract as an employment agreement is made on a case-by-case basis, taking into consideration all the factual circumstances of each case. The formal designation of the relationship by the parties is not directly relevant. Employment law does not apply to individuals providing services on an independent basis (that is, where there is no subordination relationship). However, this distinction is not always easy to make. In some specific cases, employment law may be partly applied by analogy. Specific provisions apply to certain types of employment relationships, such as apprenticeship contracts, travelling salesman's contracts, homework contracts, and personal lending. Finally, different rules may apply depending on the type of work performed (for example, office work, night work, and so on).

Entitlement to statutory employment rights

See above, Categories of worker.

Time periods

There are no duration restrictions for employment contracts.

 

Recruitment

3. Are any grants or incentives available for employing people? Do any filings need to be made when employing people?

Grants or incentives

There are no grants or incentives available for employing people.

Filings

Filings must be made to affiliate the employee to the necessary social security schemes. In addition, certain applications/registrations may need to be filed when the employee is not a Swiss national (see Question 5, Permission to work).

 

Background checks

4. Are there any restrictions or prohibitions on carrying out background checks in relation to applicants?

In principle, background checks are permissible to the extent that the information requested or searched is objectively necessary to determine whether the candidate is suited for the job, or to properly execute the contract. Therefore, the information which may be requested by the future employer depends on the position the candidate is applying for. The same rules apply if the background check is conducted by a third party. Additional data protection provisions may apply, especially if the third party is domiciled outside of Switzerland.

 

Permission to work

5. What prior approvals do foreign nationals require to work in your country?

Visa

Nationals of EU/EEA countries do not require a visa. The Federal Office for Migration maintains a list of third countries the nationals of which must obtain a visa to enter Switzerland (see www.bfm.admin.ch/content/bfm/en/home/themen/arbeit.html and www.bfm.admin.ch/content/bfm/de/home/dokumentation/rechtsgrundlagen/weisungen_und_kreisschreiben/visa.html). These persons must obtain a visa in addition to a work permit (see below, Permits).

Procedure for obtaining approval. The visa is issued by the Swiss diplomatic representation abroad upon approval of the cantonal migration authority. A work permit must first be obtained (see below, Permits).

Cost. A visa currently costs CHF90. Additional costs must be added for the issuance of documents on arrival.

Time frame. The length of the process depends on the citizenship of the foreign national and the canton where the application is filed. It usually takes from four to eight weeks.

Sanctions. Individuals who enter Switzerland in breach of Swiss law face criminal sanctions (imprisonment for up to a year or a monetary fine).

Permits

There is a dual system for granting foreign nationals access to the Swiss labour market. EU and European Free Trade Area (EFTA) nationals are admitted to the Swiss labour market under the agreement on the free movement of persons between the EU and Switzerland. All other nationals are only admitted in limited numbers, if they are well qualified and fulfil other requirements.

EU/EFTA nationals. Full free movement of persons has applied since 1 June 2007 to citizens of Germany, France, Austria, Italy, Spain, Portugal, UK, Ireland, Denmark, Sweden, Finland, Belgium, The Netherlands, Luxembourg, Greece, Cyprus, Malta, Norway, Iceland and Liechtenstein (EU-17/EFTA).

Full freedom of movement has applied to citizens of Poland, the Czech Republic, Slovakia, Hungary, Estonia, Latvia, Lithuania and Slovenia (EU-8) since 1 May 2011.

However, Switzerland has reintroduced a (temporary) quota for nationals from EU-17 and EU-8 countries. The quota is applicable to individuals with an employment contract valid for more than one year or wishing to take up employment indefinitely in Switzerland and will last until 31 May 2014 for EU-17 countries and until 31 April 2014 for EU-8 countries.

Full freedom of movement will apply to citizens of Bulgaria and Romania (EU-2) as of 1 June 2016 at the latest. Currently, the domestic workforce can be given precedence over Romanian and Bulgarian citizens, and salary and work conditions can be checked by the authorities.

EU-17/EFTA and EU-8 nationals can work or provide services in Switzerland without a work permit for up to 90 days in a calendar year. However, the employer must register them in advance with the authorities through an online notification procedure.

EU-17/EFTA and EU-8 nationals who will work for more than 90 days a year in Switzerland simply have to register with the communal authorities and apply for a work permit. A quota currently applies (see above).

EU-2 nationals can provide services in Switzerland if they work in the general sectors and their service does not last longer than 90 days. However, they must be registered with the authorities through the online notification procedure.

EU-2 nationals who work for more than 90 days per year in Switzerland or who cannot benefit from the online procedure require a work permit. The employer files the application with the cantonal labour market authority at the place of work. The employer has to prove both that:

  • It has not found a Swiss employee or an integrated foreign employee.

  • The wage and working conditions are equal to the domestic ones.

If these requirements are fulfilled, a work permit will be granted if a quota is available.

Other foreign nationals. Persons from non-EU/EFTA countries are only admitted if:

  • They are well qualified (degree from a university or other higher education institution and several years of professional experience).

  • No person for the job can be recruited from the Swiss labour market or an EU/EFTA member state.

Exceptions can be granted, among others, for:

  • Temporary duties as part of large projects for companies with headquarters in Switzerland (international assignment).

  • Execution of special mandates and projects.

  • Intra-company transfers of managers and specialists.

Further:

  • The salary, social security contributions and employment terms must be in accordance with conditions customary to the region and the particular sector.

  • A quota must be available.

Procedure for obtaining approval. The procedure for obtaining approval depends on whether the applicant is an EU/EFTA national, or another foreign national:

  • EU/EFTA nationals. EU-17/EFTA and EU-8 nationals who want to work for more than 90 days per year in Switzerland must register with the communal authorities and apply for a work permit before taking up work.

    For EU-2 nationals, the employer must file a work permit application with the cantonal labour market authority at the place of work.

  • Other foreign nationals. Other foreign nationals must obtain a work and a residence permit. The employer must submit the application for the work permit to the cantonal labour authority, which makes a preliminary decision. It then submits the file to the federal office for migration, which issues the federal decision.

    If the federal office for migration approves the application, the cantonal migration authority authorises the Swiss diplomatic representation abroad to issue the visa (see above, Visa). The foreign national can then collect the visa at the Swiss representation abroad.

Cost. The cost depends on the type of work permit and the nationality of the employee. For example, in the Canton of Zurich, costs range between CHF100 and CHF400 (plus additional costs for the issue of visa authorisation by the migration authority). The Zurich authorities may also charge an additional fee of up to 50% of the original fee for additional work.

Time frame. The length of process depends on the citizenship of the foreign national and the canton where the application is filed. It can take from a few days to up to four months.

Sanctions. Employers who knowingly employ individuals who are not entitled to work in Switzerland are subject to criminal sanctions (imprisonment for up to a year or a monetary fine). Individuals who stay and/or work in Switzerland in breach of Swiss law also face criminal sanctions.

 

Restrictions on managers and directors

6. Are there any restrictions on who can be a manager or company director?

Age restrictions

No specific age restrictions apply, except for the general maturity age of 18 years (Article 14, Civil Code). This means that managers of Swiss companies must be at least 18 years old.

Nationality restrictions

There are no nationality restrictions on managers. However, foreign nationals need to obtain the necessary work permits (see Question 5, Permission to work). There are no nationality restrictions on members of the board of directors of Swiss companies. At least one person authorised to represent the company must reside in Switzerland.

Other

Only physical persons (and no legal entity) can be members of the board of directors of a Swiss company. Moreover, due to conflicts of interest, specific public law statutes can prohibit a person's membership on a board of directors.

 

Regulation of the employment relationship

7. How is the employment relationship governed and regulated?

Written employment contract

No written employment agreement is required. If it is agreed orally or implicitly that a person will provide services to another for a limited or unlimited period of time, and the other party will pay a salary, an employment contract legally exists. In certain instances it may be unclear whether an employment contract or a mandate agreement exists (see Question 2).

Implied terms

An employment contract can include implied terms to the extent the parties actually act in a certain manner.

If the contract includes neither express nor implied terms, the relevant statutory provisions apply (mainly Articles 319 et seq of the Code of Obligations of 30 March 1911, as amended). The Code of Obligations addresses all issues that are relevant to an employment relationship. Many provisions are mandatory, that is, they cannot be contractually changed or can only be changed in the employee's favour.

Numerous public law provisions aim to protect certain categories of employees, such as females, youths, or people working at night.

Collective agreements

Collective agreements (Gesamtarbeitsverträge) apply to certain sectors, for example, the machine industry and the chemical and pharmaceutical industry. They can be widely negotiated between trade unions and industry associations, or between trade unions and certain (usually large) companies Upon a decision of the competent authorities, collective agreements can be declared binding for all employers in the sector concerned.

In addition, the Federal Government can enact mandatory standard employment terms for certain industries or certain types of workers (Normalarbeitsvertrag).

 
8. What are the main points to consider if an employer wants to unilaterally change the terms and conditions of employment?

The employer and the employee can agree in the employment agreement on the employer's right to unilaterally change specific terms and conditions of employment, provided that clause is not abusive (which could be the case with respect to the main aspects of the contract, such as salary, holidays, and so on). If the parties have not agreed this point, the employer cannot unilaterally change the terms and conditions of employment.

If the terms in question fall under the employer's authority to issue directives, the employer can unilaterally change these directives, again provided that change is not considered abusive.

The employer can issue a "modification-termination" (Änderungskündigung) by offering changes in the terms and conditions of employment, and terminating the employment at the same time in the event that the employee does not accept the changes. However, the applicable notice period must be observed (see Question 19, Notice periods).

 

Minimum wage

9. Is there a national (or regional) minimum wage?

There is no statutory minimum wage. However, collective bargaining agreements and mandatory standard employment contracts can include minimum wages for certain categories of employees.

 

Restrictions on working time

10. Are there restrictions on working hours? Can an employee opt out on either an individual or collective basis?

The Federal Statute on Employment (Arbeitsgesetz) of 13 March 1964, as amended, and its regulations contain rules about working hours and rest breaks. These provisions do not apply to members of top management.

Working hours

Under the Federal Statute on Employment, a person is not allowed to work more than 45 to 50 hours per week, depending on the employment field. Below this maximum, the parties can contractually agree working hours. Most employees work between 40 and 42 working hours per week.

Rest breaks

Work must be discontinued with a rest break of:

  • 15 minutes for a working time of more than five and a half hours.

  • 30 minutes for a working time of more than seven hours.

  • One hour for a working time of more than nine hours.

A daily rest time of at least 11 consecutive hours must be granted. For adults, the daily rest time may be reduced to eight hours once a week, provided an average of 11 hours is maintained over two weeks.

One day off every week must be granted, in principle on a Sunday.

Shift workers

The Federal Statute on Employment and its regulations also contain provisions on shift workers, mainly providing for a periodical change of shift hours, a balance between day and night shifts, maximum working time and rest days. Specific rules also apply with respect to resting days for companies with continuous working (24/7). In particular, employees must be granted at least 61 weekly resting days of at least 35 consecutive hours (including the daily rest time). Out of these, 26 resting days must in principle fall on a Sunday.

 

Holiday entitlement

11. Is there a minimum holiday entitlement?

Minimum holiday entitlement

The minimum holiday entitlement is four weeks per year (Article 329a, Code of Obligations). For employees under the age of 20, the minimum is five weeks. It is possible for the parties to contractually agree on a longer holiday entitlement.

Public holidays

Public holidays are in addition to the minimum holiday entitlement. They include, among others, the Swiss National Day (on 1 August), cantonal public holidays and local holidays. The only federal public holiday is 1 August: other public holidays vary, depending on the canton.

 

Illness and injury of employees

12. What rights do employees have to time off in the case of illness or injury? Are they entitled to sick pay during this time off? Can an employer recover any of the cost from the government?

Entitlement to time off

An employee is excused from working during illness.

Employees who are ill also enjoy statutory protection from dismissal. The extent of this period of protected sick leave depends on the length of service:

  • In the first year of employment: 30 days' statutory protection.

  • Between the second and the fifth year: 90 days' statutory protection.

  • From the sixth year: 180 days' statutory protection.

A notice of termination issued during the protected period is void. Further, if a notice of termination was previously issued, but the employee then becomes ill during the termination notice period, that notice period is extended for the duration of the illness (up to a maximum of the relevant statutory protection period that applies).

Entitlement to paid time off

The employer must continue to pay the employee's salary and other contractually agreed compensation for a limited time period, provided the employment has had a duration of more than three months or has been entered into for a period of more than three months (Article 324a, Code of Obligations).

Courts have interpreted this statutory provision somewhat differently in relation to the limited time period. Generally, the duty to continue salary payments depends on the duration of services the employee has actually rendered:

  • In the first year of employment, salary payments must be made for three weeks.

  • In the second year, between one and two months.

  • In the third year, between eight and nine weeks.

The duty to continue salary payments further increases with years of service, with a maximum limit of between six months to one year.

The employer and the employee may agree on an alternative solution (such as payment of salary by an insurance during a certain period of time), provided that such alternative solution is at least equally beneficial for the employee. The agreement must be in writing.

Recovery of sick pay from the state

The employer cannot recover salary payments paid as sick pay from the state. However, most employers take out insurance to protect against the risk of prolonged salary payments to employees who are ill.

 

Statutory rights of parents and carers

13. What are the statutory rights of employees who are:
  • Parents (including maternity, paternity, surrogacy, adoption and parental rights, where applicable)?

  • Carers (including those of disabled children and adult dependants)?

Maternity rights

Under mandatory public laws, women are not allowed to work (and employers cannot employ women at this time) for a period of eight weeks after they have given birth. Moreover, they have a right to a total of 14 weeks of maternity leave after they have given birth. If a woman chooses to take her maternity leave, the state pays her a compensation amounting to 80% of her average last salary during a 98-day time period from the date of birth (cantonal legislation may provide further protection). The compensation is currently capped at CHF196 per day. Whether the employer must make top-up payments is unclear.

There are additional statutory rules protecting women during pregnancy and following birth. In particular, a pregnant woman is protected against dismissal during the whole pregnancy and for 16 weeks following birth.

Paternity rights

There are no specific statutory paternity rights. However, many employers have issued internal regulations granting fathers some limited time off in the case of childbirth.

Surrogacy

Surrogacy is prohibited in Switzerland.

Adoption rights

Federal statute does not provide special rights in the case of adoption. However, cantonal legislation may provide specific rights.

Parental rights

Employees with family duties have a statutory right to stay away from work for up to three days to take care of sick children. Statute does not provide other special rights for parents or carers. In practice, many employers have internal regulations that allow parents or carers to have some flexibility in unusual family situations.

Carers' rights

See above, Parental rights.

 

Continuous periods of employment

14. Does a period of continuous employment create any statutory rights for employees? If an employee is transferred to a new entity, does that employee retain their period of continuous employment? If so, on what type of transfer?

Statutory rights created

Statute and court decisions create various benefits for continued employment. This applies to, for example:

Consequences of a transfer of employee

In a transfer of an employment contract in connection with the sale of a business (or part of it), all rights, including those acquired before the transfer, remain with the employee (Article 333 et seq, Code of Obligations).

 

Fixed term, part-time and agency workers

15. To what extent are temporary and agency workers entitled to the same rights and benefits as permanent employees? To what extent are part-time workers entitled to the same rights and benefits as full-time workers?

Temporary workers

The general rules of employment law (Article 319 et seq, Code of Obligations) also apply to temporary workers. Certain specific issues arising in relation to these workers (for example, holiday entitlements and surcharges to the hourly salary to compensate for holidays) have been dealt with by the courts within the existing statutory framework.

There is no limit to the duration of a fixed term contract. However, if the same parties enter into successive employment contracts without an objective reason to do so, a court may consider that the parties have in fact entered into an employment agreement for an unlimited period. In this case, provisions governing employment agreements of unlimited period (such as notice periods in the case of dismissal) will apply.

A fixed term contract terminates on the last day of its validity. It is not necessary to issue a notice of termination. Since there is not any notice period, provisions extending the notice period in the case of illness do not apply. However, under Swiss law, a fixed term contract cannot be terminated prematurely by the employer by way of paying the employee a severance in lieu of notice, as is the case in other countries, unless the employee agrees to terminate the contract. Therefore, employment agreements for longer fixed terms are usually not recommended.

Agency workers

A special statute regulates agency work (Bundesgesetz über die Arbeitsvermittlung und den Personalverleih of 6 October 1989, as amended). The statute imposes a permit requirement on companies in the agency business. The agency worker enters into an employment contract with the agency company that provides, among other things, that the employee will perform their work for a variety of other companies. The statute sets certain minimum standards for employment contracts of this nature, for example, shorter notice periods.

Part-time workers

Part-time workers have the same rights as full-time workers. However, workers who work less than eight hours a week for the same employer are not automatically insured against non-occupational accidents.

 

Data protection

16. Are there any requirements protecting employee privacy or personal data? If so, what are an employer's obligations?

Employees' data protection rights

The employer can only deal with and preserve data that has a direct connection with the employment relationship, that is, with a person's ability to perform a certain job or with the performance by an employee of their contract.

Employers' data protection obligations

The Federal Data Protection Act of 19 June 1992, as amended, governs how an employer can use this data. Generally, the employer cannot:

  • Violate an employee's personal rights.

  • Make use of the data in bad faith.

  • Use the data disproportionally.

Transfers of personal data abroad without the employee's consent can cause substantial difficulties, primarily where the receiving country does not provide data protection equivalent to Switzerland. Usually it is advisable to obtain detailed legal advice on this issue.

 

Discrimination and harassment

17. What protection do employees have from discrimination or harassment, and on what grounds?

Protection from discrimination

There is broad protection of the employee's personal rights (Article 328, Code of Obligations). Discrimination can be claimed based on, for example:

  • Race.

  • Religion.

  • Ethnic background.

  • Sexual orientation.

An employee affected by discriminatory behaviour has a variety of legal measures available, for example:

  • Temporary refusal to work.

  • Rejecting instructions.

  • Claims for damages and/or tort.

  • Immediate termination for cause.

Discrimination due to gender is subject to special provisions and sanctions in the Federal Law on Equal Treatment of 24 March 1995, as amended.

Protection from harassment

Sexual harassment is subject to the provisions and sanctions in the Federal Law on Equal Treatment. The employer must put in place reasonable measures (in particular, clear written guidelines) to prevent cases of sexual harassment.

 

Whistleblowers

18. Do whistleblowers have any protection?

Statutory protection of whistleblowers is weak. Court cases have held that the dismissal of an employee due to whistleblowing is deemed to be abusive. A Bill is being discussed in the Federal Parliament to improve whistleblower protection.

 

Termination of employment

19. What rights do employees have when their employment contract is terminated?

Notice periods

Usually notice periods for employment contracts with an unlimited duration are specifically agreed in the contract. Notice periods must always have the same duration for employers and employees.

Notice periods cannot be lower than one month, except if otherwise agreed in a collective bargaining agreement, and even then only for the first year of employment (Article 335c, Code of Obligations).

If the employment contract does not address notice periods, the statutory notice periods are:

  • During the first year of employment, one month following the end of the calendar month.

  • Between the second and ninth year of employment, two months.

  • After then, three months.

The first month of employment is deemed a trial period, which can be excluded or extended by written contract to three months. During the trial period, notice of seven days can be given at any time.

In certain situations, dismissal notices are void by law, for example dismissal during illness, pregnancy or absence from work due to childbirth.

Severance payments

Under the Code of Obligations (Articles 339b et seq), severance payments must only be paid if the employee affected is over the age of 50 and has worked for more than 20 years for the same employer.

In that case, the statutory minimum severance payment is equal to two months' salary. If the employee receives, or will receive, payments from a social security scheme that has totally or partly been funded by the employer, there is no obligation to make severance payments.

It is not uncommon in employment contracts for members of the top management to specifically agree severance payments in the case of early termination or dismissals following takeovers (golden parachutes). Following the entry into force of new provisions regarding the compensation of board and executive members of public companies listed on a stock exchange (which is expected in January 2014), such payments will no longer be permissible, or will only be permissible under limited circumstances. In addition, golden parachute promises made to the top management to make takeover bids more difficult have been held unlawful by the relevant authorities.

Procedural requirements for dismissal

The Code of Obligations does not require notice to be in any specific form. However, for the purpose of proof it is advisable to serve notice in writing. In practice, most employment contracts provide that notice must be in writing.

Under Swiss law, a notice only becomes effective at the time of receipt by the affected person. It is advisable to hand over written notices in person and to receive written confirmation of receipt. If that is not feasible, notice can also be served by registered mail, but appropriate lead time should be allocated to protect against difficulties in serving notice on the employee.

Dismissals do not need to be reasoned or justified, that is, a reason does not have to be provided. Only on the specific request by the employee must the employer state the reasons in writing. It is usually highly advisable to seek legal advice in connection with dismissals, particularly where the dismissal could be regarded as unfair (see Question 20, Protection against dismissal).

Except in the case of a mass dismissal (see Question 21), there is no specific filing required. However, the relevant social security authorities must be informed.

 
20. What protection do employees have against dismissal? Are there any specific categories of protected employees?

In principle, employment agreements can be terminated freely by either party, provided the applicable notice period is observed. A specific ground for terminating the contract is not required. However, employees are protected in certain circumstances.

Protection against unfair dismissal

Employees are protected against unfair dismissal (Article 336, Code of Obligations). The provision includes a list of situations under which dismissal is deemed to be abusive. Generally, a dismissal is only abusive if it either:

  • Violates personal or constitutional rights (for example, dismissal due to race or gender).

  • Is made to prevent an employee from making contractual claims (for example, receive a contractually agreed severance payment).

Abusiveness does not render a dismissal invalid. The only consequence of a violation of Article 336 of the Code of Obligations is the payment of compensation of up to six months' salary at the discretion of the judge.

Protection of specific employees

Employees who are members of trade unions and/or fulfil certain functions in the company's employee representation bodies are specifically protected (Article 336, Code of Obligations).

No final decisions can be taken on mass dismissals before the completion of the consultation process (see Question 21).

After expiration of the probationary period (which can last up to three months), temporary protection against dismissal also exists under Article 336c of the Code of Obligations in the case of illness (see Question 12, Illness and injury of employees), pregnancy and mandatory military service. Dismissal notices issued during the protection period are deemed void.

 

Redundancy/layoff

21. How are redundancies/layoffs defined, and what rules apply on redundancies/layoffs? Are there special rules relating to collective redundancies?

Definition of redundancy/layoff

Swiss employment law includes rules on mass dismissals (Articles 335d to 335g, Code of Obligations). There are certain threshold numbers of redundancies that trigger the mass dismissal regulations, depending on the overall number of employees.

Procedural requirements

If an employer intends a mass dismissal it must inform the employees (or any employee representation body) about the intended measures and the reason for those measures. There is also a consultation requirement. Employees must have an opportunity to provide their own counter proposals, showing how the dismissals can be fully or partially avoided or how their negative consequences can be reduced. While the employer does not need to prove the reasons for the mass dismissal, it must provide sufficient information for the employees to be able to make proposals.

After completion of the consultation process, the employer must notify the competent public authority, which can then intervene on its own and make certain proposals aimed at protecting the employees who become redundant.

If the employer does not duly consult the employees before taking the decision to dismiss, the dismissals are deemed abusive and the employees can claim compensation of up to two months' salary at the judge's discretion.

Redundancy/layoff pay

There is currently no statutory obligation to establish a social plan under Swiss law. However, this obligation can arise under a collective bargaining agreement. Moreover, it has become customary for employers to set up a social plan in cases of mass redundancies. This provides for certain benefits in favour of employees, such as:

  • Additional severance payments.

  • Additional contributions to their pension schemes.

  • Assistance in finding new jobs.

  • Financing transition arrangements (for example, schooling).

A new law has been passed which makes social plans mandatory if at least 30 employees are dismissed within 30 days in enterprises of at least 250 employees. Unless a referendum is requested (which seems unlikely) the new provisions are expected to enter into force in January 2014.

 

Employee representation and consultation

22. Are employees entitled to management representation (such as on the board of directors) or to be consulted about issues that affect them? Is employee consultation or consent required for major transactions (such as acquisitions, disposals or joint ventures)?

Management representation

Swiss statutory law does not provide for employee representation in the management.

Consultation

The Federal Statute on Participation Rights of Employees (Mitwirkungsgesetz) of 17 December 1993, as amended, provides for certain information and consultation requirements with employee representation bodies or the employees. Consultation rights exist relating to:

  • Employment safety matters.

  • Transfers of business.

  • Mass redundancies.

  • Accession to pension fund organisations.

Major transactions

There are consultation and information requirements if individual employment relationships are transferred to another legal entity in connection with a corporate transaction (Article 333a, Code of Obligations). Likewise, these requirements must be observed when all employment relationships are automatically transferred by operation of law in a merger (Universalsukzession). These requirements do not apply if the transaction only involves the sale of shares.

 
23. What remedies are available if an employer fails to comply with its consultation duties? Can employees take action to prevent any proposals going ahead?

Remedies

If companies violate the statutory information and consultation requirements for a transaction under the Federal Merger Act (Fusionsgesetz) of 3 October 2003, as amended, employees have a right to block the transaction by obtaining temporary restraining orders. However, Articles 333 et seq of the Code of Obligations do not provide for specific sanctions. Generally, an individual employee has a claim for specific performance or for damages, to the extent damage can be shown.

Employee action

See above, Remedies.

 

Consequences of a business transfer

24. Is there any statutory protection of employees on a business transfer?

Automatic transfer of employees

In a transfer of a business or part of the business, the employment agreements for all employees engaged in the business are automatically transferred by operation of law (Article 333 et seq, Code of Obligations). Issues can arise for people working for different business units, where case-by-case solutions must be negotiated.

Protection against dismissal

There is no general protection against dismissals, that is, employees can be dismissed before the transfer by the former employer, or after the transfer by the new employer, by observing the contractual notice periods. However, the dismissal must not have the aim of avoiding the automatic transfer of the employees to the new employer. Depending on the actual reason for the dismissals (as can be established in court), an attempt to circumvent the law could be assumed, for example, if the dismissed employees are shortly replaced by new employees.

Where applicable, the legal requirements on mass dismissals must be observed (see Question 21).

Employees have a right to decline the transfer, by filing an objection which will lead to the termination of the employment contract within the statutory notice period.

Harmonisation of employment terms

Harmonisation of employment terms after the transfer is only possible with the consent of each individual employee. If certain employees do not accept the proposed changes, the only option is dismissal.

 

Employer and parent company liability

25. Are there any circumstances in which:
  • An employer can be liable for the acts of its employees?

  • A parent company can be liable for the acts of a subsidiary company's employees?

Employer liability

The employer is liable for damage to third parties for the acts and omissions of employees in performing their professional activities, except if it is proved that the employer used all reasonable care to prevent damage of this type, or the damage would have occurred irrespective of this care (Article 55, Code of Obligations).

The employer can take recourse against the responsible employee.

A similar liability exists if the employer uses auxiliary persons such as employees in performing contractual obligations, even if the employee is not personally guilty for having caused the damage. It is possible for the employer to completely exclude liability for damages caused by auxiliary persons in the third-party contract.

Parent company liability

Parent company liability only exists, if at all, in very narrow circumstances, mainly if a parent company, through its behaviour, creates a reasonable expectation that it would assume liability for its subsidiary.

 

Employer insolvency

26. What rights do employees have on the insolvency of their employer? Is there a state fund which guarantees repayment of certain employment debts?

Employee rights on insolvency

In the case of bankruptcy proceedings, claims of employees derived from the employment relationship which arose during the six months prior to the opening of the proceedings are satisfied in priority out of the proceeds of the bankrupt estate.

State guarantee fund

There is no state guarantee fund.

 

Health and safety obligations

27. What are an employer's obligations regarding the health and safety of its employees?

There are numerous public mandatory laws dealing with health and safety matters, for example, regulations on night and shift work, accident protection, maximum employment time, protection of juvenile workers under age 18 and so on. The most important statute is the Federal Statute on Employment (Arbeitsgesetz) of 13 March 1964, as amended, together with several regulations (Verordnungen) based on it.

 

Taxation of employment income

28. What is the basis of taxation of employment income for:
  • Foreign nationals working in your jurisdiction?

  • Nationals of your jurisdiction working abroad?

Foreign nationals

Swiss tax law distinguishes between foreign nationals working in Switzerland who are subject to unlimited taxation and to limited taxation.

Unlimited taxation. A foreign national is subject to unlimited taxation in Switzerland if they either:

  • Effectively establish their home in Switzerland.

  • Remain in Switzerland without any significant interruption for at least 30 days with employment activity (or for at least 90 days without employment activity).

In these instances, the foreign national is a Swiss tax resident subject to Swiss federal, cantonal and communal income tax on their worldwide income, regardless of source. This includes income from gainful activities performed in Switzerland (except for income from enterprises, permanent establishments or real estate situated outside Switzerland). An exception applies to foreign nationals domiciled in a country with a double taxation treaty with Switzerland. Subject to the conditions in the applicable treaty, the foreign national who remains in Switzerland without any significant interruption for at least 30 days with employment activity (or for at least 90 days without employment activity) is subject to limited taxation only (see below).

Unless the foreign national is married to a Swiss national or a holder of residency permit C, or has been granted a residency permit C, the foreign national is subject to tax on employment income at source. If the annual total income (from employment subject to taxation at source) exceeds CHF120,000 per year, the foreign national must file a tax return. Income tax at source is credited against tax on income declared in the tax return.

Limited taxation. Non-Swiss tax resident foreign nationals are only subject to tax on income from performing a gainful activity in Switzerland (and certain other types of Swiss source income, for example, directors' fees). Non-resident foreign national workers are subject to income tax at source. Income tax at source is a final tax. The employee is not required to file a tax return.

An exception applies to foreign nationals domiciled in a country with a double taxation treaty with Switzerland who is assigned to Switzerland for no more than 183 days by an employer. Subject to the conditions in the applicable treaty, the employee's state of residence can continue to levy income taxes on dependent personal services rendered by the employee in Switzerland. In this case, Switzerland cannot impose income tax on the employment income.

Nationals working abroad

Swiss nationals working abroad who are not Swiss tax residents are not subject to Swiss income tax on employment income.

Swiss nationals working abroad who are Swiss tax residents working in a country with a double taxation treaty with Switzerland are, subject to the progression provision, usually exempt from income tax in Switzerland by the treaty. An exception applies if the Swiss national is assigned by their employer to a treaty country for no more than 183 days. Subject to treaty conditions, Switzerland can continue to levy income tax on income earned abroad. Under the progression provision, Switzerland applies progressive income tax rates, which are calculated on income earned worldwide by individuals who are Swiss residents, regardless of whether this income is in fact taxed in Switzerland or not.

The taxation of Swiss and foreign frontier workers is governed by international tax treaties and other special agreements. There are international treaties with provisions on frontier workers between Switzerland and neighbouring countries Germany, Italy and France (but not with Austria and Liechtenstein). Frontier workers are employees who, as a rule, commute daily between their place of residence in one state and their place of employment in another state. The international treaties often contain a more specific definition of frontier workers.

 
29. What is the rate of taxation on employment income? Are any social security contributions or similar taxes levied on employers and/or employees?

Rate of taxation on employment income

Income tax is imposed by the Swiss federation and the Swiss cantons and communes. The income tax rates vary from canton to canton, and within the canton from commune to commune. They are generally at progressive tax rates. For example:

  • Employees earning a gross annual income of CHF150,000 are subject to combined federal, cantonal and communal income taxes of between about 9.6% and a maximum of about 23.5% (depending, among other things, on domicile).

  • For gross annual income of CHF500,000, the income tax rate varies between about 15% and 33% (depending, among other things, on domicile).

These tax rates apply to a single taxpayer for the tax year 2013. The tax rates are subject to change.

Switzerland does not impose any other tax on employment income.

Social security contributions

Subject to social security agreements, respectively the bilateral agreements between Switzerland and the EU on the freedom of movement, remuneration an employee receives for performing work in Switzerland is generally subject to Swiss social security contributions. Social security liabilities arise at the same time as income tax liabilities. The following social security rates apply in 2013:

  • AHV (first pillar coverage of old age and survivorship): 8.4%.

  • IV (first pillar coverage of disability): 1.4%.

  • EO (coverage of salary payment in the case of military service and motherhood): 0.5%.

The total rate of 10.3% is shared by the employer and the employee (5.15% each).

Contributions to the second pillar (mandatory and non-mandatory coverage of old age, survivorship and disability (BVG)) may be due depending on the relevant insurance contract and regulations.

Wages up to CHF126,000 are also subject to:

  • Contributions for ALV (coverage of unemployment): 2.2%, shared equally by the employer and employee. Wages between CHF126,000 and CHF315,000 are subject to contributions at a rate of 1.0%. These contributions are also shared equally between the employer and the employee.

  • Mandatory accident insurance.

 

Bonuses

30. Is it common to reward employees through contractual or discretionary bonuses? Are there restrictions or guidelines on what bonuses can be awarded?

It is quite common for Swiss companies to pay variable compensations or bonuses that can be contractually owed or fully discretionary. Case law has evolved about the circumstances under which an intended discretionary bonus qualifies as fixed compensation which is contractually owed. It is not easy to define clear guidelines. Court decisions tend to look at the specific situation in each case and sometimes appear inconsistent.

Payment of discretionary bonuses over a period of time (usually in excess of three years) without explicit reservation confers on the employee a legal right to claim payment of a bonus. In addition, if a discretionary bonus makes up a substantial part of an employee's overall compensation, courts tend to hold that at least a portion of the bonus is contractually owed.

Currently there is a lot of political activity relating to excessive bonuses, paid mainly in the financial industry, aimed at imposing limits on bonus amounts or making them unattractive through increased taxation.

New provisions regarding the compensation of board and executive members of public companies listed on a stock exchange will soon enter into force (expected in January 2014). Based on these provisions, listed Swiss companies may need to amend their compensation regulations and partly insert them into their articles of association. The compensation will become subject to shareholder approval. Certain kinds of remuneration (severance pay, advance payments, transaction bonuses) will not be permitted, or will only be permitted under limited circumstances.

The Swiss Financial Market Supervisory Authority (FINMA) has issued a circular on the remuneration of employees of financial institutions. The circular contains a series of principles which must be observed for remuneration plans (deferred payment, vesting periods, clawback provision, and so on). The principles set out in the circular are mandatory for all employees of financial institutions with an equity capital over CHF2 billion.

Under the new Article 10a of the Statute on Banks (Bankengesetz), system-relevant banks must include provisions in employment agreements and/or benefit plans under which the legal right to variable remuneration and/or gratification could be curtailed in the case of state support being given to the bank. The new legal provision entered into force in March 2012.

 

Intellectual property (IP)

31. If employees create IP rights in the course of their employment, who owns the rights?

If the IP right has been created in the performance of the employee's duties, the IP right belongs to the employer by operation of law.

For IP rights created by an employee by coincidence, that is, not in performance of contractual duties, the employer has an option to acquire the IP right against payment of adequate compensation, where that is specifically agreed in the employment contract.

 

Restraint of trade

32. Is it possible to restrict an employee's activities during employment and after termination? If so, in what circumstances can this be done? Must an employer continue to pay the former employee while they are subject to post-employment restrictive covenants?

Restriction of activities

During the existence of an employment contract, the employee is prohibited from engaging in any competitive activity by operation of law.

Post-employment restrictive covenants

Swiss employment law (Articles 340, et seq, Code of Obligations) allows the employer and employee to contractually agree on post-employment non-compete clauses. Such agreements are only valid if they are made in writing.

However, there are restrictions, for example in terms of duration (maximum of three years) and geographical scope. In addition, these clauses are only valid if the employee has acquired knowledge of the employer's clientele and other confidential business information. Finally, in principle, the prohibition lapses if the employer terminates the employment relationship (though a restrictive covenant can be included in a termination agreement).

Non-competition clauses always require careful drafting, to ensure adequate enforceability and monetary compensation in case of breach.

 

Proposals for reform

33. Are there any proposals to reform employment law in your jurisdiction?

The only planned major reform proposals are a Bill to improve protection afforded to whistleblowing, which is pending in the Federal Parliament, as well as a proposal to limit the ratio between top and lowest salaries in the same business which will be submitted to a popular vote in November 2013.

The Swiss Government is reviewing a proposal to increase the retirement age for women from the current 64 years of age up to 65 years of age (the same age as for men).

As of 1 January 2014 the monthly amount of pension from the second pillar scheme is 6.8% for both men and women.

 

Online resources

Swiss Confederation – Collection of statutes

W www.admin.ch/ch/d/sr/sr.html

Description. Official website of the Swiss Confederation providing for all up-to-date statutes of Swiss law in German, French and Italian. A selection of statutes (including the Swiss Code of Obligations) is also provided in English, for guidance only (please click the "English" tab on the upper right hand corner).

Federal Tax Authority

W www.estv.admin.ch/

Description. Official website of the Swiss Federal Tax Authority providing information on federal taxes in German, French and Italian.



Contributor profiles

Thomas Müller

Homburger AG

T +41 43 222 10 00
F +41 43 222 15 00
E thomas.mueller@homburger.ch
W www.homburger.ch

Qualified. Switzerland, 1976

Areas of practice. Employment law; litigation and arbitration.

Recent transactions

  • Drafted employment contract for a top executive of a large telecommunications company.
  • Represented a multinational transport company in negotiations relating to the dismissal conditions of the CEO.
  • Advised a large pharmaceutical company on issues in connection with a stock option plan.

Peter Müller

Homburger AG

T +41 43 222 10 00
F +41 43 222 15 00
E peter.mueller@homburger.ch
W www.homburger.ch

Qualified. Switzerland, 1999

Areas of practice. National and international tax law; social security law.

Recent transactions

  • Cross-border immigration of a reinsurance group from abroad to Switzerland.
  • Cross-border merger of a foreign industrial company with a Swiss industrial company.
  • Setting up a Swiss principal company structure of a foreign pharmaceutical multinational.
  • Acquisition of a Swiss industrial company and integration into the buyer group.
  • Cross-border migration of Swiss entities from Switzerland to abroad.

Nina Rabaeus

Homburger AG

T +41 43 222 10 00
F +41 43 222 15 00
E nina.rabaeus@homburger.ch
W www.homburger.ch

Qualified. Switzerland, 2007; New York, US, 2010

Areas of practice. Employment law; litigation and arbitration.

Recent transactions

  • Advising multinational clients on transfers of businesses and mass layoffs.
  • Advising international clients relating to the drafting of employment agreements for, and termination of employment of, senior managers.
  • Representing international clients before labour courts in Switzerland.

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