Practice Area Articles
Switzerland
February 05, 2024
By Paul Hastings Professional
Back to International Employment Law
KEY DEVELOPMENTS FOR 2024
Flexible collaboration
In some sectors, employers are increasingly unable to find well-qualified workers within Switzerland, even after exerting significant patience. However, choosing the best form of engagement with a candidate in each case has presented employers with difficulties. Collaboration with an employer of record is certainly possible in Switzerland. However, it should be noted that this form of engagement qualifies as staff leasing. As a result, regulatory requirements must be considered, otherwise sanctions may be imposed. Using independent contractors is another option that is often explored further. However, this is only recommended if the individual is truly independent. A careful legal analysis regarding labour law, social security, taxes, and immigration law is essential for employers to undertake in order to mitigate issues.
New data protection law
On 1 September 2023, the revised Swiss Federal Act on Data Protection (“FADP”) entered into force. The FADP regulates various new obligations for companies regarding data processing and provides for stricter sanctions in the event of breaches of obligations. The introduction of both the formal duty to inform and the newly applicable duty to keep a register of processing activities mean that employers must firstly become aware of which personal data they process in connection with job advertisements and employment relationships, so that they can secondly fulfil their duty to inform the persons concerned to the extent determined by law. In existing employment agreement templates, personnel regulations and employer instructions, companies should check whether the data protection provisions contained therein are compliant with the revised FADP or whether the aforementioned documents may need to be amended.
Judicial developments surrounding termination matters
Under Swiss law, employers have freedom to terminate contracts. However, if the employee is dismissed for incorrect reasons, this results in a compensation payment. In practice, if the employer terminates without notice, the question often arises as to whether the high threshold of justification for termination for just cause has been reached. Recent case law has indicated that the employer must not only prove that there is a good reason which makes it unreasonable to continue the employment but must also act immediately (usually within two to three days). If several employees are affected by a dismissal for economic reasons rather than individual dismissals, a specific collective redundancy procedure must be carried out and, under certain circumstances, a social plan must be negotiated. A large number of collective redundancies are expected to occur in 2024 as a result of the reorganisation of many companies in the wake of the Covid-19 crisis.
KEY DEVELOPMENTS FOR 2023
New bill for paid adoption leave
From 1 January 2023, employed persons who take in a child under the age of four for adoption will be entitled to adoption leave. The two-week leave will be financed through the income compensation scheme (EO). As in the case of maternity and paternity allowances, the adoption allowance amounts to 80 per cent of the average earned income before the adoption, but not more than 196 Swiss francs per day. Adoption leave must be taken within the first year of adoption. No compensated leave is provided for parents who adopt their partner’s child (stepchildren).
To be eligible for the two-week leave, the adoptive parents must be employed or self-employed at the time the child is adopted. The adoptive parents must have been insured with the Swiss social security scheme during the nine months immediately preceding the adoption of the child and must have been gainfully employed for at least five months during this period.
Employers should update their employment regulations.
Implementation of new data protection law
Switzerland is implementing new legislation on data protection. Swiss companies will have to comply with this legislation from 1 September 2023. The Swiss Federal Act on Data Protection (“FADP”) has been completely overhauled to ensure that the population has adequate data protection adapted to the technological and social developments of our time.
The new FADP should also make it possible to maintain the free flow of data with the European Union (“EU”) and thus avoid a loss of competitiveness for Swiss companies. Companies that have already complied with the EU General Data Protection Regulation (“GDPR”) will have minimal changes to make.
Employers should ensure they comply with the new rules.
Flexible work arrangements
Employers are under increased pressure to offer flexible working arrangements, as hybrid models allowing employees to work partially from the office and remotely have become increasingly popular. Swiss statutory law does not provide clear guidance in terms of remote working / working from home. Hence, it is largely up to the employer and employees to agree on the applicable terms and conditions.
Not only in terms of work location, but also regarding working time arrangements, there is an increased trend towards more flexibility. Popular employee demands include part-time work, job-sharing and “flextime” models, which may include a yearly target working time, allowing employees to define their working hours over a particular year and compensate additional working hours on a rolling basis, to the extent compatible with the employer’s legitimate business needs.
Employers should ensure offering flexible arrangements to the extent compatible with the business needs to keep the workforce happy and to remain competitive in the war for talents.
KEY DEVELOPMENTS FOR 2022
Scrutiny on gender equality
In Switzerland, in-equality issues (particularly gender equality) are widely discussed in public. In terms of salary, there is still a considerable gap between male and female employees that can only, to a certain extent, be attributed to "objective" factors, such as experience or education.
Based on a recent revision of the Federal Act on Gender Equality, employers with at least 100 employees were required to conduct a wage equality analysis by 30 June 2021 in order to detect potential discrimination between male and female employees. Employers that have completed the wage equality analysis are also required to have the results audited by a qualified specialist. Further, employers are obliged to communicate the outcome to the employees within one year after completion of the analysis. Publicly listed companies are further required to disclose the results in their annual report, i.e. inform their shareholders.
If the wage analysis reveals gender pay gaps that cannot be explained on objective grounds (e.g. a difference in role or performance), employers are required to repeat the analysis within 4 years. No direct sanctions are triggered for employers if the gender equality analysis reveals a pay gap. However, there are considerable reputational risks involved. Further, the outcome of the wage equality analysis could also serve as a basis for individual discriminatory complaints/lawsuits of certain employees.
Employers should take the appropriate measures to provide for equal pay and take action (e.g. through a wage equality analysis) if gender pay gaps become apparent.
Scrutiny on excessive management compensation
Since the global financial crisis starting in 2007, excessive management compensations have been widely criticized. In 2013, the popular initiative "against rip-offs" was approved by the Swiss voters. Subsequently, the ordinance "against excessive compensation within publicly listed companies" was introduced. As of 2022, as part of a wider corporate law reform, such provisions will be transferred to the Swiss Code of Obligations and further strengthened.
In substance, shareholders of publicly listed companies are granted a "say on pay" with regard to management and board member remuneration. Further, particular types of compensation are entirely forbidden (for example: golden parachutes, advance payments, premiums for buying or selling businesses, etc.). A cap also applies with regard to compensations for post-contractual non-compete undertakings.
Publicly listed employers are bound by such statutory compensation rules. Breaches carry a penalty. Therefore, compliance of certain compensation elements should be carefully assessed in advance. Companies that are not publicly listed should also monitor the developments in the area of "say on pay" and may wish to consider assessing their remuneration model in light of the potential reputational risks involved with excessive compensation granted to management employees.
Increased pressure on employers to provide for flexible working arrangements
The Swiss workforce is generally looking for more flexibility at the workplace, particularly in relation to working time and working location (working from home / remote working). The pressure on employers to provide for flexible working arrangements is increasing. Popular demands from employees include part-time work, "flextime"-models (e.g. defining a yearly target working time, allowing for flexibility in terms of compensation during the year), working from home / remotely, and even job-sharing.
A parliamentary motion is pending, demanding that a uniform legal basis for working from home be created. The intention behind this is not to grant an enforceable right for employees to work from home but instead to encourage employers and employees to enter into a mutual "working from home agreement" which would set out further details in this regard.
On a more general basis, the provision of the Swiss Labour Act, particularly with regard to working time and rest periods, are increasingly being challenged and deemed outdated. It is to be expected that revisions will be introduced at some point in the future.
Employers should review and potentially update their existing policies on working time to provide more flexibility, to the extent possible under the current legal rules. With regard to remote work, it is advisable to either provide for a policy and/or enter into individual agreements with employees which sets out the applicable terms and conditions. A clear framework is particularly essential for instances of cross-border remote working, to avoid any unwanted tax and/or social security implications.
KEY DEVELOPMENTS FOR 2021
Introduction of paternity leave from 1 January 2021
On 27 September 2020, Swiss voters accepted the popular initiative on the amendment of the Federal Act on Income Compensation of 25 September 2020, leading to the introduction of a paternity leave of two weeks (10 working days) as of 1 January 2021.
Up to this point, there was only a statutory entitlement of employees to maternity leave, but no statutory entitlement to paternity leave in Switzerland. In some instances, collective bargaining agreements already provided for paid paternity leave. Further, some employers offered such benefits on a voluntary basis, as part of the individual employment agreement.
However, with effect from 1 January 2021, any male employee in Switzerland is entitled to paid paternity leave, provided he:
- is the legal father at the time of the birth of the child or will be declared as such within six months from the birth. Pursuant to Swiss law, the status of "legal father" to a child requires either marriage to the mother, acknowledgment of the fatherhood or a court decision. Adopting a child does, however, not trigger the entitlement to paternity leave;
- has been insured with the Swiss old‑age pension and disability insurance during the nine months immediately prior to the birth of his child and has pursued gainful employment for at least five months during this nine‑month period; and
- is employed or self‑employed at the time of the child's birth; or
- receives daily insurance allowances because of unemployment, sickness, accident or invalidity.
The above requirements for paternity leave are mostly in line with the conditions for maternity leave.
If the conditions are met, paternity leave must be taken within six months following the birth of the child. Otherwise, the entitlement lapses without substitution. The two weeks of paternity leave can either be taken at once or be divided into several short instalments.
During paternity leave, the employee is entitled to receive state benefits of 80% of the employee's average gross salary, up to the maximum daily rate of CHF 196, which also applies with regard to maternity benefits.
Paternity and maternity leave are both financed through the premiums of the income compensation insurance. In order to cover the costs of the paternity leave, the premiums of such insurance will be increased from 0.45 to 0.50 salary percent in order to cover the costs of the newly introduced paternity leave. Employers and employee each cover 50% of the premiums.
While statutory Swiss law provides that the employer may not terminate the employment relationship with female employees during their pregnancy and within 16 weeks after they gave birth, paternity leave does not trigger any such protection against termination of employment.
Paid leave to care for relatives or children
In order to improve the compatibility of gainful employment and caretaking responsibilities with regard to family members or spouses who suffer from health issues, the Swiss legislator has decided to partially amend the CO by introducing paid care leave for employees.
Since 1 January 2021, employees are entitled to take (general) paid care leave in order to look after a sick family member or spouse. Care leave is limited to three days per year of service and medical reason, i.e., in case of ongoing health problems, the employee is only entitled to go on paid care leave once, for the duration of up to three days. However, the total yearly care leave entitlement of employees amounts to 10 days per year. Hence, an employee could, for example, use these days to take care of their sick child, father and spouse in the course of one year of service.
Further additional provisions of the Swiss Code of Obligations include governing the employee's entitlement to paid care leave of up to 14 weeks in order to take care of children who are seriously ill or have been in a serious accident. Such qualified care leave is to be taken within a framework‑period of 18 months. Further, a protection against termination of employment applies. After the probationary period has lapsed, the employer must not terminate the employment relationship as long as the employee is still entitled to take qualified care leave. However, such protection lasts for a maximum duration of six months as from the first day of qualified care leave in a given period.
Social security — possible continuance of Occupational Benefit Plan
The current rules on occupational benefit plans provide that employees above the age of 58 are automatically dismissed from the applicable pension scheme in the event of a termination of their employment relationship. Hence, such employees need to transfer their retirement assets to a vested benefits account, which offers less favourable conditions for the relevant employee in case of retirement. Among other things, it is only possible to receive a lump‑sum payment of the entire pension assets in case of retirement, whereas occupational benefit plans also grant the option of choosing pension payments in monthly instalments.
In order to provide for better financial protection of older employees who lose their jobs and treat them, from a pension point‑of‑view to some extent, like individuals who are continuously employed, certain changes to the Federal Act on Occupational Retirement, Survivors' and Disability Pension Plans are introduced.
As from 1 January 2021, employees over 58 who become unemployed (not by choice) can remain subject to the applicable pension scheme. Occupational benefits providers, on the other hand, are obliged to continuously offer insurance to such employees in the previous extent. The employee's last insured salary forms the basis for such insurance. While the employee is not per se obliged to make additional contributions to his/her retirement assets in such a scenario, the contributions to cover the premiums to insure the risks of the death and invalidity as well as part of the administrative costs remain due.
KEY DEVELOPMENTS FOR 2020
Requirement to register job vacancies
As of 1 July 2018, employers are legally required to register job vacancies with the regional employment centre (RAV) in professions where the national unemployment rate is at least 8%. Job vacancies are also subject to the registration requirement if recruitment is carried out through an employment agency or head hunter.
This reporting obligation intends to better utilise the potential of the domestic workforce. Once a job vacancy has been registered, it must be exclusively published for five working days on an online job portal that is only accessible to jobseekers registered with the RAV before it can be advertised elsewhere. This is to allow the jobseekers registered with the RAV to be the first ones to be informed about vacancies in occupations with high unemployment. It also enables the RAV to provide employers with a list of suitable candidates.
The State Secretariat for Economic Affairs (SECO) has issued an initial report on compliance with this requirement, which shows that employers have been performing their duties conscientiously. The report indicates that the number of registered jobs has increased dramatically and has stabilised at a high level since the job registration requirement was introduced.
As of 1 January 2020, the occupation-specific unemployment rate threshold for job vacancy reporting obligations has been lowered from 8% to 5%. In addition, the Federal Council has revised the scope of the professions and refined the list of the types of professions concerned, which in turn has led to greater clarity for employers.
Obligation to conduct an equal pay analysis
In order to eliminate the existing gender pay gap, the Federal Act on Gender Equality of 24 March 1995 ("GEA") has recently been amended to include a new section containing additional Government measures to enforce the right for male and female employees to be paid equally. The amendment to the GEA came into force on 1 July 2020 and will be valid until 30 June 2032.
In light of the amendment to the GEA, employers with 100 or more employees (including part-time and fixed-term employees, but excluding apprentices) are obliged to conduct an internal equal pay analysis. The analysis must be carried out according to a scientifically and legally compliant method.
The first equal pay analysis is due by 30 June 2021 and employers are required to inform their employees in writing of the result of the equal pay analysis within one year of completion of the review. Companies listed on a stock exchange are obliged to publish the result of the analysis in the notes to their annual report and accounts.
The amendment to the GEA does not provide for any sanctions or mandatory measures in the event of a breach of the obligation to analyse wage equality, or if a gender-specific pay gap is established - the employer is only obliged to carry out the equal pay analysis again after four years.
Increase to Social Security contribution rates
The Swiss Social Security system is based on three pillars that support the old-age, survivors and invalidity pension scheme:
- The first pillar - old age, survivors, and invalidity insurance - is a general compulsory insurance which aims to cover basic living costs.
- The second pillar is the occupational benefit plan, which, together with the first pillar, aims to ensure that individuals who are insured can maintain their previous standard of living.
- The third pillar consists of voluntary individual provident measures.
The benefits paid out by the different social security funds are primarily financed by contributions levied on income.
As the Federal Tax Reform and Social Security Financing Act (STAF) came into force on 1 January 2020, old age and survivor's contributions under the first pillar have been increased for the first time in more than 40 years. As employers and employees continue to share the contributions equally, employers are allowed to deduct the employees' shares from the gross salary payments.
KEY DEVELOPMENTS FOR 2019
Job registration requirement
Since 1 July 2018, employers are legally required to register job vacancies with the regional employment centre (“RAV”) in professions where the national unemployment rate is at least 8%. On 1 January 2020, this threshold will be lowered to 5%.
Job vacancies are also subject to the registration requirement if recruitment is carried out through an employment agency or head-hunter. After registration, the relevant job has to be exclusively published for five working days on an online job portal that is accessible only to jobseekers registered with the RAV before it can be advertised elsewhere.
This should enable jobseekers registered with the RAV to be informed first about vacancies in occupations with high unemployment.
Bonus case law
The Federal Supreme Court dealt with many bonus claims in 2018 and took this as an opportunity to clarify the differentiation between bonuses as voluntary gratification payments and (involuntary) actual salary components.
While a basically discretionary gratification can be re-qualified as a salary component for employees with a low or middle/high income, if such bonus is not an accessory to the base salary, there is no such requalification for employees with a very high income. This is justified by the fact that an employee with a lower income needs more protection than an employee who already earns five times the median salary.
It is expected that this case law will be consolidated or also re-considered in the future on the basis of further cases. In 2019 and beyond, Swiss courts will be dealing with the distinction between employees and self-employed persons (or contractors) and create more clarity in this regard.
Revision of Swiss Federal Act on data protection
Swiss federal and cantonal law on data protection is currently under revision. The European General Data Protection Regulation (“GDPR”) will be autonomously implemented into Swiss law. The proposed amendment to the Swiss Federal Act on Data Protection will demand greater transparency in data processing and control mechanisms and heavier sanctions for non-compliance. The proposed amendment is currently with Parliament and is expected to be enacted in 2020.
KEY DEVELOPMENTS FOR 2018
Mass Immigration Initiative
From July 2018, employers are obliged to notify public unemployment agencies of job vacancies in professions with a Swiss-wide unemployment rate of more than 8% (as from 2020: 5%). The unemployment agencies can then provide employers with the C.V. of job seekers, who have to be invited for an interview provided they are suitable for the job. The new provision introduces a form of “priority” for people registered with public unemployment agencies over foreigners. It remains to be seen, however, whether the new regime will prevail.
International Assignments within Groups of Companies
The Swiss Federal State Secretariat for Economic Affairs (“SECO”) has tightened the practice of leasing personnel between companies of a group. Intragroup personnel leasing now requires a license issued by the State.
Data Protection / GDPR
On 25 May 2018, the new EU General Data Protection Regulation (“GDPR”) will enter into force. Although Switzerland is not in the EU, the GDPR may directly apply to Swiss companies with affiliates or branches in an EU country due to the extraterritorial reach of the GDPR. The provisions may also apply to Swiss companies that provide employment related services to companies in the EU (e.g. HR-related IT applications).
The Swiss Data Protection Act is currently under revision and the many provisions of the GDPR will likely be implemented into the new Swiss Data Protection Act.
KEY DEVELOPMENTS FOR 2017
Mass Immigration Initiative
In February 2014, Switzerland adopted the so-called “mass immigration initiative”, obliging Swiss parliament and government to implement stricter rules on immigration into Switzerland. The limitations imposed by the initiative are generally considered to be inconsistent with the free movement of persons between Switzerland and the EU. The initiative sets a deadline of three years for its implementation, meaning that it should be implemented by February 2017. The Swiss parliament is currently debating proposals as to how the initiative can be achieved, e.g. priority of Swiss nationals or residents when new vacancies are filled. It remains to be seen whether a political consensus can be achieved and what effect such solution will have on the relationship between Switzerland and the EU. A further vote regarding the abolishment of the limitations imposed by the “mass immigration initiative” in 2014 is, however, anticipated.
KEY DEVELOPMENTS FOR 2016
New exceptions to avoid / simplify the record keeping obligation
Since 1 January 2016, new exceptions allow employers in certain cases to avoid or simplify employee record keeping obligations in relation to employees who have the ability to schedule their own working hours. However, there are strict additional conditions which must be met for these reduced obligations to apply.
Protection of older employees against dismissal
Under Swiss law, an employer is generally free to make employees redundant without having a specific reason (“freedom to give notice”). However, terminating an employment relationship for abusive reasons (which are defined narrowly), can result in compensation payments. Recent case law shows a tendency to better protect older employees who have significant periods of service. In these cases, before such employees are made redundant, an employer has to check whether a notice of termination can be avoided, e.g., by reassigning the employee to a new position within the organisation. If the employer fails to do so, the notice of termination is likely to be deemed ‘abusive’, potentially resulting in a compensatory penalty of up to six months’ pay.
Increase in the maximum salary covered under the accident insurance scheme
As of 2016, the maximum salary insured under the accident insurance scheme has been increased from CHF 126,000 to CHF 148,200. That figure is not only important in accident insurance itself, but serves also as an important benchmark in other social insurances (such as unemployment insurance) and under certain employment law provisions (e.g., regarding the hiring out of employees). Under Swiss law, many relevant social insurances (accident and unemployment insurance as well as old age and survivors’ insurance and occupational pension plans etc.) are linked to the employment relationship. It is the employer’s duty to deduct the employee’s share of the respective contributions and to transfer such share with its own contributions to the respective authorities and insurance institutions.
Improved coverage of short-time work
If an employer is not able to fully occupy all employees for economic reasons for a limited period of time, employees may apply for short-time work benefits from the unemployment insurance. Taking into consideration economic difficulties (especially for export businesses), the Swiss government has decided to implement an improved coverage of short-time work.
New bonus-related leading cases
There are no specific provisions applicable to bonus payments under Swiss statutory employment law. Depending on the circumstances of the specific case, a bonus may either be qualified as salary or ‘gratification’ (which is discretionary). This distinction has numerous legal implications, and in the course of 2016, the Swiss Supreme Court decided several cases which addressed whether and to what extent very high bonus agreements may be qualified as a discretionary gratification. However, there remains ambiguity which is likely to be the subject of further litigation and clarification by the courts.
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