Termination of employment in Switzerland

Termination indemnities to be paid in the case of the termination of the employment contract by the employer - how and when can an employer terminate an employment contract with indemnities?
Employment contracts for a definite duration or a specific task

If an employment contract has been concluded for a specific term or for the performance of a specific task, it terminates without notice at the end of that term or upon fulfilment of the task, unless the employment contract is continued. In the latter case, the employment contract becomes a contract for a indefinite period (see paragraph 2 below).

Irrespective of the fixed duration of the employment contact, the parties to the contract are free to agree upon immediate termination of the contract at any time. This often happens on the initiative of the employer who must pay an indemnity equalling the amount of the employee's salary (and corresponding social security payments) for the time until termination would have become effective plus (if applicable) the payment of compensation for performed overtime , which may amount to significant numbers.

Employment contracts for an indefinite period
If an employment contract has no specific term, either the employer or the employee may terminate it at will (see exceptions in chapter II/1 below) by giving notice of termination, whilst the minimum notice period to be observed varies according to the previous duration of the employment relationship, i.e.:

• if the contract has been in force for less than one year: one-month notice period at the end of the calendar month;
• if the contract has been in force for one year or more, but for less than ten years: two-months notice period at the end of the calendar month;
• if the contract has been in force for ten years or more: three-months notice period at the end of the calendar month.

The employment contract or a collective bargaining agreement may alter these rules, provided that there are not different notice periods for employer and employee and that the notice period is not reduced to less than one calendar month (Art. 335c of the Swiss Code of Obligations; CO). Furthermore, based on social policy concerns and in the public interest, the employer must observe certain waiting periods, during which the employer cannot validly serve notice of termination. Such waiting periods apply in the following special situations (Art. 336c CO):

• During compulsory military or civil defence service or Red Cross service lasting more than 12 days, and during a period of four weeks before beginning and after the end of service;
• in the case of full- or part-time absence from work due to illness or accident, as long as the employee is not at fault for the illness or for the accident (in the first year of employment up to 30 days; from the second to the fifth year of employment up to 90 days; and from the sixth year of employment up to 180 days);
• during pregnancy and 16 weeks after the employee has given birth to child;
• during foreign-aid service in which the employee participates with the consent of the employer, and where the competent federal authorities have ordered the service.

Any notice of termination given by the employer during these waiting periods is void. Any notice given prior to the respective period is effective, but once the special situation has occurred and for the period it lasts, the running of the applicable notice period is suspended.

As with an employment contract for a definite period or for a specific task (see paragraph 1 above), the parties are basically free to agree upon immediate termination of their employment contract at any time. But such termination agreements are only enforced by the courts to the extent they do not violate the above mentioned mandatory rules on waiting periods, on abuse of right of termination (see chapter II/1 below) or seek to restrict an employee's inalienable indemnity rights in case of unjustified immediate or early termination (see paragraph 4 below).

Trial period clause

The employment contract (or collective bargaining agreements) may contain a clause which defines a trial period of up to a maximum of three months, in which the employment contract may be terminated by either party at any time with a notice period of 7 days. If the employment contract does not provide for a trial period, the CO presumes that the first month of the employment relationship be the trial period, unless the employment contract explicitly excludes the possibility of a trial period . In the case where a trial period is interrupted due to illness, accident, or the performance of a legal duty that is not voluntarily assumed, the trial period is prolonged correspondingly.

For immediate termination of the employment contract during its trial stage upon mutual agreement of the contractual parties, the rules regarding early termination of employment contracts for an indefinite period apply (see paragraph 2 above).

Termination in case of serious cause

The employer as well as the employee may terminate the employment contract without advance notice (i.e., with immediate effect) if there is a "serious cause" (Art. 337 CO). A serious cause is any circumstance under which the terminating party can (pursuant to the principle of bona fides) no longer be reasonably expected to continue the employment relationship with loyalty and trust. Since the CO itself refers to "the judge" who shall decide at his own discretion whether such circumstances exist, one has to refer to the numerous Article 337 CO-decisions of lower Swiss labour courts and the Swiss Federal Supreme Court to get specific examples of which acts of the parties constitute "serious cause." Examples of such acts by the employee may be criminal offences (theft, embezzlement, fraud, etc.), or other intolerable acts such as insults or gross dishonesty, entering into competition with the employer, repeated severe failure to perform requested work or to be present at work etc.

If there is no serious cause and the employer dismisses an employee with immediate effect or before the notice has become effective, the employee has a claim for compensation of what the employee would have earned if the employment contract had been terminated by observing the notice period or until the expiration of the fixed duration or the performance of the specific task. The employee, however, must set this off against the corresponding amount that he saved because of the early termination of the contract, or what he earned or intentionally failed to earn from other work. On the other hand, the judge, at his or her free discretion, may also condemn the employer to pay the employee an extra indemnity up to a maximum amount of the employee's salary for six months. Such indemnities which contain a penal element (although the U.S. concept of punitive damages does not exist in Swiss contract and torts law) are only awarded, if they are warranted by the circumstances such as when the employer acted in bad faith.

Special indemnities
Abuse of right

Although, subject to termination periods and waiting periods as set forth in chapter I/2 above, an employment contract for an indefinite period may basically be terminated by either party at will, the CO defines certain grounds based on which termination is considered abusive (see CO Art. 336) and triggers indemnity sanctions. Termination by the employer is considered abusive, if it is based on the following grounds:

• Because of a personal characteristic of the other party (e.g. gender, race, age), unless that trait is severely impairing the employment relationship;
• because the other party exercises a right guaranteed by the Swiss Federal Constitution (e.g. religion or membership in a political party) unless the exercise of this right violates an obligation of the contract of employment or is seriously prejudicial to the work climate;
• to prevent the other party from filing claims arising out of the employment relationship (e.g. a claim for a bonus payment);
• because the other party asserts, in good faith, claims arising out of the employment relationship;
• because the other party is discharging compulsory military service, civil service, women's military service, Red Cross service or a compulsory statutory duty (e.g. appearing as witness in a court proceeding etc.);
• because of the employee's affiliation, or non-affiliation, with a union, or lack thereof, or because he or she performs work for a union;
• while the employee is an elected representative of an employee or a labour organisation, unless the employer proves grounds for notice; or
• when the employer has not respected the procedure of consultation in case of collective dismissal (see paragraph below).

If an employer abusively gives notice of termination of the employment contract, the employer has to pay the employee an indemnity up to a punitive maximum amount of six months' salaries (Art. 336a CO). In order to state his indemnity claim, the employee must give written notice to the employer before the end of the applicable notice period. If the parties cannot agree on a continuation of the employment relationship, the employee must then file legal action against the employer within 180 days after the employment relationship has ended, in order to state his indemnity claim. If the 180 days period expires without legal action being taken, employee's indemnity claim against employer forfeits (Art. 336b CO).

Clientele (customer/client) indemnity

Swiss employment law does not provide for any indemnity for the employee upon termination of his employment contract, even if the employee has substantially increased the employer's clientele. The main reason for the lack of such indemnity rights is that the employee has a fixed salary and bears no reciprocal entrepreneurial risk which would warrant a mandatory pecuniary participation in a larger clientele of the employer. Mandatory compensation for clientele is only provided for in the Swiss law on agency contracts, under which the agent bears such entrepreneurial risk, since the agent is only entitled to a commission which depends on the agent's success in procuring new business for its principal.

Non-competition clause

The employee may bind himself in writing to the employer to refrain from engaging in any competitive activity after termination of the employment relationship, in particular neither to operate business for its own account which competes with the employer's business, nor to work for nor to participate in such a business (Art. 340 et seq. CO) . A non-competition clause is only binding, if the employment relationship gives the employee access to customer data or to manufacturing, trade or other business secrets and if the use of such information could significantly damage the employer. The prohibition shall be reasonably limited in terms of place, time (the prohibition may exceed three years only under special circumstances) and subject matter, in order to avoid unreasonable impairment of the employee's economic prospects. Excessive non-competition clauses are subject to limitation by the courts.

If the employee breaches the non-competition clause, it shall compensate the employer for all damages arising therefrom. If the non-competition clause contains a provision on liquidated damages or a contractual penalty, the employee may free itself from the prohibition by payment of the corresponding amount, but remains liable to the employer for any damages not covered by this payment. In order to achieve maximum protection of the employer's interest, the non-competition clause may even stipulate that the employee may, in addition to liquidated damages or penalties and in addition to compensation of further damages, request specific performance , i.e. obtain injunctive relief against the employee by means of a court order to refrain from any present and future competing activities (Art. 340b CO). Such comprehensive protection of employer's interests, however, must not be disproportionate to the opposing economic interest of the employee and may be limited by the court.

Protected workers

Swiss employment law does not provide for special rules on the protection of certain workers against dismissal. Rather than addressing this issue through intricate legislation, it is dealt with in collective bargaining agreements between workers' unions and a single employer or an employer's organisation.

Collective dismissals

Art. 335d CO defines "collective dismissals" as notices of termination in enterprises given by the employer within 30 days for reasons unrelated to the person of the employee and which affect:

• at least 10 employees in enterprises usually employing more than 20 and less than 100 persons;
• at least 10% of all employees in enterprises usually employing more than 100 and less than 300 persons;
• at least 30 employees in enterprises usually employing at least 300 persons.

If the employer plans a collective dismissal, it shall consult with any workers' council or, if there is none, with the employees (Art. 335f CO). The employer should give them at least the possibility to make suggestions on how to avoid the dismissals or to limit the number of dismissals and to alleviate there consequences. The employer shall provide all pertinent information to the workers' council or to the employees. The employees must be informed in writing on the reasons for the collective dismissal, the number of employees to be dismissed, the number of persons usually employed and the time period within which the notification of the dismissals is to be given. The employer shall also send a copy of the notification to the cantonal labour office (Art. 335g CO). Furthermore, the cantonal labour office has to be provided with all pertinent information on the planed collective dismissal. If notice of termination of the employment relationship has been given in connection with a collective dismissal, it shall end 30 days after notification of the planned collective dismissal to the cantonal labour office, unless the termination will become effective at a later time in accordance with contractual or legal provisions.

Violation of the above procedural rules by the employer constitutes abusive termination of the affected employment relationships (see paragraph 1 above) and entails liability of the employer up to a two-months salary for each of the abusively terminated employees (Art. 336a CO).

Early retirement

After retirement age (65 for men and 63 for women), every individual having his domicile in Switzerland (i.e., irrespective of his nationality) receives a pension under the public Swiss Old-age Insurance as well as additional benefits from compulsory employee pension plans (administered by private or public foundations), under which all employers employing individuals in Switzerland must insure their employees. The amount of the respective benefits , which are paid on a monthly basis until death of the insured person, depends on the number of years of paid-in mandatory premiums prior to retirement, whilst minimum monthly pensions are guaranteed by the government.

Under both the Swiss Old-age Insurance and compulsory (as well as under optional) employee pension plans, retirement before reaching the above mentioned retirement age is possible (under the Swiss Old-age Insurance, however, benefits are not paid out earlier than two years before the statutory retirement age of 65, respectively 63 years). In this case, the monthly benefits are reduced in proportion to the number of years of early retirement. Compulsory and optional pension plans normally contain complex formulas for the calculation of early retirement benefits.

Intellectual property

Inventions (regardless of their legal protection) made by the employee while performing his employment duties, belong to the employer (Art. 332 CO). The employer may, by written agreement, reserve his rights to acquire any inventions that are invented by the employee while performing his employment activity, but not during the performance of his contractual duties. The employee who makes an invention while performing his employment activity, but not during the performance of his contractual duties, shall inform the employer in writing about this. The employer shall then inform the employee in writing within six months whether he wishes to acquire the rights to the invention or whether he releases them to the employee. If the invention is not released to the employee, the employer shall pay appropriate compensation which shall be determined by taking into account all circumstances, such as the economic value of the invention, the employer's participation, the use of his staff and operational facility, as well as the employee's expenses and his position in the enterprise.

For further information, please contact Christoph Vaucher at [email protected] or on +41 1 285 11 11

Click the links below to read about the termination of employment in other jurisdictions:

Austria
Belgium
England and Wales
Germany
Italy
The Netherlands
Spain