ASK THE EXPERT: Employment Law for Start-ups Scaling Teams Across Europe, Switzerland

In the second instalment, we head to Switzerland, to find out the key legal topics from an employment law perspective that software start-ups should be thinking about, focusing on hiring, managing, and dismissing employees under varying labour laws.

Do I need a Swiss entity to hire people in Switzerland?

No. You do not need a legal entity in Switzerland to employ people. It is possible to hire staff from a legal entity incorporated in other jurisdictions.

Do I need to register as an employer?

You will need to register the legal entity or branch only if it is domiciled in Switzerland. A

registration for social security purposes might be required on a case-by-case basis.

What must I consider regarding insurance?

Employing employees subject to the Swiss social security system will lead to obligations vis-à-vis the social security authorities in Switzerland. As an employer you will in general need to contribute to the social security charges of your employees. Typically, the foreign company would register directly with the social security authorities and transfer the total contributions, while the employee portion is deducted from the gross salary. Under certain circumstances, the administrative duties can be transferred to the employee, while the liability remains with the employer.

In addition, you will need to insure your employees against occupational accidents and fully cover the insurance premiums. Employees working more than eight hours per week will also need to be insured against non-occupational accidents, whereby the respective premium fees are in principle fully borne by the employee by way of salary deductions.

Also, you will need to affiliate with a pension fund and enroll employees earning more than

CHF 22,050 per annum in this pension fund solution. The contributions are set forth in the

individual pension fund regulations, whereby statutory law sets certain minimums. The employer must bear at least half of the costs.

What kind of employment relationships are possible in Switzerland?

It is possible to employ an individual on a part-time or full-time basis or even just on-demand. An employment contract can be entered into for a fixed or an unlimited period. It is also possible to hire staff through an employer of record.

Is there a minimum wage?

Certain cantons provide for a minimum hourly wage between CHF 17 and CHF 24. In addition, collective bargaining agreements can provide for minimum wages. With regard to the software industry, there is to date no collective bargaining agreement which has been decreed generally binding.

Can I carry out background checks on a potential employee?

Yes, but within certain boundaries. There is no general right of the employer to conduct unlimited background checks. Hence, general online screenings (e.g., of private social media accounts of job candidates/employees) are generally not permissible, unless for example, a job candidate would voluntarily include a link to his/her social media profile in the application documents and/or explicitly give permission to the employer access such information. Checking publicly available information on business-oriented social media profiles (for example, on platforms such as LinkedIn or XING) is less problematic from a Swiss law perspective, as the information available on such profiles is usually published for business purposes and possibly also directed at future employers.

Generally, the employer may only gather personal employee data to the extent such data relate to the employee's suitability for a certain job or is necessary of the performance of the employment agreement. Typical background checks include (i) criminal history, (ii) financial situation / debts, (iii) education and (iv) employment history

Will I be able to get a reference from the employee's former employer?

In Switzerland, reference letters are common and usually handed in by the applicant when

applying for a job. A job candidate is, however, neither obliged to provide a reference letter nor may the former employer provide a verbal reference to a potential employer if the job candidate does not allow him to do so. If you would like to obtain more insights on the job candidate's previous performance, it is best to obtain prior permission.

Do I need to provide a written contract? If so, what should it contain?

The validity of an employment contract is in principle not contingent upon a written agreement. An employment contract can also be concluded on a mere verbal basis. However, certain aspects will need to be agreed upon in writing to be binding – notably, this is the case regarding post-contractual non-compete and non-solicitation clauses or if the employee shall not be compensated for extra hours. Further, certain aspects on intellectual property must be concluded in writing.

However, if the employment contract has been entered into for an indefinite period or for more than one month, the employer must latest within one month after beginning of the employment relationship inform the employee in writing on the name of the parties, the starting date of the employment relationship, the employee’s function, the salary and the weekly amount of working hours. This merely serves as a means of notification and has no impact on the validity of a verbally concluded employment contract.

The typical written contract contains provisions on position/duties, starting date, place of work, working time, remuneration, vacation, probationary period and termination rules, intellectual property rights and possibly restrictive covenants.

Are non-competes enforceable?

During an existing employment relationship, the employee is prohibited from performing

competing activities. The employer is entitled to enforce this right by way of obtaining an

injunctive relief prohibiting the actual competing activity and by claiming damages resulting from such activity.

It is somewhat different, however, with regard to post-contractual competing activities. The

prohibition of post-contractual activities will require a valid post-contractual non-compete-clause agreed upon. The validity will fundamentally require that the employee gains insight into the clientele or into manufacturing and business secrets and that the use of this knowledge could significantly harm the employer. If this is not the case the post-contractual non-compete clause is not binding.

Also, post-contractual non-compete-clauses must be limited with regard to their geographical and factual scope as well as their duration – if this is not the case, then such shortcoming has no impact on the validity of the non-compete clause, rather the courts will simply reduce the geographical scope and the duration to a permissible measure.

The employer is not obliged to pay a consideration to the employee for complying with the

restrictive covenant. However, paying a consideration increases the employer's chances of

successfully enforcing the non-compete.

How much holiday are workers entitled to take?

In addition to the public holidays applicable at the place of work, Swiss law provides for a

minimum of five weeks of paid holidays for employees below the age of 20 and four weeks for those older than 20. Holidays not taken by the end of the year of service are not considered forfeited. The employer must ensure that at least two consecutive weeks of holidays are taken during every year of service.

In addition to holidays, Swiss law provides for various other means of time off such as maternity leave of 14 weeks, parental leave (other than the mother) of two weeks etc.

And are there any rules around hours of work and overtime?

Swiss law differentiates between extra hours and overtime. Extra hours are the hours performed beyond the workload agreed upon in the employment contract up to the statutory threshold of maximum working, whereas overtime refers to the hours worked in excess of such threshold. The statutory maximum amount of working hours for office staff, technical and other employees is 45 hours per week.

Different rules apply for extra hours and overtime. Swiss law offers a lot of flexibility regarding extra hours. Notably, it is possible to agree that extra hours are covered by the base salary and do not need to be reimbursed extra. In absence of such an agreement, however, they must be paid in addition to the base salary including a surcharge of 25% on the usual salary. It is also possible to agree that extra hours are compensated with time off in lieu. Less flexibility exists regarding overtime. In particular, overtime must mandatorily be either compensated by time off in lieu within 14 weeks or (with regard to the mentioned type of personnel) alternatively be reimbursed with a surcharge of 25% on the hourly salary as of the 61 st overtime hour performed in the respective calendar year.

Do workers have a right to work flexibly?

There is no statutory right to work flexibly. If not agreed between employer and employee

differently, it is the employer’s prerogative to (reasonably) instruct when and where work is to be performed. The right of instruction is nonetheless restricted by labour law provisions, such as, for example, the general prohibition of night and Sunday work.

It is nowadays very common to agree on some sort of flexible work (for example, remote work/hybrid work, part-time working etc.).

What happens if my employee is sick?

In the event the employee is prevented from performing their duties without their fault due to

personal reasons such as, illness or accident, then in principle the employer must continue to pay the full salary for a reasonable amount of time, provided the employment relationship has by then existed for at least three months or has been entered into period of more than three months.

In the first year of service the law sets forth a period of three weeks of salary continuation. The duration increases with every year of service according to scales established by the courts. It is possible to be dispensed from the statutory duty of salary continuation if a daily sickness benefits insurance has been taken out. This insurance is very common in Switzerland. A sickness can further prevent the employer from terminating the employment relationship, as an employee is protected from termination for some time (30, 90 or 180 days, depending on the employee's seniority) while on sick leave. A sick leave taking place during the notice period will suspend the notice period and extend the employment relationship.

What are the classes of protection under discrimination laws?

Discrimination is generally prohibited in Switzerland. However, not every unequal treatment

qualifies as an act of discrimination. The Swiss lawmaker has introduced an Act on the Equality between Women and Men providing for specific remedies in the event of, for example, sexual harassment, salary discrimination etc. By contrast, unlike in EU law, no specific remedies exist with regards to other sensitive criteria such as ethnicity, age or other criteria commonly considered as being sensitive. This does not mean, however, that discrimination will in any case remain unsanctioned, but the likelihood of a discrimination suit based on other criteria bar male or female being successful is limited.

Are there any rules around whistleblowing?

No. There are no specific rules on whistleblowing. In fact, an employee is bound to confidentially regarding secrets or information that could harm the employer if they go public. This applies also post-contractually.

Do I need to give notice to terminate the worker's employment?

Yes, unless the employee is engaged under a fixed-term contract. A notice must be given clearly and explicitly. Also, a termination cannot be linked to certain conditions.

Unless agreed otherwise, Swiss law sets forth a probation period of three months maximum and a termination period of seven days during this period. The probation period is not mandatory. After the probation period, the general statutory notice period is in the first year of service one month, from the second to (and including) ninth year of service two months and thereafter three months, effective to the end of the month. It is possible to agree on longer or shorter notice periods. The minimum is, however, one month. Also, collective bargaining agreements may provide for different notice periods. Finally, it also possibly to terminate an employment contract with immediate effect for cause. A termination with immediate effect should not be undertaken without very careful and due consideration of all the circumstances since the employer can be held liable for damages and additionally a sanction of one to six months’ worth of salary due to unjustified immediate termination.

Do I have to allow the worker to work their notice?

The employer has the right to put the employee on garden leave, i.e., release the employee from their working duties while continuing to pay the salary. The employee typically does not have the right to work their notice. Exceptions may apply in very specific circumstances, for example, if the employee needs to perform some work to keep the job qualification.

Do I need to follow a process before dismissing an employee?

In Swiss civil law, there is no statutory process which must be observed. In particular, the law does not set forth an obligation to issue a prior warning.

Nonetheless, the individual case must be assessed carefully since a termination may under certain circumstances be considered as being abusive. This might for instance be the case in the event of a conflict between employees and no alternative measures were explored prior to issuing the termination. Even an abusive termination remains valid and will ultimately end the employment relationship. However, the unlawfulness is remedied by a sanction of one to six months’ worth of salary payable by the employer to the employee.

Do I need to pay any severance on termination of employment?

No. Only for very rare and exceptional cases does the law provide for a severance payment. This duty will, however, not apply for a tech start up, since it requires that the employee had worked for the company for at least for twenty years.

Is it possible to settle employment claims?

Yes, it is always possible to settle employment claims. A typical way to settle employment claims is in the context of a termination agreement. A termination agreement will need to be fairly balanced and compensate the employee for possible waivers. A settlement is further also possible at a later stage, for example, after the employee has asserted claims in court.

Contacts:

Thomas Kälin

Partner | Head of Employment

thomas.kaelin@mll-legal.com

+41 58 552 06 50

Mark-Anthony Schwestermann

Associate

mark-anthony.schwestermann@mll-legal.com

+41 58 552 06 59

The information in this document is intended to be of a general nature and is not a substitute for detailed legal advice. MLL Legal Ltd. is a leading Swiss law firm with a history that dates back to 1885. Our firm has a strong international profile and brings together recognised leadership and expertise in all areas of law affecting commerce today, with a focus on high-tech, innovative and regulated sectors.