Employment Law: International Business Relocation

Employment Law

• Employment law (or labour law) includes the laws, administrative rulings, and precedents addressing the legal rights of working individuals and their organizations.
• This law mediates the relationship between trade unions, employers, and employees.

Introduction and Definitions

• International companies conduct business through export sales, distribution agreements, and direct company involvement, often relocating personnel.
• A foreign employee is someone with a closed-end or open-end contract working and living outside their country of origin, but not including cross-border commuters.
• Business trips, common in international business, are usually part of an existing employment agreement, and under certain conditions are excluded from work permit requirements. Switzerland does not require a work permit for business trips not exceeding 8 days in any 90-day period.

Relocation Agreements

• Relocation (or secondment) involves the temporary transfer of employees to another job within the same organization, often for two to three years.
• A relocation agreement fixes the terms of assignment, addressing legal questions related to employment, social and other insurance, and tax issues.

International Labour Organization (ILO)

• ILO draws up and oversees international labour standards, addressing worker and employer needs in the global economy, advancing opportunities for decent work under freedom, equity, security, and human dignity.
• ILO aims to promote rights at work, encourage employment opportunities, enhance social protection, and strengthen dialogue on work-related issues, including collective bargaining, working hours, wages, child labor, equality, social policy, and occupational safety.

Employment Law in Switzerland

• Switzerland is attractive for foreign companies due to its European business center status, international business community, efficient transportation, quality of life, qualified labor market, flexible employment legislation, governmental stability, and tax administration.
• Anyone entering Switzerland must have a valid permit and prove adequate housing.
• Work permits are required before starting work. Citizens of some countries also need visas.

Swiss Work Permits

• In June 1999, the EU and Switzerland signed seven bilateral agreements, including the Agreement on the Free Movement of Persons, effective June 1, 2002, leading to a dual system for admitting foreign workers.
• EU/EFTA nationals benefit from the Free Movement of Persons Agreement while a limited number of management level employees, specialists and other qualified employees are admitted from non-EU/EFTA countries.
• In February 2014, Switzerland adopted an initiative to stop mass immigration, impacting its immigration policy.
• In February 2015, the Federal Council approved draft legislation and a negotiating mandate to amend the Agreement on the Free Movement for Persons.
• Swiss work permits are issued by Cantonal Offices of Industry, Trade and Labor, or the Federal Office, requiring a form and application letter in German, French, or Italian, along with proper documentation. Permits are valid only for the issuing canton.
• Changing employment or moving to another canton requires additional approvals, except for EU/EFTA citizens.

EU/EFTA Citizens

• EU/EFTA member states' citizens are subject to the Agreement on the Free Movement of Persons.
• Since January 1, 2022, the same conditions apply to all EU/EFTA citizens, including Croatians (who joined the EU in 2013), meaning transitional measures with quotas and restrictions no longer apply to Croatian nationals.

Non-EU/EFTA Citizens

• Skilled labor is admitted from third states. A job offer is not sufficient as employers must prove that no Swiss or EU/EFTA national can fill the position, the foreign employee is qualified, salary conditions are met, and the number of permits is limited.
• Since January 1, 2021, UK citizens have third-country status. Switzerland and the UK have a bilateral agreement on citizens' acquired rights for UK nationals working in Switzerland before that date.

Residence Permits

• The duration of stay to live and work is limited, availability differs for EU/EFTA and third-country nationals.

Short-Term (L-Permit)

• EU/EFTA citizens may get this permit for up to 12 months if their employment is less than one year.
• Job seekers may also receive this after three months. After one year, EU/EFTA nationals may need to interrupt their stay for its extension.
• Non-EU/EFTA citizens: may be granted for stays lasting one year or more, up to the limit set by the Federal Council. The term of validity is set to harmonize with the employment contract. May be extended up to a total maximum duration of 24 months in exceptional cases.

Initial Residence (B-Permit)

• EU/EFTA citizens: residence permit for unlimited employment or more than 12 months, valid for five years, automatically extended if conditions are met, but first extension may be limited to one year if involuntarily unemployed for over 12 months.
• Non-EU/EFTA citizens residence permit generally does not exceed one year initially. Permits authorizing paid employment are only granted within maximum numbers set each year, renewed annually if there are no conflicts, however it may be extend in certain cases.

Permanent Residence (C-Permit)

• EU/EFTA citizens: Nationals from the 15 old EU countries and EFTA obtain this permit, of Indefinite length, after five years uninterrupted stay. Non-EU/EFTA citizens: Nationals from Third States, can obtain permanent residence after ten years uninterrupted stay.
• Nationals from the USA and Canada are subject to special regulations. They may freely choose their employer, and taxes are no longer levied at source.

Coming to Switzerland without Working

• Permits for foreigners not engaged in a gainful activity are primarily granted to students, retirees and affluent people wishing to settle down in Switzerland
• Family members accompanying B-Permit holders (and EU/EFTA L-Permit holders) are generally granted the same permit for the same duration as the principal permit holder.

Swiss Employment Law

• Regulations for Swiss employment relationships can be found in law, such as the "Individual Employment Contract" section of the Swiss Code of Obligations (CO), and mandatory labour law, which sets minimal standards in the Swiss Labour Act.
• Agreements, treaties between unions and employers, individual employment contracts between employers and employees, and a company's internal rules and regulations are also a part of the regulations.

Employment Relationships with Foreign Employees

• Contractual parties may agree that either the law of the state in which the employee has their usual residence or the law of the state in which the employer is domiciled is applicable.
• If there is no agreement between contractual parties, the law of the state where the employee usually performs his duties is applicable.

Main issues to be considered according to the CO

• Swiss employment law is very liberal and leaves space for individual agreements which can be found in the section “Individual Employment Contract” of the Swiss Code of Obligations.

Individual Employment Contract

• In an employment relationship, first, consult the individual employment contract and staff regulations.
• Then, consult the Collective Labour Agreement. If the employment relationship doesn't contain anything regarding your question, or might be contradictory to mandatory legal requirements, turn to the articles of the Code of Obligations (CO).
• The essential contract provides the obligation of the employee to perform work in the service of the employer for a limited or unlimited period of time and the employer to pay a salary, element of subordination.

Form of the contract

• Although no specific form is required and an employment contract can be concluded orally, it is strongly recommended to have a written contract. It can be a separate document or simply a letter confirming the essentials that have been agreed upon between employer and employee.
• In case of an oral agreement, the employer must inform the employee in writing about certain essentials of the oral agreement if the employment relationship has been concluded for more than one month.

Position, area of responsibility and duties of the employee

• The employment contract should contain a section showing the position (e.g. marketing manager, finance manager, the area of responsibility as well as a detailed list of duties of the employee.

The main duties of the employee

• Work in person: The employee must carry out the contractually assumed tasks in person, unless otherwise required by agreement or the circumstances.
• Duty of due care: Carry out the work carefully, and use the employer's equipment in an appropriate, careful manner.

Duty of loyalty

• Protect the employer's interests and prohibits to perform work competing with the work for the employer.
• Non-disclosure of confidential business information is a special form of duty of loyalty stating that the employee must not exploit or reveal confidential information obtained while working at the company.

Additional Employee Duties

• Working overtime: The employee must work overtime in certain conditions as mentioned below.
• Compliance with internal rules and specific instructions: Must comply in good faith with the employer's general directives and specific instructions.

Staff Regulations

• Employers often have staff regulations in place, which form an integral part of the individual employment agreement of each employee, and may contain clauses on hours, breaks, leisure time, compensation of overtime, internet use, reimbursement for expenses, behavior of the employees, etc.
• An employment contract provides duties on the employer is to pay the salary at the end of each month, unless other periods or terms have been agreed upon.

Salary

• The parties are free to decide on the salaries (basic, bonus payments, provisions, other extra payments, etc.).
• There are no national laws regarding minimum salary requirements however minimum salaries must adhere with stipulated collective labour agreements.
• A company is required to pay year-end bonuses unless the employment contract does not provide for such bonus.

Working Hours

• If an employee works more hours per week than agreed upon in the employment contract, he works overtime, compensated 125% of the base salary. Which May be replaced by leisure time of at least the same duration like the overtime, if the contractual parties agree upon in writing.
• For employees at the middle management level and up, overtime work is considered to be included in the basic salary.
• Maximum working week: 45 hours a week for employees including sales assistants also 50 hours, regulated in the Federal Labour Act

Overtime Conditions

• The overtime is required by the business and not only the wish of the employer.
• The employee is able to perform the overtime.
• The employee can be expected in good faith to work overtime.

Termination of the employment

• If the employment was agreed for a fixed period, it is terminated without notice upon expiration. An employment of indefinite length may be terminated by each party by giving prior notice.
• After the trial period, the termination period depends on the number of years an employer has served for the employer, the legal notice periods are stated on the Code of Obligations.

Notice Periods

• Trial period (probation period): 7 calendar days
• First year of service: 1 month
• Second Year up to the ninth year of service: 2 months
• 10 years of service and more: 3 months
• The mentioned above is calculated as of the end of a month.
• Legal notice periods may be altered, but the Code of Obligations prohibits to reduce them to less than one month and to agree on different notice periods for the employer and the employee.

Termination with Immediate Effect

• The employment relationship may be terminated by either party with immediate effect meaning that the legal minimum termination periods do not apply on certain conditions.
• The requirements for Immediate termination is a good cause.

Notice of Termination

• Legal requirements protect an employee who is being dismissed, and notice is at an inopportune, it renders the termination invalid.
• The termination period is suspended during : mandatory military service, accident or illness first 30-180 days, pregnancy and 16 weeks following birth.
• A termination is effective upon receipt of the notice. The notice much be at the disposal of the employer by the last working day of the month, recommendation to do so in writing.

Salary if the Employee is Unable to Work

• If the employee for reasons such as illness or military service, is without fault unable to preform work , the employer has to pay the salary for a limited amount of time, or for three weeks during the first year. For longer periods during the following years of service.
• The law does not specify the exact lengths and vary locally based on scales.

Vacation

• Employee has the right to time off according to cantonal guidelines on working hours. All employees are entitled to 4 weeks paid vacation and 5 weeks if they are under the age of 20 each year.
• For at least two weeks, holidays must be taken consecutively. In principle, the employer can determine when this will take place.
• Vacation cannot be replaced with compensation.

Paid leave for family related absences

• After birth, a female employee receives 14 weeks of maternity leave. Fathers have entitled paid paternity leave of at least two weeks.

Competition Ban

• Duty of loyalty stating that the employee is not allowed to compete against the employer.
• Parties must agree in writing that the employer refrain from competing or engaging in new form of competitive activity after the termination of employment.
• Prohibition is binding only if in the employment relationship, the employee has client information or has employer trade secrets or business secrets, and could impair employee business.

Enforceability

• Must be appropriately restricted with regard to place, time and scope so that it does not unfairly compromise the future activity.

Letter of Reference

• An employee may at any time request a letter of reference.

Social Insurance Law

• Swiss pension contributions are split into three ‘pillars’ with the first 2 pillars being mandatory.
• State pension comprises of old age and survivors’ insurance and disability insurance and the aim is to replace the loss of income.
• The disability insurance (IV) is aimed at ensuring basic lifestyle financial benefits for those who are disabled.
• The old age and survivor and disability insurance schemes are compulsory that cover everybody who lives and works in Switzerland that are at least 18 years old.
• The insurance can be with held and contributed as much as 9.0% each month from both by the employer and employee.

Occupational Benefit Plan (BVG, Pillar 2)

• Designed to ensure their standard of leaving for insured persons
• Only mandatory for workers with annual income or above contributions to the occupational benefit plans depend on a series of factors including: Sex, the type of professional, age, and salary.
• Rate is applied as progressive for the gross salary where there are maximum legal contributions, in compliance with Swiss law.

Pillar 3

• Makes it possible that systematically close any gaps that exist in their pensions covered.
• Government fiscal policy measures and to promote home owners in a certain amount for employees and contributions can be deducted from the taxable income.

Compensation for temporary loss of income (EO)

• Aims to only cover partially that loss of income.
• Since July 1th 2005, women are also in general entitled to receive maternity benefits by 80%

Accident and occupational disease insurance (UVG)

• Covers the financial consequences of professional and occupational diseases including accidents
• can vary from depending on the type of work, the sex, and the age of the employee.

Sickness insurance (KVG)

• Guarantees good medical treatment. compulsory for every person and arranged after 3 months for arriving in Switzerland.

Daily Allowance Insurance

• If the employee is unable to work by illness or accident, the employer has to pay, but this can be relieved by insurance.
• Sickness, accident, legal obligations or public duties and the employer must still pay salary for a limited time by salary

Unemployment insurance

• Provides benefits that contribute to unemployment shortens and works by providing limited weather conditions.

Family Allowance

• Allowance that is the main form of compensation for the cost of brining to make the entire charge contribution to the social security.

Exemptions for expatriates

• Switzerland has several security with totalisation agreements that allow an individual to remain subject to the rules of their home country.

Social security agreements

• Relation with states are governed and coordinated by system. This stipulation provides in a specific system also applied for FTA countries in August 2001 for Example.
• Swiss federal and approved the Swiss federal council approved with you social security for the UK.

Tax Law

• Residents Switzerland subject to wealth income.
• Impose on worldwide wealth and net income progressive.
• Non residents may tax to the swiss. Interest from dividends by the swiss entity for income.