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Labor and employment law challenges in business transformations

Switzerland

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

Collective redundancies are governed by Art. 335d et seq. of the Swiss Code of Obligations (CO). Collective redundancy is defined as redundancy of:

  • At least 10 employees in a business normally employing 21-99 employees
  • At least 10% of the employees of a business normally employing 100-299 employees
  • At least 30 employees in a business normally employing 300 or more employees

The above mentioned thresholds are only fulfilled if the respective number of redundancies occur within a business during a period of 30 consecutive calendar days.

Required legal justification

A collective redundancy is implemented by notice of termination given by the employer to employees of a business for reasons not pertaining personally to the employees, i.e., the collective redundancies must be tied not to individual but to economic reasons (i.e., due to the financial situation of a company).

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

An employer intending to perform a collective redundancy must inform (in writing) and consult with the organization that represents the employees (employees’ representatives) or, where there is none, the employees themselves.

The employer must inform and consult on the following matters:

  • Reasons for the mass redundancies
  • Number of impacted employees
  • Total number of employees employed in the business
  • Proposed time period of implementation

The first written notification needs to be submitted as soon as the employer intends to perform a collective redundancy. The employer must give the employees or the employee’s representative body (where present) an appropriate amount of time, specifically between two weeks and one month, to formulate proposals on how to avoid such redundancies or limit their number and how to mitigate their consequences.

After the consultation process is over, the employees must be provided with a second written notification about the outcome of the consultation process.

Consultation requirements with other employee representatives

No specific consultation requirements with other employee representatives exist.

Consultation requirements with employees

No other consultation requirements with employees exist except under the circumstances mentioned above, i.e. in the absence of employees’ representative bodies (for more information, see “Consultation requirements with works council/unions”).

Approval/notification of the labor authorities or other government authorities

The approval of the Cantonal Labor Office is not required for redundancy; however, the employer must inform the Cantonal Labor Office of its intentions to implement a collective redundancy. Even if the number of the planned dismissals does not qualify as a collective redundancy, the Cantonal Labor Office has to be informed if an entity terminates 10 or more working contracts.

The first notification needs to be submitted as soon as the employer intends to perform a collective redundancy and is usually a copy of the information letter provided to the organization that represents the employees or to the employees in the absence of such representation. It can either be sent by email or in writing.

A second notification to the Cantonal Labor Office has to be sent with the outcome of the consultation process and pertinent information on the planned redundancies. The outcome of the consultation process must be sent to the Cantonal Labor Office after the end of the consultation process.

The notice period of the employees can only commence after such notification to the Cantonal Labor Office.

Employee selection criteria

There is no legally driven selection process. No categories of employees are protected from collective redundancies.

Actions required to limit the negative impact and social plan

If at least 30 employees are affected by the collective redundancy in companies that regularly employ more than 250 employees, the employer has the obligation to negotiate a social plan with the work union in case of an applicable collective bargaining agreement, the employee's representative body or the employees. The social plan process may last several months and is independent from the collective redundancy process itself.

All measures aimed at limiting the negative impact of the collective redundancy are included in a social plan, also called the jobs-saving plan. The social plan must include the following measures depending on the means available to the company or its group:

Internal alternative employment/redeployment
The measures of a social plan may vary depending of the size of the company and the employer’s potential to provide for a large range of measures to limit the negative impact of the redundancies, including outplacement or severance payments, which are the main customary additional HR costs.

Other measures
The other measures may include severance payments.

Estimated timeline

Preparation of any specific documentation required for the information and consultation process may take about two to four weeks.

Without preparation, the collective redundancy starts with the information (first notification) to the employees and the start of the consultation process (simultaneously). The consultation process and its evaluation take at least two weeks (no statutory deadline). Ideally the entire consultation process including the evaluation is extended to three to four weeks.

The contractual notice periods of the employees (which are generally at least 30 days) start only after the notification of the end of the consultation process to the Cantonal Labor Office.

Based on the assumption that all employment relationships can be terminated with a notice period of three months to expire at the end of a month (termination can only end at the end of a month, not in the middle of a month), the time required to fully implement a large-scale redundancy will normally be four to five months.

If a social plan is negotiated (either mandatory by law or voluntarily intended) it can take up to several months to reach a settlement. However, the redundancies can be executed independently from such an agreement.

Estimated costs

Mandatory costs

The key components of mandatory HR legal costs are as follows:

  • Salary (inclusive of bonus payments, fringe benefits, etc.) during notice period
  • Payment on accrued holidays, overtime, contractual bonus and other contractual benefits (normally covered by the respective accruals)

Dismissals of a large number of employees usually entail additional internal and external costs (e.g., administrative costs, increased human resource management efforts, advisors’ fees), the exact amount of which will depend on the circumstances. Further, such mass dismissals might lead to external pressure stemming from labor unions, media and the public. The handling of such pressure will also require additional resources and should be accounted for in a due manner.

Customary additional costs

The measures of the social plan may vary depending of the size of the company and the employer’s potential to provide for a large range of measures to limit the negative impact of the redundancies including outplacement or severance payments which are the main customary additional HR costs.

Hiring restrictions post-redundancy

No hiring restrictions are applicable post redundancy.

Litigation risk

Interested parties

Failure to inform/consult the employee representatives and failure to notify the Cantonal Labor Office may expose the employer to litigation risk. In case of mandatory negotiation of a social plan, there exists risk of having an arbitral court decide the social plan.

The following interested parties can bring lawsuits (within 180 days of termination) related to the redundancy process:

  • Works council/unions/employees: to challenge the dismissal process (e.g., absence of notification/consultation process; abusive dismissal)
  • All interested parties: to challenge the late or absent notification of the Cantonal Labor Office

Litigation cannot stop or slow down the collective redundancy process. In case of litigation, dismissals will stay effective except for the dismissals during a “blocking” period (e.g., due to illness, accident or pregnancy).

Damages and other remedies

Challenges could lead to the following types of remedies.

Damages for unfair dismissal

Failure to inform/consult in advance employee representatives exposes the employer to a maximum penalty of two months’ salary for each employee involved; however, dismissals will not be invalidated.

Further an employee may claim damages for wrongful termination (e.g., “on account of an attribute pertaining to the person of the other party, unless such attribute relates to the employment relationship or substantially impairs cooperation within the business”) leading to a maximum penalty of six months’ salary for each employee.

Reinstatement

No reinstatement — dismissals generally are not invalidated.

Criminal sanctions

No criminal sanctions.

Country-specific issues

If the Cantonal Labor Office is not notified on the contemplated collective redundancy, the notice periods will not start and the employees will remain employed and have to be fully paid. A maximum administrative fine of CHF40,000 can be imposed for such noncompliance.

Contact

Primary Contact for Switzerland Labor and Employment Law

Oliver Blum
Ernst & Young AG
+41 58 286 4582

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Switzerland
CH

Contacts