The rules on severance pay in detail

There is no statutory severance pay under Swiss private employment law, subject to the remarks that follow. The employer must pay the employee’s salary during the legal or contractual period of notice but does not have a legal obligation to pay severance. The five following remarks are relevant:

Contractual obligation to pay severance

An obligation to pay severance may arise from a contractual provision contained in an individual employment contract or in a collective agreement.

Unlawful termination

In certain circumstances, a court may rule that a termination is unlawful or abusive. In such a case, the party that terminated the employment relationship unlawfully must pay compensation to the other. The court determines the compensation taking all the circumstances into account. However, the amount is capped at the equivalent of six months' salary.

Termination with immediate effect without good cause

Where the employer terminates the employment contract with immediate effect without good reason, the employee is entitled to damages corresponding to the amount s/he would have earned had the employment relationship ended after the required notice period or upon the expiry of the agreed term 

In addition, the court may order the employer to pay the employee compensation to be determined at the court's discretion taking account of all circumstances. However, this is capped at the equivalent of six months' salary.

Social Plan in case of collective dismissal

The employer must hold negotiations with the employees with the aim of preparing a social plan if the employer (a) normally employs at least 250 employees and (b) intends to make at least 30 employees redundant within 30 days for management reasons that have no connection with the employees or their individual performance. Redundancies over a longer period of time that are based on the same operational decision are counted together.

If the parties are unable to agree on the terms of a social plan, an arbitral tribunal will be appointed and will issue a binding social plan. The plan may contain severance payments.

Severance allowance in the case of a long employment relationship

Where an employment relationship with an employee of at least 50 years of age comes to an end after twenty or more years’ service, the employer may be obliged to pay severance.

The amount of the severance will be fixed by the parties but may not be less than two months' salary. If they do not fix an amount, the court will do so taking into account all the circumstances, although it must not exceed the equivalent of eight months' salary.

Note however, that if the employee receives benefits from an occupational benefits scheme (i.e. a pension fund), these may be deducted from the severance allowance to some extent. In that sense, the benefits received from a pension fund replace the severance allowance. For this reason, since the Federal Occupational Pensions Act came into force in 1985, severance allowances in the circumstances described above have lost their importance and hardly ever apply because employees now generally receive benefits from their pension fund that exceed the possible severance.

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Author: Schneider Troillet

Date: December 2018


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