News - Switzerland

Switzerland - September 2012

Higher standards justify instant dismissal for key employees

The Swiss Federal Supreme Court (the "Court") concluded that when assessing misconduct constituting a valid reason for immediate termination of the employment contract, stricter standards apply to key employees in positions of trust and responsibility.

Facts

A. had been employed by YZ. Ltd. as the CEO of YQ., a company domiciled in the Czech Republic. His contract of employment was terminated on 8 May, 2003 with retrospective effect as of 30 April, 2003.

With effect from 1 July, 2003 A. held the position as CEO of YZ. Ltd. On 4 September 2006, YZ. Ltd. terminated the employment with A. with immediate effect on suspicion of fraud.

A. appealed to the Court against the termination dated 4 September, 2006 arguing that an instant dismissal was not justified. The court of lower instance had held that without the consent of YZ. Ltd. - A. had entered into a secret second contract of employment with YQ. (in addition to the official contract of employment with YZ. Ltd.) in order to be paid a second salary and had kept bonus payments from a supplier of YQ. that belonged to YZ. Ltd.

Below is a summary of the findings of the Court:

Applicable law

Pursuant to art. 337 of the Swiss Code of Obligations ("CO") the employer and the employee may terminate the employment relationship with immediate effect at any time for valid reasons. A valid reason is considered to be any circumstance under which the terminating party cannot be expected to continue the employment relationship in good faith. According to case-law, instant dismissal is only justified in cases of particularly serious misconduct. On one hand, when considered objectively, the misconduct must be serious enough to destroy the mutual trust that is necessary in an employment relationship or to profoundly affect the mutual trust to the extent that the employer cannot reasonably be expected to continue the employment relationship. On the other hand, the misconduct must in fact have destroyed or profoundly affected the mutual trust necessary in the employment relationship. If the misconduct is less serious, it must have occurred repeatedly despite a prior warning.

Whether the misconduct of which A. has been accused reaches the necessary level of severity, depends on the overall circumstances of the case. When assessing the severity of misconduct, stricter standards apply to management staff placed in positions of trust and responsibility.

Decision

In the opinion of the Court A. had kept the bonus payments from a supplier of YQ. that belonged to YZ. Ltd.

The Court concluded that this was particularly serious misconduct and therefore a valid reason for YZ. Ltd. to terminate the contract of employment with immediate effect in accordance with art. 337 CO. In view of the trust that YZ. Ltd placed. in A. as the CEO and the responsibility of A. as a key employee, the misconduct of A. appeared to be particularly serious and justified the application of stricter standards.

Commentary

Swiss employers should keep in mind that only particularly serious misconduct of an employee justifies instant dismissal. However, for key employees a different standard applies. Due to the trust placed in key employees and their responsibility, when assessing the severity of misconduct, Swiss employers are allowed to apply stricter standards.

Resources

Decision of the Swiss Federal Supreme Court of 24 May, 2012 (4A_685/2011)

For further information or to discuss any of the issues raised, please contact Marco Galli or Stefanie Monge.