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KMU-Magazin No. 07/08, July/August 2022 Aging Employees: Freedom to terminate versus abusive dismissal

When are terminations considered abusive? The following report sheds light on abusive termination and outlines the stumbling blocks to avoid abusive termination, also in the case of older employees.

In its 2014 ruling, the Federal Supreme Court qualified the termination of an older employee with a long period of service as abusive, since the employer had not informed the employee in good time of the intended termination, had not heard him and had not sought solutions for maintaining the employment relationship. In such situations, the employer is subject to heightened duties of care, which must be complied with, otherwise a termination is deemed to be abusive. In its rulings from 2021, the Federal Supreme Court corrected this somewhat "ironclad" decision from 2014.

Objection and complaint period

It should be noted at the outset that when asserting an unfair dismissal, the employee must observe the objection period until the termination of the employment relationship. In doing so, he must clarify to the employer in writing that he does not agree with the termination and thus raises an objection. Apart from the Zurich Labor Court, which requires a signed letter, the other labor courts also seem to accept an objection by email or SMS. Furthermore, an action must be brought before the competent court within 180 days of the termination of the employment relationship, otherwise the asserted claim arising from the unfair termination will be forfeited.

Compensation

In principle, compensation can be claimed. If the parties are unable to reach agreement, the amount shall be determined by the judge, taking into account all the circumstances. The maximum amount that can be claimed is six months' wages. If the termination is carried out exclusively in order to frustrate the accrual of claims arising from the employment relationship, the compensation shall amount to a maximum of two months' wages.

A continuation of the terminated employment contract may be agreed between the parties, but is hardly ever found in practice and is also not provided for as a statutory legal consequence. In other words, the employment relationship ends despite abusive termination. A continuation of the employment relationship enforced by the court, as is known in Germany under certain conditions according to the Dismissal Protection Act, is excluded in Switzerland.

Not taxable

It should be noted that a socalled penalty pursuant to Art. 5 (2) AHVG does not qualify as a relevant salary, i.e. no social security contributions are payable on it. The revised margin no. 2097 of the guidelines on the relevant salary for AHV, IV and EO, which has been in force since the beginning of 2022, stipulates that only compensation payments awarded by a court are excluded from the relevant salary, but not compensation payments determined by mutual agreement between the parties, out of court or during proceedings.

We assume that this revision of the guidelines will soon be reversed. This is because various cantonal and federal rulings have already denied inclusion under the relevant salary (in particular BGE 136 III 96 and the ruling of the Cantonal Court of Fribourg of June 2, 2021). In addition, the payment is not subject to income taxation, provided that the taxpayer can show that the payment is a satisfaction and compensation payment pursuant to Art. 336a CO. In this case, the compensation payment flows to the taxpayer tax-free.

Federal Court’s Position

In the new decision of the Federal Supreme Court mentioned at the beginning of this article, the court clarified that older employees with a long period of service do not constitute a special category of employees who are to be given special protection by the employer's increased duty of care in accordance with public service law (right to information, right to be heard and duty to seek solutions). It described the formulations in the old decision on the increased duties of care as "somewhat apodictic".

Although the approximation to civil service law for such employees had been welcomed by certain voices from a sociopolitical point of view, the Federal Supreme Court made it clear that the assessment of an abusive termination had to be made on a case-by-case basis based on an overall assessment of the respective circumstances; regardless of whether older or younger employees were involved. However, it also emphasized that, in the case of an older employee, particular attention should be paid to the manner in which the dismissal was made, without specifying what it meant by this. Nevertheless, it follows from this that, despite the clarification that has been made, prudent action is still indicated when giving notice of termination. But when is a termination abusive?

Prohibition of abuse

It is understood in advance that an employment relationship of indefinite duration may be terminated by either party subject to the statutory or contractual notice period. Thus, the principle of freedom of termination applies. In principle, no special reasons are required for termination. However, the freedom of termination is limited by the prohibition of abuse. A termination is abusive if it is pronounced for certain inadmissible reasons described in Art. 336 CO, whereby the list does not include the following reasons is exhaustive. Therefore, further facts are conceivable in addition to those listed in Art. 336 CO.

There are countless federal court decisions on this. These are characterized by the fact that the other facts are of a comparable severity to the reasons stated in the law. However, not every merely indecent or unworthy conduct causes the termination to be abusive. In assessing whether a termination is abusive, the motive for the termination is judged or the manner in which the terminating party exercised its right. A notice of termination shall be given in accordance with the requirement of the sparing exercise of rights. The requirement to exercise the right sparingly is violated if the terminating party plays a false or concealed game or blatantly contradicts good faith.

Framework

In the new case law mentioned at the beginning, it has been stated that, particularly in the case of employees in higher hierarchical levels (members of the executive board, managing directors) who are of advanced age, the sparing exercise of rights is not violated if notice is given without a warning or a search for alternative positions within the company. In such situations, the Federal Supreme Court protects the interests of the employer and leaves generous room for the freedom of termination.

Even in the case of terminations following prolonged illness and expiry of the lock-up period or in the case of a sharp drop in the performance of an older employee following a prior warning, the Federal Court does not yet consider the sparing exercise of rights to have been violated and protects the freedom to terminate. The following general conditions can counteract the accusation of abusive termination:

  • Designate and warn of grievances (performance and behavior) at an early stage, define and document supporting measures and the expected goals, and fix the control date.
  • Approach the problem with an open mind, no staged approach, actively call for solutions.
  • In the case of positions at the upper hierarchical level and with a high degree of decision-making authority, freedom of dismissal is largely protected by the Federal Supreme Court. From a legal point of view, upstream measures to remedy grievances are not necessary.

Duty to inform

If an employee is nevertheless terminated by the employer, the information obligations (Accident Insurance Act, daily sickness benefits insurance) must be complied with. Since 2021, the employee who is 58 years old must be informed in particular of Art. 47a BVG. Based on this legal provision, the terminated employee can continue to build up retirement benefits through continued insurance. Certain regulations provide for the continued insurance of retirement benefits from the age of 55, which must be clarified in each individual case.

Conclusion

The increased duty of care when terminating an older employee has been strongly relativized. Nevertheless, in the event of a termination, especially in the case of older employees without a managerial function, special attention must be paid to the careful exercise of rights and to proceeding with foresight in the event of grievances.

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