Background

The massive strengthening of the Swiss franc over the last decade has put export-oriented Swiss companies under great pressure. Numerous companies headquartered in Switzerland were forced to take cost-reducing action. In light of this situation, some companies, especially in the border regions of Switzerland, decided to compensate their employees living abroad in Euros while continuing to compensate their employees living in Switzerland in Swiss francs. The employers justified this action by pointing out that the costs of living abroad are significantly lower than in Switzerland. The currency switch was implemented via contract amendment agreements or dismissal for variation of contract.

In light of continuously falling exchange rates, some cross-border commuters have considered themselves to be discriminated against in comparison to their Swiss colleagues and filed lawsuits against their former employers for retroactive payment of the wage differences based on the Agreement on the Free Movement of Persons (AFMP).

Two Cases before the Federal Supreme Court

On January 15, 2019, the Federal Supreme Court of Switzerland took up the issue of Euro wages for cross-border commuters for the first time. The two cases for which the Federal Supreme Court held a public consultation were based on very similar circumstances:

The first case, 4A_23012018, pertained to the employment relationship between a German citizen residing in Germany and a company headquartered in Germany, which operated a site in Switzerland where the employee worked. The overvalued Swiss franc and the weak Euro caused great difficulties for the production site in Switzerland. The employer considered it necessary to begin paying its employees residing outside of Switzerland in Euros. In December 2011, the employer informed its employees of the planned contractual amendment and that it would be implemented via dismissal for variation of contract, if necessary. The later plaintiff consented to this amended contract, whereupon her compensation was converted into Euros. This nominally led to a lower income for her. After she was terminated by the employer in 2014, the employee filed a lawsuit with the Cantonal Court of Schaffhausen and demanded the difference between the wages paid out to her in Euros and the wages that she would have received in Swiss francs.

In the second case, 4A_21512017, a French citizen residing in France sued for claims arising from the employment relationship with his former employer headquartered in Switzerland. Here, too, the company, weakened by the strong Swiss franc, announced that it would be presenting an amended contract to its employees residing abroad. The later plaintiff consented. The amendment of the employment contract again consisted of paying the wages of employees residing abroad in Euros effective January 1, 2012. In January 2016, after termination of the employment relationship, the former employee filed a lawsuit against the former employer and similarly demanded the difference compared to his hypothetical compensation in Swiss francs.

Considerations of the Federal Supreme Court

In the public consultation, the opinions of the judges of the First Civil Division strongly diverged.

Particularly disputed was the third-party effect of the AFMP. Some judges held the opinion that the complaints of the employers should be favored, because article 9, Appendix I of the AFMP (ban on employee discrimination) is not applicable between private parties. Additionally, the opinion was expressed that — even if the AFMP were to be applicable — the unequal treatment of the employees was justified by the emergent financial situation of the company (i.e., a predominantly economic reason).

By c,ontrast, other judges clearly advocated for the third-party effect of the ban on discrimination for private parties. These judges also responded affirmatively to the subsequent question of whether the cross-border commuters had been discriminated against under the AFMP. The argument of the alleged increased buying power of the cross-border commuters as well as their potentially lower costs of living in the bordering EU states as a result of the strong Swiss franc did not justify an unequal treatment.

Ultimately, the complaints of the employers were favored, because the two former employees had, in any case, abusively based their case upon the ban on discrimination. The abuse of law was the result of the contradictory behavior of the employees, who had consented to the wage action, knowing that this would guarantee also their own employment. Only years later did they invoke discrimination in comparison to their colleagues residing in Switzerland.

The written reasons for the decisions are still pending.

Assessment

What is noteworthy about the present judgments is, first and foremost, that the Federal Supreme Court dismissed the claims arising from labor law due to abuse of law. Abuse of law is only assumed with great reserve in labor law, in particular. For example, article 341(1) of the Swiss Code of Obligations stipulates that an employee may not waive claims arising from mandatory provisions of the law for the duration of the employment relationship and for one month after its termination. This stipulation is intended precisely to protect even contradictory behavior of the employee. Thus, according to the case law of the Federal Supreme Court, there must be exceptional circumstances («circonstances tout à fait exceptionnelles») in order for an abuse of law to be found. In the present cases, the Federal Supreme Court considers the exceptional circumstances to be the precarious economic situation of the companies due to the Euro crisis and the strong Swiss franc. The fact that the economic situation was exceptional is supported by the fact that the Swiss National Bank also struggled to overcome the situation. Additionally, the employees initially profited from and consented to the action, which spared their employment and saved costs; it was not until the dissolution of the employment relationship that they invoked their alleged rights arising from the AFMP.

The Federal Supreme Court’s resolution of the matter by invoking the ban on abuse of law leaves open the question of whether the ban on discrimination of employees as set forth in the AFMP also provides for rights and obligations between private parties. In addition, the questions of whether an unequal treatment exists under the AFMP in such cases and whether a justification of such an unequal treatment would be excluded on the basis of differing costs of living domestically and abroad, in particular, remain unanswered. These questions were each answered in the affirmative in the prior instance proceedings of the Cantonal Court of Jura and the High Court of Appeals of Schaffhausen, but also by a majority of the teachings. However, based upon the discussion in the Federal Supreme Court, they can also be negated by strong — and correct — arguments.

With these ultimately welcome judgments, the Federal Supreme Court has strengthened the position of the employers. If an employee does not invoke the ban on discrimination until several years after the introduction of the Euro wage, his or her behavior is an abuse of law. A majority of the employers who compensate or have compensated cross-border commuters in Euros will already have implemented these wage measures years ago. Any lawsuits by these employees would now have to be qualified as an abuse of law.

Additionally, the requirements for the non-contradictory behavior of the employees have increased, in particular if employees have expressly waived claims during an ongoing employment relationship — including namely the inalienable claims in accordance with article 341 of the Swiss Code of Obligations — but then wish to assert them at a later time (usually after termination).

lt remains open whether employees who immediately resist an alleged discriminatory action by their employer would be successful before the Federal Supreme Court as well as how quickly such an action would have to follow. With respect to the very open formulation of «circonstances tout à fait exceptionnelles,» it remains to be seen whether the Federal Supreme Court will specify this vague concept in the written reasons for the decisions and thus provide clarity regarding the cases in which an employee can be accused of abusive behavior.