New Landmark Decision of the Swiss Federal Supreme Court

A. Consequences for Swiss Employers

This new landmark decision is important for many Swiss employers, particularly in the event of future government shutdowns or other similar scenarios where government actions affect all players in a particular industry in the same way. The key takeaways of this decision may be summarized as follows:

• In principle, employers are responsible for operational risk affecting their businesses. However, «operational risk» is not defined in the law. As a rule, it refers to circumstances that fall within the sphere of risk of the employer and do not constitute objective reasons within the meaning of Art. 91 of the Swiss Code of Obligations (SCO);
• Official business closures ordered by the authorities, including such measures taken in the context of the COVID-19 pandemic, fall outside of the employer’s operational risk if such measures affect everyone in a certain sector of activity equally. In this scenario, the employer is not obliged to continue to pay the employees’ salaries pursuant to Art. 324 CO.

The decision of the Swiss Federal Supreme Court ensures a uniform interpretation of federal law, thus putting an end to certain cantonal jurisprudence with divergent decisions.[1]

This decision is however silent on whether employers are entitled to claim reimbursement of salaries (or set them off against outstanding claims) paid without having a legal obligation to do so.

B. Summary of Facts and Procedural History

Employees B., C. and D. worked as teachers at a private school run by A. AG. In January 2020, the employees terminated their employment agreements with effect on August 31, 2020.

As a result of the measures taken to fight the COVID-19 pandemic, A. AG decided to close the private school, to stop face-to-face teaching and to switch to online teaching. A. AG informed the employees in April 2020 that, due to the introduction of online teaching, they would no longer reach the contractually agreed working hours. A. AG further indicated that it was not legally obliged to continue paying the employees’ salaries for the work time cancelled, essentially because COVID-19 and the resulting official measures, including the official closure of the private school, did not fall within the employer’s operational risk. Because B., C. and D. had terminated their employment agreements with A. AG prior to the official closure of the private school, it was not possible for A. AG to apply for short time working reimbursements either. A. AG was therefore forced to reduce the employees’ salaries for July and August 2020 due to their respective minus hours.

B., C., and D. brought action before the District Court of St. Gallen, which ordered A. AG to pay the salary for the cancelled working time. The Cantonal Court of St. Gallen rejected A. AG’s appeal.

A. AG then appealed to the Swiss Federal Supreme Court. The Swiss Federal Supreme Court discussed the matter in a public hearing on August 30, 2023. The Swiss Federal Supreme Court admitted the appeal filed by A. AG.[2]

C. Findings of the Swiss Federal Supreme Court

The Swiss Federal Supreme Court had to decide whether an employer is required under Swiss law to continue paying the salary in the event of an official business closure ordered by the authorities as part of the measures to fight against COVID-19. In essence, A. AG argued that it was not obliged to continue paying the salaries because the official business closures to combat COVID-19 did not fall within the operational risk of the business for which it is responsible.

To resolve this legal dispute, the Swiss Federal Supreme Court had to examine Art. 91 combined with 324 SCO: Pursuant to Art. 91 SCO, the employer is in default if it refuses, without objective reasons, to accept performance of work properly offered by the employees or to carry out such preparations as it is obliged to make and without which the employee cannot render performance of work. According to Art. 324 SCO, the employer is obliged to continue to pay the employee’s salary if the employer does not accept the work duly offered by the employee.

According to the Swiss Federal Supreme Court, the legislator did not intend to automatically impose on the employers any arbitrary business risk that does not fall within the sphere of the employees. Rather, the employer is only in default to accept performance of work if the refusal to accept the work is unjustified. In the context of employment law, it is undisputed that employers bear the operational risk of the business they operate. However, the term «operational risk» is not defined in the law. As a rule, it refers to circumstances that fall within the sphere of risk of the employer (but not of the employee) and do not constitute objective reasons within the meaning of Art. 91 SCO.

The controversial delimitation between justified and unjustified refusal to accept performance of work boils down to determining the scope of the operational risk for which the employer is liable. Whether a circumstance falls within the employer’s operational risk must be determined on a case-by-case basis. In this context, it must in particular be assessed whether the reasons that led to the refusal to accept performance of work are linked to:

• A risk inherent to an individual business (e.g., state ban on production directed against a business, withdrawal of an operating license, refusal to grant a work permit, etc.) in which case the employer is legally required to continue paying the salary pursuant to Art. 324 SCO; or, on the contrary,
• An objective reason affecting everyone in a certain sector of activity equally (e.g., wartime economic measures, import ban, exposure to unreasonable legal risks by accepting performance, etc.), in which case the employer is not required to continue paying the salary pursuant to Art. 324 SCO.

According to the Swiss Federal Supreme Court, the official business closure ordered by authorities to combat the COVID-19 pandemic qualifies as objective reasons within the meaning of Art. 91 SCO. Indeed, in such a case, the risk is not inherent to a specific business due to its specific production and working conditions. Rather, the impossibility to perform work is the consequence of a sovereign intervention of the state to fight a general risk situation, which the individual employer did not cause and is not responsible for in the broadest sense. This general risk is ultimately the result of political decisions to contain the risk of infection, which the employer does not have to bear. The Swiss Federal Supreme Court further held that an employer would have exposed itself to unreasonable legal risks if it had maintained its business in violation of the official decision to close the businesses.

As a result, employers who have to close their business due to official decisions in the context of the COVID-19 pandemic have an objective reason to refuse the work performance offered by employees and are therefore not obliged to pay the salary pursuant to Art. 324 SCO.

[1] For instance, see the decision of the Superior Court of the canton of Zurich of February 6, 2023 in the proceedings LA220011 available here.

[2] Decision of the Swiss Federal Supreme Court 4A_53/2023 of August 30, 2023 available here.