Article published in ZHAW Impact (December 2022)
Nowadays, many employment relationships are no longer terminated by notice but by termination agreements, which brings many advantages. But beware of pitfalls!
Motives for concluding a termination agreement
Concluding a termination agreement has advantages for both employer and employee. In particular, the termination agreement creates legal certainty. The parties know where they stand, whereas, in the case of termination, uncertainties remain. The termination agreement can be used to settle all outstanding issues (e.g. leave of absence, severance pay, bonuses, internal and external communication, compensation for overtime and holidays, return of property, etc.). Since the employment relationship is not terminated by a notice of dismissal, the protection against dismissal for a certain period (no extensions of the employment relationship due to illness; Art. 336c CO) and the option to challenge the dismissal on grounds of unfairness do not apply, which is in the interest of the employer. This waiver by the employee of the protection against dismissal in terms of time and substance is usually offset by a monetary payment by the employer. In addition to financial aspects, fixed formulations of the employer’s reference and internal and external communication as well as a clause about possible unemployment are in the interest of the employee (see practical tips).
It often transpires that the employer presents the employee with a termination agreement, demands that this be signed immediately, and threatens to terminate the agreement if the employee fails to do so. This is not permissible and, according to the case law of the Federal Supreme Court, even leads to the nullity of the termination agreement. The employee must be given a sufficiently long period to consider the termination agreement. However, the length of this period has not been fully clarified, though a reflection period of five days seems reasonable.
The need for mutual concessions
By entering into the termination agreement, the employee waives protective provisions that the law provides for in his or her favour (in particular, waiting periods, continued payment of wages in the event of illness). According to the Federal Supreme Court, this waiver by the employee must be properly offset by consideration by the employer in the termination agreement. The termination agreement must appear appropriate under the specific factual and legal circumstances at the time of its conclusion.
To assess whether a termination agreement is permissible, rules of thumb have been developed in practice. For example, the employee must not be worse off than he or she would have been in the case of the employer’s termination (rule of thumb 1). The employee must then have a reasonable interest in concluding the termination agreement (rule of thumb 2). This rule can (but does not have to) lead to a relativisation of rule of thumb 1, for example if the employee wishes to leave at short notice of his or her own free will.
Consequences of an invalid termination agreement
The Federal Supreme Court has assumed nullity in several decisions in the past. This means that the parties must be restored to the position they were in if the termination agreement had not been concluded. The employment relationship would therefore still be in the non-terminated state. A legal consequence of this nature would probably not be appropriate in most cases. Part of the doctrine, therefore, takes the position that the employment relationship is to be regarded as terminated even if it is inadmissible. However, the employee should retain the legal or collective employment agreement rights that have been circumvented (e.g. continued payment of wages in the event of illness).
The termination agreement can lead to adjustment days for unemployment compensation. Therefore, the termination agreement should contain appropriate wording, such as: “If no termination agreement had been concluded, the employer would have terminated the employment relationship through no fault of employee X.” Frequently, termination agreements also refer to the employer’s duty to issue a “favourable reference” to the employee. Such clauses are worthless, as this obligation already exists by law. It is better to use specific formulations, such as: “The employer undertakes to issue and deliver to the employee an interim reference in accordance with the appendix within 10 days of the employee’s binding signature. The final reference corresponds to the interim reference (adjusted in the tense), whereby the final paragraph should read as follows: “Ms. X is leaving us as of 31 December 2022 because we were no longer able to offer her a suitable position as part of a reorganisation, which we very much regret. We thank Ms. X for her very valuable and committed work and wish her all the best and continued success in the future.”