Swiss Authorities Extend License Requirement to Intra-Group Personnel Lending
Obligation to Obtain Personnel Lending License
As a matter of Swiss law, any employer who hires out employees to a third party (so-called personnel lending) must in principle obtain a license. Personnel lending provided without the required license is prohibited.
Generally, the obligation to obtain a personnel lending license is triggered whenever the right to give substantial instructions to an employee is delegated to a third party (host company) while the employment remains with the formal employer. By way of exception from the general rule, personnel lending has under certain circumstances historically been exempt from the obligation to obtain a license, namely (i) if the personnel lending is only occasional, (ii) if the only person to be hired out owns the employer entity, or (iii) if the personnel lending is provided within one and the same group of companies. While the first two exceptions are provided for by statutory law, the exception for intra-group personnel lending was based on the previous official guidance given by the Swiss State Secretariat for Economic Affairs SECO (SECO).
On 20 June 2017, SECO published new directives to the cantonal labour offices, in which SECO now deviates from its former position exempting intra-group personnel lending from the license requirement. According to these new directives, any form of personnel lending will now generally require a license, even within a group of companies. In other words, if an employee is detached to render services to another entity within a group of companies, this will now in principle require a license. According to SECO, an exception is still available on a case-by-case basis provided that the intra-group personnel lending
- exclusively serves the purpose of providing technical, linguistic or other experience to the employee being hired out;
- serves the knowledge transfer within the group; or
- is only occasional and, therefore, is exempt based on the general criteria.
Based on these new directives, the third exemption previously recognized by SECO has now essentially been revoked. The two remaining exemptions concerning occasional personnel lending and self-owned businesses are however not affected and remain in effect.
SECO’s new position intends to protect the employees because the link of the employee to the formal employer often is only weak also because the minimum statutory notice periods are much shorter in personnel lending situations. While SECO’s directives are not binding, it seems likely that the courts will follow SECO’s new position. However, there is at least hope that the courts will take a more liberal stance when the link between the employee and the formal employer is more intense than it would be to the host company, e.g. in instances where the employee is employed by a local operative company but where the employee’s manager is employed in a different group company which may even be located abroad. In this scenario, it is completely aleatory which entity employs the manager and the employee will usually have a much closer connection to its formal employer than to the manager’s employer. Therefore, there are in our view at least good reasons to exclude these types of scenarios from the requirement to obtain a license even though it remains to be seen whether the courts will follow this line of argument.
Requirements to Obtain Personnel Lending License
To obtain a license, the employer
- needs to be registered in the Swiss commercial register;
- needs to have adequate business premises;
- must not conduct any other business which could jeopardize the interests of employees or host company;
- needs to have a Swiss or EEA citizen or a foreigner having the right of permanent establishment (C-permit) as responsible person for the personnel lending who guarantees for a proper personnel lending and has a clean criminal register; and
- has to place a bond of CHF 50,000 (which increases to CHF 100,000 if the employer hires out employees during more than 60,000 hours in a year) and of an additional CHF 50,000 if the employer hires out employees to host companies abroad.
Sanctions in Case of Non-Compliance
If an entity does not hold the required license even though the license requirement applies, the responsible persons (board members, HR manager) within that entity can be personally sanctioned with a fine of up to CHF 100,000. Equally, the responsible person within the host company can personally be fined up to CHF 40,000. In certain cases the company can be fined directly up to CHF 5,000.
SECO’s new directives have far-reaching consequences for groups of companies that are active in Switzerland. Whenever employees working in Switzerland or being employed by a Swiss employer receive their instructions from another group company, the situation needs to be thoroughly analysed in order to avoid liability risks for the company and for the responsible individuals.