30. March 2022
Effects of the Russia sanctions on employers and employees in Switzerland
MME Legal | Tax | Compliance is an integrated advisory firm with offices in Zurich and Zug. MME supports and represents companies and individuals in all business and trendsetting topics in the areas of law, tax and compliance. Martina Aepli, partner at MME Legal, is a Certified Specialist SBA Employment Law and has many years of experience in advising and representing clients in all areas of labour law. Raphael Brunner, partner at MME Legal, is an interdisciplinary specialist in the area of trade and logistics. Trade compliance and thus also the topic of international sanctions are among his core areas of expertise.
Together with the cantonal trade association for HR services HRSZ, the authors point out a current labour law issue in this article.
Effects of the Russia sanctions on employers and employees in Switzerland
The current situation caused by Russia's attack on Ukraine and the resulting sanctions against individuals and companies have far-reaching effects. These are sometimes underestimated by the public. It is important to note that in the event of a breach of the sanctions, it is not the sanctioned individuals and companies that are punished. The penalty is imposed on the person who does business with a sanctioned person or company.
It should be noted that in some cases it is not clear from the outset which companies are subject to sanctions. This is due to the fact that often, especially in the case of the current sanctions in connection with the situation in Ukraine, it is not Swiss companies that are included in the sanctions lists, but individuals. These individuals may in turn have a relationship with Swiss companies. The corresponding Swiss companies are affected by the sanction if the sanctioned individual owns or legally or factually controls these Swiss companies. Whether this is the case is not determined by the sanction lists, but is assessed and decided by the SECO. A company that has doubts in this regard can therefore contact Seco for clarification.
If an employer is actually subject to sanctions, this has a significant impact on employment relationships. The resulting consequences for employment relationships are examined in this article.
The Ordinance on Measures in Connection with the Situation in Ukraine of 4 March 2022 (SR 946.231.176.72; "Ukraine Ordinance") prohibits in Art. 15 para. 2 the direct or indirect provision of "economic resources" to sanctioned persons or companies. The provision of labour is also considered an economic resource. If an employer is placed on the Swiss sanctions list, employees in Switzerland are prohibited from continuing to work for the employer.
A violation of this prohibition is punishable under Article 32 paragraph 1 of the Ukraine Ordinance in conjunction with Article 9 of the Federal Act on the Enforcement of International Sanctions (Embargo Act) of 22 March 2002 (SR 946.241). The severity of the penalty varies depending on whether the offence was committed intentionally or negligently, or whether it is a serious case:
§ An intentional offence is punishable by imprisonment for up to one year or a fine of up to CHF 500’000.
§ In serious cases, the penalty is imprisonment for up to five years. The custodial sentence may be combined with a fine of up to CHF 1 million.
§ If the offence is committed through negligence, the penalty is imprisonment for up to three months or a fine of up to CHF 100’000.
All of these acts are qualified by law as misdemeanours, which means that if they are punished, a criminal record entry will be made. It is also important to note that the penalty cannot validly be borne by the employer. It is therefore not an option for the employer and employee to agree that the employee will continue to work despite sanctions and that the employer will indemnify the employee in return.
It is better known that funds of sanctioned persons and companies are blocked. This makes it factually impossible for the sanctioned companies and individuals to settle outstanding wage payments. Employees of sanctioned employers must accordingly reckon with wage losses for unpaid wages.
Under certain circumstances, however, it is possible to obtain authorisation from Seco for both the performance of work and the payment of wages. According to Art. 15 Para. 3 of the Ukraine Ordinance, such authorisation is possible under the following circumstances:
§ Avoidance of hardship;
§ Fulfilment of existing contracts;
§ Fulfilment of claims which are the subject of an existing decision by a court, an administrative body or an arbitral tribunal;
§ fulfilment of official purposes of Russian diplomatic or consular representations; or
§ safeguarding Swiss interests.
Based on this exception, outstanding salary payments are more likely to be approved. However, this cannot be assessed conclusively and will also be examined by SECO on a case-by-case basis. The employer must apply for the corresponding authorisation.
If the work of individual employees is still required despite the sanctions, a permit can also be applied for from SECO. Here too, SECO decides after examining each individual case.
It has not yet been clarified by the courts – as far as can be seen – whether the sanctioned employers are still obliged to pay wages even though the employees no longer perform or are no longer allowed to perform work respectively. This question depends on whether the imposition of the sanctions is assigned to the employer's sphere of risk or whether a case of force majeure is assumed. In our view, it is likely that a court will conclude that the sanctions are attributable to the employer's sphere of risk and that there is therefore still an obligation to pay wages. For these further payments, sanctioned companies must therefore also apply for an exemption permit from Seco. However, it should be pointed out that employees generally have a duty to mitigate damages and are accordingly obliged to seek alternative earnings. If they fail to do so, there is a risk that they will later be credited with hypothetical earnings which will reduce any wage claim against the employer. From the employer's point of view, it also makes sense to inform employees of this for reasons of duty of care.
It should also be noted that the non-payment of wages during a continuing employment relationship does not qualify as unemployment and therefore does not lead to a claim for unemployment benefits. As long as an employment contract continues to exist, there is legally no unemployment. The employment contract must therefore first be terminated – by ordinary notice or, if necessary, without notice.
An alternative option is to take legal action for outstanding wage payments. If a court decision is available, this increases the chances that Seco will grant authorisation for payment. If the sanctions lead to the employer's bankruptcy, the employee can apply for insolvency compensation from the unemployment insurance fund. This application must be made within 60 days of the opening of bankruptcy proceedings, otherwise it is forfeited. The insolvency compensation covers a maximum of the last four months' wages before the opening of bankruptcy proceedings. Further wage claims must then be filed in the bankruptcy proceedings. The employer should also point out these possibilities to the employees as part of its duty of care.
Together with the cantonal trade association for HR services HRSZ, the authors point out a current labour law issue in this article.
Effects of the Russia sanctions on employers and employees in Switzerland
The current situation caused by Russia's attack on Ukraine and the resulting sanctions against individuals and companies have far-reaching effects. These are sometimes underestimated by the public. It is important to note that in the event of a breach of the sanctions, it is not the sanctioned individuals and companies that are punished. The penalty is imposed on the person who does business with a sanctioned person or company.
It should be noted that in some cases it is not clear from the outset which companies are subject to sanctions. This is due to the fact that often, especially in the case of the current sanctions in connection with the situation in Ukraine, it is not Swiss companies that are included in the sanctions lists, but individuals. These individuals may in turn have a relationship with Swiss companies. The corresponding Swiss companies are affected by the sanction if the sanctioned individual owns or legally or factually controls these Swiss companies. Whether this is the case is not determined by the sanction lists, but is assessed and decided by the SECO. A company that has doubts in this regard can therefore contact Seco for clarification.
If an employer is actually subject to sanctions, this has a significant impact on employment relationships. The resulting consequences for employment relationships are examined in this article.
The Ordinance on Measures in Connection with the Situation in Ukraine of 4 March 2022 (SR 946.231.176.72; "Ukraine Ordinance") prohibits in Art. 15 para. 2 the direct or indirect provision of "economic resources" to sanctioned persons or companies. The provision of labour is also considered an economic resource. If an employer is placed on the Swiss sanctions list, employees in Switzerland are prohibited from continuing to work for the employer.
A violation of this prohibition is punishable under Article 32 paragraph 1 of the Ukraine Ordinance in conjunction with Article 9 of the Federal Act on the Enforcement of International Sanctions (Embargo Act) of 22 March 2002 (SR 946.241). The severity of the penalty varies depending on whether the offence was committed intentionally or negligently, or whether it is a serious case:
§ An intentional offence is punishable by imprisonment for up to one year or a fine of up to CHF 500’000.
§ In serious cases, the penalty is imprisonment for up to five years. The custodial sentence may be combined with a fine of up to CHF 1 million.
§ If the offence is committed through negligence, the penalty is imprisonment for up to three months or a fine of up to CHF 100’000.
All of these acts are qualified by law as misdemeanours, which means that if they are punished, a criminal record entry will be made. It is also important to note that the penalty cannot validly be borne by the employer. It is therefore not an option for the employer and employee to agree that the employee will continue to work despite sanctions and that the employer will indemnify the employee in return.
It is better known that funds of sanctioned persons and companies are blocked. This makes it factually impossible for the sanctioned companies and individuals to settle outstanding wage payments. Employees of sanctioned employers must accordingly reckon with wage losses for unpaid wages.
Under certain circumstances, however, it is possible to obtain authorisation from Seco for both the performance of work and the payment of wages. According to Art. 15 Para. 3 of the Ukraine Ordinance, such authorisation is possible under the following circumstances:
§ Avoidance of hardship;
§ Fulfilment of existing contracts;
§ Fulfilment of claims which are the subject of an existing decision by a court, an administrative body or an arbitral tribunal;
§ fulfilment of official purposes of Russian diplomatic or consular representations; or
§ safeguarding Swiss interests.
Based on this exception, outstanding salary payments are more likely to be approved. However, this cannot be assessed conclusively and will also be examined by SECO on a case-by-case basis. The employer must apply for the corresponding authorisation.
If the work of individual employees is still required despite the sanctions, a permit can also be applied for from SECO. Here too, SECO decides after examining each individual case.
It has not yet been clarified by the courts – as far as can be seen – whether the sanctioned employers are still obliged to pay wages even though the employees no longer perform or are no longer allowed to perform work respectively. This question depends on whether the imposition of the sanctions is assigned to the employer's sphere of risk or whether a case of force majeure is assumed. In our view, it is likely that a court will conclude that the sanctions are attributable to the employer's sphere of risk and that there is therefore still an obligation to pay wages. For these further payments, sanctioned companies must therefore also apply for an exemption permit from Seco. However, it should be pointed out that employees generally have a duty to mitigate damages and are accordingly obliged to seek alternative earnings. If they fail to do so, there is a risk that they will later be credited with hypothetical earnings which will reduce any wage claim against the employer. From the employer's point of view, it also makes sense to inform employees of this for reasons of duty of care.
It should also be noted that the non-payment of wages during a continuing employment relationship does not qualify as unemployment and therefore does not lead to a claim for unemployment benefits. As long as an employment contract continues to exist, there is legally no unemployment. The employment contract must therefore first be terminated – by ordinary notice or, if necessary, without notice.
An alternative option is to take legal action for outstanding wage payments. If a court decision is available, this increases the chances that Seco will grant authorisation for payment. If the sanctions lead to the employer's bankruptcy, the employee can apply for insolvency compensation from the unemployment insurance fund. This application must be made within 60 days of the opening of bankruptcy proceedings, otherwise it is forfeited. The insolvency compensation covers a maximum of the last four months' wages before the opening of bankruptcy proceedings. Further wage claims must then be filed in the bankruptcy proceedings. The employer should also point out these possibilities to the employees as part of its duty of care.