Legal risks associated with holiday payout
Holidays are intended for rest and relaxation – at least that is the principle, which is also enshrined in law. Employees in Switzerland are entitled to at least four (respectively five) weeks' holiday, which must essentially be taken. Yet the question repeatedly arises as to whether holiday payout is allowed instead of granting holiday in natura. Our lawyer Leena Kriegers-Tejura highlights the legal principles – a gentle reminder for anyone who has already asked themselves this question.
According to Art. 329a Swiss Code of Obligations (CO), every employee is entitled to at least four weeks' holiday, or at least five weeks' holiday for employees under the age of 20, in every year of service. Holidays must not be compensated by monetary payments or other benefits for the duration of the employment contract. It should be noted that this provision is mandatory. This means that in principle it is not possible to deviate from this regulation. In practice, there are certain exceptions that are permitted, and these are discussed below. In practice, however, it is evident that employers frequently make payments in lieu of granting holidays in natura, although this is not lawful. This article will highlight the key legal principles and refer to a new Federal court ruling which upholds case law.
As an exception, the jurisprudence permits holiday payout if it makes no sense to grant holiday. If an employee is scheduled for short-term duties only, e.g. to handle a large volume of work, or if the employee works very irregular part-time hours with working time that varies greatly, holidays can be included in the (hourly) wage. N.B.: If the employee regularly works part-time, it is not permitted for holidays to be compensated by the salary.
If, exceptionally, holiday payout is permitted, the entitlement must be apparent in the contract and must be shown separately on every payslip, as a percentage and an amount in Swiss francs. According to Federal court case law, a simple note such as "holiday compensation included in salary" is insufficient. If holidays are paid out, then it must be ensured that these requirements are met. Otherwise, the employer runs the risk that the employee will claim the holiday entitlement again, which can lead to the employer "paying double for holidays".
The holiday compensation percentage to be shown varies according to the number of weeks' holiday the employee is entitled to according to the employee's employment contract.
Four weeks' holiday
8.33% of hourly pay
Five weeks' holiday
10.64% of hourly pay
Six weeks' holiday
13.04% of hourly pay
The percentage is calculated as follows if the holiday entitlement is different, e.g. 22 days' holiday per year:
Holiday entitlement / (260 working days – holiday entitlement) --> 22/238 = 9.24%.
The courts have not answered this question unequivocally. Accordingly, it is impossible to provide a general answer to this, and a certain amount of circumspection is required. If a bookkeeper works 15 hours every week, it is part-time, but not irregular. Therefore, theoretically, and on the basis of current case law, holiday payout would not be permitted. This occurs frequently in practice but can be problematic.
The problem could be solved as follows: The holiday part is calculated and reported, but not paid for. Instead, the holiday part is paid for when the employee actually claims holiday. Employers often argue that this is impractical and laborious. This argument does not, however, justify paying for holidays with the salary. According to case law, merely whether or not the work is irregular is the deciding factor. And holidays can be paid for at the same time as the salary in the first case only.
If there are still holiday days available at the time of leaving that can no longer be taken, it is legally permissible to pay them out. If, however, an employee wants to take the remaining holiday entitlement in kind, this can only be refused for good cause. This can be the case, for example, if the employer still has not found a replacement for the departing employee and relies on the employee's work.
In this ruling, the Federal court had to clarify whether the holiday pay could be paid with the regular salary even in the case of full-time employment.
In the case in question an employee worked full-time. The employment contract detailed working time of 45 hours and hourly pay of CHF 18.00, plus a percentage of holiday pay. After the employer had terminated her employment, the employee claimed for – amongst other things – the holiday pay of CHF 17,340.70 gross, plus interest. The Basel-Landschaft West civil circuit court obliged the employer to pay (amongst other things) CHF 17,340 holiday pay, which was upheld by the Basel-Landschaft cantonal court. The employer took the case to the Federal court and demanded that the cantonal decision be quashed. The Federal court dismissed the employer's appeal.
It was contested before the Federal court whether the employer actually had to pay the holiday pay again. It was to be clarified whether, in the case in question, the employee had worked regularly or irregularly. The employee was employed full-time and the lower court deemed this to be regular work, which is why compensating the holiday pay with the regular salary payment was unlawful. The employer argued that irregular employment was to be assumed because of fluctuations in the workload.
The Federal court upheld its case law, according to which holiday pay can only be settled by payment using the salary in exceptional cases. The requirements are very strict. This is permitted only in the case of very irregular working time or irregular occupations, namely part-time jobs. In principle, an irregular occupation may also be present in the case of full-time working (recital 3.4).
The aim of the Federal court's case law is for the employee to actually have money available during their holiday. For this reason, holiday pay is to be paid in principle when the employee actually takes the holiday. In view of this, the exceptions are to be defined very narrowly. There must be insurmountable difficulties that cause payment during the holidays to seem unfeasible in practical terms in order for holiday payout to be qualified as legal (BGE 129 III 493 E. 3.3.).
If an employee is employed full-time by an employer, according to the Federal court it is not evident why monthly fluctuations in the working time should lead to insurmountable difficulties for the payment to be effected during the holidays. The Federal court had already ruled previously that the variable salary per se did not justify an exception to the rule of Art. 329d CO. With current systems it ought to be possible to correctly calculate the holiday pay in the event of salary fluctuations; in other words, this is not unreasonable.
The Federal court therefore comes to the conclusion that in the case of full-time work for one and the same employer, it is not allowed to pay the holiday pay with the salary. An exceptional settlement of the holiday pay entitlement due to monthly fluctuations of the salary owed is thus excluded.
Lawyer and partner at Morad Bürgi & Partner, Certified Specialist in SBA Employment Law and part-time Legal Counsel at HR Campus AG. She specialises in employment law and is a lecturer/expert for various universities of applied sciences, colleges of higher education and adult education institutions.
Published: 12. June 2023