26 July 2016

Stumbling Block - Mandatory Social Plan

Obligation to set up a Social Plan
When a company gets into financial trouble, it often finds itself forced to reduce staff for cost reasons. In order to mitigate the consequences and to avoid hardship cases, the law provides for a mandatory social plan. However, the employer can also benefit from the social plan. The conclusion of a social plan can help avoid or at least reduce the image loss that can result, particularly in collective redundancies. Further, a social plan can motivate (strategically important) employees to remain in the company, by showing them that the employer is trying to take care of his employees even in financially hard times.

What must a Social Plan contain?
The parties are free regarding the content. The only requirement is that the social plan does not compromise the continuation of the business operation. Common rules are termination benefits, assistance with job search, retraining and cash benefits in cases of hardship.

Differentiation between employees is not permitted due to the prohibition on discrimination. However, regulations can be put in place that provide a lower, or even no, termination payment to workers who have rejected another reasonable employment position in the company concerned. Furthermore, the payment of a lumpsum can be made conditional on the employee not finding a new job before the expiry of the notice period.

How is the Social Plan negotiated?
With whom the employer has to negotiate is determined in each individual case. If the employer is subject to a collective bargaining agreement, it has to negotiate with the relevant workers' organizations or unions. Otherwise, the negotiations are with the employee representative body or, in its absence, directly with the employees. If agreement cannot be reached, it must be referred to an arbitration tribunal. This then sets up a social plan by binding decision.

Mandatory Social Plan not absolute for Collective Redundancies
Only larger companies that intend to make collective redundancies are subject to an obligation to set up a social plan. It covers employers who

  • employ at least 250 employees and
  • intend terminating at least 30 employees within 30 days.

The employer cannot achieve exemption from the social plan obligation by tactically staggering dismissals. If the terminations are based on the same operational decision, all relevant redundancies will be added together.
Exception to the obligation to set up social plan in bankruptcy or restructuring proceedings
The provisions on the social plan do not apply to a collective redundancy in the context of bankruptcy or when restructuring proceedings take place which lead to the conclusion of a composition agreement. No exemption from the social plan obligation occurs, on the other hand, if the employer achieves the restructuring without the conclusion of a composition agreement.

Effects of a pre-existing social plan in bankruptcy or restructuring proceedings
Often, a company will have to undertake a restructuring, which is connected to a collective redundancy, to avoid bankruptcy or restructuring proceedings. A social plan prepared in this framework also endures in the event of insolvency. This is particularly advantageous for employees. While other employees' claims are privileged only up to an amount of
CHF 148'200 and satisfied as a priority, this restriction does not apply to claims by employees under social plans.

Our insolvency and employment law teams will be happy to answer any questions.

Authors: Dr. Jana Essebier, Dr. Sara Ianni

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