22 March 2022

Effects of the Russia sanctions on employees in Switzerland

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What do the sanctions against natural persons and companies that have been put into force as a result of Russia's attack on Ukraine mean for employees of sanctioned persons or companies?

The current situation caused by Russia's attack on Ukraine and the sanctions against natural persons and companies that have been put into force as a result 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 affects the person who does business with a sanctioned person or company.

What does this mean for employees of sanctioned persons or companies?

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 one's own employer is thus placed on the Swiss sanctions list, the employee is prohibited from continuing to work for the employer in Switzerland.

Often, however, especially in the case of the current sanctions in connection with the situation in Ukraine, it is not Swiss companies but natural persons who are on the sanctions lists. These individuals may in turn have a relationship with Swiss companies. The corresponding Swiss companies are affected by the sanction if the sanctioned natural person 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 SECO.

A violation of this prohibition is punished and penalised on the basis of Art. 32 para. 1 of the Ukraine Ordinance in conjunction with Art. 9 of the Federal Act on the Implementation of International Sanctions (Embargo Act; EmbA) of 22 March 2002 (SR 946.241). 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 1 million francs.
  • 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 misdemeanors (“Vergehen”), 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 employees to be promised indemnity by the employer in return for continuing to work.

It is better known that funds of sanctioned individuals and companies are blocked. This effectively makes it impossible for the sanctioned companies and individuals to pay outstanding wages. Employees of sanctioned employers must accordingly expect wage losses for unpaid salaries.

Under certain circumstances, however, it is possible to obtain authorization from Seco for both the performance of work and the payment of wages. According to Art. 15 Para. 3 of the Ukraine Ordinance, such authorization 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 likely to be approved. However, this cannot be assessed conclusively and will also be examined by SECO on a case-by-case basis.

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. 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. However, it should be noted 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 charged with hypothetical earnings, which will reduce any wage claim against the employer.

It should also be noted that the failure to pay wages while the employment relationship continues 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. However, employees have the right to terminate the employment contract without notice in the event of imminent insolvency if the claims arising from the employment contract are not secured (Art. 337a CO). There is also a right to terminate the employment contract without notice for important reasons, which may also include the existence of an employment relationship that cannot be fulfilled. However, as far as can be seen, this has not yet been judged by the courts. Termination without notice ends the employment relationship and leads to unemployment. However, employees should take care to document themselves correctly in this regard in order to be able to argue as successfully as possible against any suspension days ordered by the unemployment insurance fund.

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 authorization 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 prior to the opening of bankruptcy proceedings. Further wage claims must then be filed in the bankruptcy proceedings.