Overtime: What is the legal situation?

A new decision by the Swiss Supreme Court

In everyday business life, the question often arises, under which conditions supplementary hours of work must be compensated. To answer this question, Swiss law requires us to distinguish between so-called simple “over-hours” (Überstunden) and overtime (Überzeit).

“Over-hours” (Überstunden) refers to the working hours in excess to the agreed regular working time (we reported: working time – crystal clear?), the so-called normal working time (Art. 321c para. 3 CO). In principle, it is within the autonomy of the parties to contractually stipulate which working time is owed, whereby 40 or 42 hours are most common for a full-time position (8 or 8.24 hours per working day).

In contrast, overtime (Überzeit) means according to art. 13 of the Labor Law the working hours that exceed the legally allowed maximum. The maximum weekly working time for most employees is 45 or 50 hours. However, office staff and technical and other employees, including sales staff in large retail companies, are only entitled to compensation of overtime work exceeding 60 hours per calendar year.

The distinction between simple “over-hours” (Überstunden) and “overtime” (Überzeit) is crucial for multiple reasons. In particular, “overtime” (Überzeit), is strictly regulated by Labour Law which is public law:

  • “Over-hours” (Überstunden) may be compensated with a supplement of at least one-quarter of the normal wage or, with the employer's consent, by time off in lieu of at least equal length.
  • It is possible to exclude the compensation as such as well as the supplement in writing, i.e. to settle with the regular salary.
  • “Overtime” (Überzeit) must also be compensated with the normal salary and a supplement of at least one-quarter thereof or by time off in lieu within a certain period.
  • The provision regarding “overtime” (Überzeit) is mandatory, making any deviating agreement null and void.


What applies to managers?

Regarding members of management, working time is usually not precisely defined in hours. It is assumed that the increased workload is compensated by the higher salary. The reason behind that assumption is that the scope and weight of the tasks to be performed by the managers are more important than the hours put into that work. According to their responsible and important position, managers can also generally organize their working hours to a large extent themselves.

Therefore, without an explicit contractual obligation of the exact working hours, executives are only entitled to compensation for “over-hours” (Überstunden),

  • if they are assigned tasks in addition to the contractually agreed obligations, or
  • if the entire workforce works substantial amounts of extra hours over a long period of time.

The threshold for falling outside of the scope of protection of Labor Law is higher. Not every person who takes on management tasks within a company is exempt from the right to compensation for “overtime” (Überzeit). Rather, this requires a "higher executive position" (art. 3 lit. d ArG). In accordance with art. 9 of Ordinance 1 to the Labor Law, a higher executive position is only held by a person who, due to his position and responsibility and depending on the size of the company

  • has far-reaching decision-making powers or
  • can significantly influence decisions of great importance and thus have a lasting impact on the structure, the course of business and the development of a company or part of a company.


Current jurisprudence

In the recent judgment 4A_38/2020 of July 28, 2020 the Swiss Supreme Court had to determine whether a trader who was not only employed by a LLC but also held significant stakes in that company should be defined as such a “higher executive”.

  • In a first step, the Swiss Supreme Court referred to the Federal Council's 1960 dispatch where managing directors and representatives of a limited liability company were listed as typical examples of such a position, but not simple stakeholders without such functions; a fact that has apparently been missed by the State Secretariat for Economic Affairs in SECO in its guidance and also by part of the doctrine.
  • However, the Supreme Court clarified that management and/or representation powers are only indications of a higher management position, similar to a position of trust in the company, an authority to give instructions or a high salary. None of these criteria are mandatory nor are they sufficient to justify the exception of overtime compensation. Decisive is rather the overall picture of the activity carried out in dependence of the structure of the company.
  • With regard to the specific case, the Supreme Court found that the trader was also a founding and stakeholding partner of the LLC and drew a comparison with a law firm, where "equity partners" are regularly not entitled to the protection of Labor Law with regard to “overtime” (Überzeit), even if they have less far-reaching competencies than other participating partners who are involved in human resources, for example.
  • The Supreme Court then considered that the trader in question, due to his voting powers as the third largest stakeholder, could have a decisive and lasting influence on the structure of the LLC, despite the lack of executive or representative powers. In the strongly performance-related as well as high but fluctuating income, the Supreme Court finally saw an indication that the trader worked in a similarly self-determined way as if he had not subordinated himself to a legal entity with its legally and regulatory bound organization structure.
  • Against this backdrop, the court concluded that the trader exercised a higher executive activity and therefore denied him the public law protection by Labor Law in regard to “overtime” (Überzeit).


Outlook

The discussed case shows that companies regularly struggle to determine which employees need be compensated for supplementary working hours. Generally, a (higher) executive position requires that the manager in question oversees multiple employees, though there are no blanket categories. In fact, the highest court of Switzerland did not consider the criterion of the authority to issue instructions to be decisive in the particular case at hand, since it had to assess a relatively small group of traders with equal status who determined the structure of the LLC themselves.

We advise to remain cautious: Even if an employee is contractually qualified as a (higher) executive, a court may not share this legal view in case of a dispute. Since the decision-making powers based on the position and responsibility in the company are to be evaluated differently depending on the size and organization of the company, employers will continue to face a little transparent legal situation.

For a reliable legal assessment, each company must be examined separately, and the specific circumstances of the individual members of management shall be taken into consideration. We would be happy to conduct such individual case studies or answer other legal questions regarding both “over-hours” (Überstunden) and “overtime” (Überzeit) that may arise within your company.

November 2020 | Authors: Linus Hug, Michèle Stutz

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