Bonus Pay in Switzerland - Discretionary or Not?
Swiss labor law does not regulate bonus payments. Whether or not an employee is entitled to bonus pay is left to the contractual agreement between the parties.
As clarified by the Swiss Supreme Court in a recent decision, a repeated, unconditional bonus payment as such does not give rise to any claim if its discretionary nature was contractually agreed (Supreme Court decision of 3 March 2021).
Variable compensation
There are different forms of variable compensation. The law makes the following distinctions:
Variable salary, where the amount of the bonus owed is contractually defined.
A bonus to which the employee is entitled in principle, but the amount is not pre-defined, (so-called “unechte Gratifikation”).
A bonus that is entirely at the discretion of the employer (so-called “echte Gratifikation”).
When an employment contract is terminated, the views on what was agreed upon often diverge. If no explicit contractual provision was made, the courts would rule as follows:
If a bonus has been paid without the explicit qualification of its discretionary nature for at least three consecutive years, it is considered as tacitly agreed.
In this case, the employee is entitled to a bonus in principle. The employer retains some discretion in defining the amount.
Bonus payment subject to employer’s discretion
To prevent regular bonus payments from setting a precedent, bonus payments are often explicitly qualified as “discretionary bonuses” at the time of payment. However, this may not always eliminate employees’ future bonus entitlements.
The Swiss Supreme Court has ruled that claiming discretion is not an option if bonus payments were made for decades and the employer would have had the opportunity to deny a bonus for a particular year (e.g. in case of poor course of business or employee's underperformance). The same applies if the “discretionary bonus” reservation is to be regarded as an empty phrase, in the sense that the employee could assume in good faith that he or she was, in fact, entitled to the bonus under given circumstances.
To avoid legal uncertainty, it is recommended to clearly stipulate the exact requirements for bonus payments in the employment contract. The agreement should also include specific language on what happens in case of termination of the employment.
If the parties explicitly agree on the discretionary nature of the bonus in the employment contract, such reservation stays effective, even if regular bonus payments are made without the reservation being renewed with each payment.