Switzerland quickly adapts to franc’s appreciation against euro

On 15 January 2015 the Swiss National Bank discontinued the Swiss franc/euro minimum exchange rate introduced on 6 September 2011. This decision was totally unexpected, surprised eve-rybody and came as a shock to the Swiss economy for which the European Union is by far the biggest export market.

Immediately after the publication of the Swiss National Bank’s decision, the Swiss franc appreciated from 1.20 to 1.00 swiss france to the euro while after the first shock the situation has improved to level off by mid-February 2015 at approximately 1.065-1.08 francs to the euro.

Swiss exporters having their main export market in the EU and their main cost base in Switzerland are affected most as their cost base increased overnight by more than 10%. Most of them had already sourced their purchases in euro wherever they could, but those with a substantial workforce in Switzerland were hit by the currency-induced rise in personnel cost. This article shows how Switzerland adapted to this situation.

Increase in productivity

Numerous Swiss exporters suffering from the Swiss franc’s appreciation against the euro have well-filled order books. For them, a temporary extension of the working hours at unchanged pay is the appropriate solution as it increases work productivity.

Normally any amendment of contractual working hours requires the consent of the affected employee. Nevertheless, important collective bargaining agreements – partially replacing individual employment agreements – contain so-called “crisis provisions” under which the employer may adapt certain terms unilaterally and on short notice to overcome economic difficulties. Under such collective bargaining agreements the employer is authorised to extend the working hours in compliance with their terms without employee consent.

Quite a few Swiss exporters have availed themselves of this attractive measure to counteract the Swiss franc/euro appreciation.

Short-time work

For other Swiss exporters this would, however, be of no help as they suffer from a decline of orders from EU customers. Nevertheless, an immediate lay-off of people, although quite easy under the liberal Swiss labour law, would not be an adequate measure as associated to a long-term loss of know-how, while currency exchange ratios are usually temporary in nature and Swiss exporters are trained in constantly improving the quality of their products and services to maintain their competitiveness.

For such exporters, short-time work is the right answer. Short-time work means a reduction of work time whereby the employee’s loss of salary is in part compensated by the government. Nevertheless, the government only allows short-time work for certain defined reasons, which usually do not include ordinary operational risks such as currency fluctuations. But the discontinuation of the Swiss franc/euro minimum exchange rate and the Swiss franc’s resulting overnight apprecia-tion by more than 10% was so extraordinary and unexpected that the Swiss government shortly thereafter decided to exceptionally allow the strong Swiss franc as a reason for short-time work.

How does it work?

Short-time work means that the employer reduces working hours and, proportionally, the relevant pay, while the unemployment insurance compensates the employee for 80% of such salary reduction (the uncompensated 20% being borne by the employee). No short-time compensation is, however, available for any part of a salary that exceeds 10,500 francs (US$10,750) per month.

As short-time work is a temporary measure only, the employment contract is not modified and all contractual rights and liabilities remain in force. The employer has in particular to continue paying the statutory and contractual social security contributions on the basis of the full salary, irrespective of the short-time work.

Short-time work is only available for permanently employed employees obliged to pay contributions to unemployment insurance, and who have neither been terminated nor have terminated their employment contract. Further, the employer must apply for short-time work at least 10 days before it starts, and its application is only approved if all of the following conditions are satisfied:

• Each affected employee consents to the short-time work and approves bearing the 20% of the salary reduction not covered by unemployment insurance. The employer must continue to pay the full salary to any dissenting employee;
• The loss of work corresponds to at least 10% of the normal working hours per calendar month;
• The loss of work is due to economic reasons or exchange rate fluctuations and is unavoidable;
• The loss of work is expected to be temporary, so that jobs can be saved by applying short-time work.

The permit is usually granted for three months which, however, may be renewed upon an application for extension.

If the government approves the application, the employer must within three months of the relevant payroll period notify the unemployment insurance authorities applying for compensation of short-time work. Until the unemployment insurance kicks in, the employer has to advance the relevant compensa-tion (80% of the salary reduction).

Current situation

So far only a minority of the Swiss companies seems to have been forced to take the measures discussed in this article, which shows the strength of the Swiss economy. Further, the recent depreciation of the Swiss franc against the US dollar has helped as the US is the second-biggest export market of Switzerland.

Nevertheless, such measures being available on short notice are an impressive proof of the flexibility of Swiss labour market regulations. Liberal labour laws are one of the key factors for the Swiss record-low unemployment rate. In December 2014, unemployment was 3.4% according to the Swiss official definition, and 4.1% according to International Labour Organisation (ILO) definition, compared with 9.9% (ILO definition) within the EU.

Gili Fridland Svensson is a managing associate and Dania Salvisberg-Schneider is an associate with VISCHER’s labour law group, and Yue (Fiona) Gao is an associate on VISCHER’s China Desk