Payment of the bonus, an obligation of the employer?

Swiss law contains no provision defining and addressing specifically bonuses. According to its characteristics, a bonus will be considered either as a gratification (art. 322d CO) or as part of the salary of the employee (art. 322 CO).

The distinction between gratification and salary is crucial in Swiss employment law as the rules governing gratifications are much more flexible than the ones applicable to the payment of the salary.

The payment of a gratification depends, at least partially, on the goodwill of the employer. If the payment of a gratification has not been expressly agreed between the employer and the employee, it is entirely optional. If the payment of a gratification has been agreed, it is mandatory but the employer enjoys a certain freedom in fixing its amount. Courtsalso recognize that the employer may, within the limits of art. 27 CC, subordinate the payment of a gratification to conditions, such as the presence of the employee in the company or the absence of termination of the contract.

At the contrary, the employer does not have any latitude in the payment of the salary. Art 322 I CO defines the salary as a compensation allocated to the employee in return of an accomplished work. The parties may also agree, in addition to or instead of the ordinary remuneration scheme, on a variable salary based on the annual turnover or benefit of the company (art. 322a CO), or on a remuneration based on the results of the activity of the employee. As already pointed out, whatever the scheme of remuneration agreed between the parties, the payment of the salary is mandatory, which means that the employer cannot submit its payment to conditions such as the presence of the employee in the company for example.

The qualification to be given to a bonus – salary or gratification – must be operated on a case-by-case basis, being reminded that such qualification should reflect the willingness of the parties. However, determining such willingness is often not an easy task and is often the subject of disputes between the employer and the employee. This is why Courts rely on a number of principles established by case law when if comes to legally defining a bonus.

According to the Swiss Supreme Court, in the absence of an explicit agreement, the payment of a “gratification” becomes mandatory if it has been paid for three consecutive years, unless the employer made an express reserve by a declaration addressed to the employee. However, even if the employer expressed a reservation regarding the payment of the “gratification”, it remains mandatory if such reservation may be considered as a simple formula not reflecting the agreement between the parties.

Courts also consider that a gratification should remain subordinate to the salary and should therefore be of secondary importance in the remuneration of the employee. In this regard, a very high amount in comparison to the yearly salary, equal to or even higher than the yearly salary, paid regularly, is usually considered by Courts as a variable salary.

Working contracts frequently stipulate that the payment of the bonus will depend on the achievement of certain objectivesby the employee. When the achievement of such objectives iseasily measurable, Courts tend to consider that the bonus becomes part of the salary. On the contrary, Courts are more likely to qualify the bonus as a gratification when the objectives set out to the employee are vague, or when the employer has a large discretion in determining whether such objectives have been fulfilled by the employee or not.

Ultimately, as already pointed out, the legal qualification of the bonus will necessarily imply a careful review of all relevant circumstances, which involves not only analysing the working contract and other existing company regulations, but also determining the practicebetween the parties and the policy of the company towards this matter.

Nicolas Mossaz

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This website aims to provide general information regarding Swiss law and should not be regarded as a legal opinion. For more specific advice, do not hesitate to contact us.