Swiss Labor : “Fictitious Self Employment”

he crux with the supposedly independent service providers.

Supposedly self-employed service providers (e.g., for example freelancers, (sub-) contractors) are often in fact so-called “fictitiously self-employed persons”. As a result, the actual employer does not pay any social security contributions and there is a risk that the fictitiously self-employed person will not be covered by social protection for workers. If the fictitious nature of the self-employment is revealed, the employer faces various obligations, some of which are applied retroactively. But when is there fictitious self-employment and what are the legal consequences?

When is there an employment relationship or respectively fictitious self-employment?

In practice, the distinction between the two types of employment is important because of the different legal consequences. Therefore, in individual cases, it is necessary to examine, on the basis of economic circumstances, whether a service provider is actually self-employed or whether there is in fact an employment relationship with all the rights and obligations associated with it.

Different criteria may provide information about whether a service provider is classified as a salaried employee and thus his/her contractual partner is deemed the employer. The guidelines of the State Secretariat for Economic Affairs (SECO) “Procedure for verification of the self-employment of foreign service providers” of 1 July 2015 can be used as an orientation. According to the SECO, the following criteria indicate an employment relationship:

• The service provider does not have to provide a work result or a success, but rather a work performance on time;

• The service provider is integrated into the work organization of the contractual partner;

• The service provider is bound by the instructions of the contractual partner, that is, he does not act autonomously;

• The service provider cannot move freely on the market and, e.g. not conclude contracts themselves;

• The service provider operates on a regular basis and essentially only for one (main) contractual partner (and is thus economically dependent on it);

• The service provider is not paid on a flat rate but per hour;

• The service provider is subordinated to the contractual partner, that is, it must not only be accountable, but the contractual partner can control the performance;

• The service provider bears no entrepreneurial risk;

• The service provider has a need for protection.

These criteria provide only indications as to whether an employment relationship exists. The decisive factor is whether a service provider is economically dependent on a contractual partner. The greater the dependency of the service provider on the contractual partner, the more likely an employment relationship or a fictitious self-employment, respectively, is assumed. In general, the dependency on the contractual partner must be so intense that justification for the application of the protection rules provided under labor law is justified. Important: It is not the designation of a contractual relationship by the parties, but the actual co-operation.

Legal consequences

According to a widespread concept of the law, individual protection rules provided under labor law (e.g., protection against dismissal, continuation of salary payments in case of sickness, paid holiday, work reference, facilitated liability standard) should be applied, by analogy, to fictitiously self-employed persons. The “employer” is therefore at risk of being confronted with substantial financial claims by a fictitiously self-employed person that were not budgeted for or are not insured.

If a fictitiously self-employed person has registered with social security, he appears as self-employed and pays, at least, his social security contributions. If the fictitious nature of the self-employment is then discovered by the authorities e.g., during a payroll control and the fictitiously self-employed is deemed a dependent employee, the missing AHV and IV insurance contributions can be claimed from the actual employer for up to five preceding years. Accident insurance contributions must also be paid retrospectively and penal premiums may be charged. In addition, the employee must be connected to the occupational pension fund (pension fund), provided that he is not already registered independently.

If a fictitiously self-employed person is not enrolled in the social security scheme, both the fictitiously self-employed person and the actual employer can also be prosecuted for violating the penal provisions on undeclared work. The legal consequences are even more serious when the fictitiously self-employed person is a foreign service provider. For these reasons, it is advisable for companies which have unclear employment situations to verify them and to resolve any uncertainties.

By Marc Ph. Prinz, Partner and Anela Lucic, Attorney at Law, Vicher, Switzerland, a Transatlantic Law International affiliated firm. 

For additional information about labor and employment law in Switzerland, contact Marc Ph. Prinz at switzerlandlabor@transatlanticlaw.com. 

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