The Executive Contract in Swiss Law
The legal situation of company executives (board members, CEOs, management members) is particularly complex in Swiss law, as it sits at the intersection of company law (CO, Book 26) and employment law (CO, Book 24). An executive may simultaneously hold an organic mandate (board member or director within the meaning of the CO) and a contractual relationship (employment contract or mandate). PBM Avocats advises executives and companies in Geneva and Lausanne.
Organic Mandate vs Employment Contract: Key Distinctions
| Aspect | Organic Mandate (Company Law) | Employment/Mandate Contract (Contract Law) |
|---|---|---|
| Source | Articles of association, GM decision, CO (arts. 705, 716) | Individual contract CO (arts. 319 et seq. or 394 et seq.) |
| Removal | At any time by GM, without reason or notice | According to statutory or contractual deadlines |
| Severance pay | Not provided for by law (except OaER for listed AG) | Possible if contractually provided |
| Dismissal protection | None (free removal) | CO protection (wrongful dismissal, inopportune timing) |
| Liability | Art. 754 CO (organic liability) | Art. 321e CO (contractual employee liability) |
The Executive Employment Contract
Most CEOs and management members are bound to the company by an employment contract. Particularities of this contract for executives:
- Remuneration: fixed salary, bonus, equity participation (options, shares), benefits in kind (car, housing)
- Notice period: often 3 to 6 months (above the statutory deadline), sometimes 12 months for large company CEOs
- Non-compete clause: frequent and often extensive due to access to trade secrets; see our page on non-compete clauses
- Severance pay: contractual golden parachute, subject to OaER/ORAb restrictions for listed AG
- Garden leave: standby clause during the notice period
The Executive Mandate Contract
Certain executives, in particular non-executive board members or directors working as self-employed persons, are bound to the company by a mandate contract (art. 394 et seq. CO). Key differences:
- The mandatary may terminate the mandate at any time (art. 404 CO), but must pay compensation if termination occurs at an inopportune time
- No protection against wrongful dismissal
- No automatic social insurance (the self-employed person must insure themselves)
- Broader deductibility of professional expenses
Liability of Management Organs (art. 754 CO)
Board members and directors have legal duties towards the company and its shareholders:
- Duty of diligence: manage with the care of a reasonably diligent board member
- Duty of loyalty: subordinate personal interests to those of the company (art. 717 CO)
- Specific obligations in the event of over-indebtedness: convene the GM and notify the judge (art. 725 CO)
In the event of breach of these duties, a liability action (art. 754 CO) may be brought by the company, its shareholders or creditors. The limitation period is 5 years from knowledge of the damage and 10 years from the damaging act.
The OaER/ORAb and Remuneration in Listed AG
The Ordinance Against Excessive Remuneration (OaER/ORAb), known as the Minder Ordinance, imposes strict rules on remuneration of executives in Swiss listed AG companies:
- Binding GM vote on total remuneration of the board and management
- Prohibition of severance pay exceeding one year's remuneration
- Prohibition of excessive signing bonuses
- Annual remuneration report mandatory in the management report
Is a CEO automatically an employee of the company?
Not necessarily. The position of CEO or managing director is an organic mandate governed by company law (CO). It may coexist with an employment contract, a mandate contract, or no specific contract at all. In practice, most executive directors have an employment or mandate contract alongside their organic mandate. The distinction is decisive for rights in the event of dismissal.
Can executives receive severance pay in Switzerland?
Yes, severance pay (golden parachutes) is legal in Switzerland for executives of non-listed companies. For listed companies, the Ordinance Against Excessive Remuneration (OaER/ORAb, the 'Minder' Ordinance) prohibits severance pay exceeding one year's executive remuneration. These restrictions apply to joint-stock companies whose shares are listed on a Swiss stock exchange.
How can a board member be removed from office?
A board member may be removed at any time by the general meeting of shareholders, without stating reasons (art. 705 CO). No notice period is required for removal from the organic mandate. However, if the board member is bound to the company by an employment or mandate contract, termination of that contract is subject to ordinary CO rules (notice periods, contractual severance pay, etc.).
Can directors be personally liable in the event of bankruptcy?
Yes, potentially. Board members and directors may be personally liable for damage caused to the company, shareholders and creditors if they have breached their duties (diligence, loyalty, art. 754 CO). In the event of bankruptcy, the bankruptcy administration may bring a liability action against the organs. Serious management errors (continuing a loss-making activity, failure to convene the GM in the event of capital loss) may engage their liability.
Are remuneration of directors of listed AG/SA subject to a shareholder vote?
Yes. The Ordinance Against Excessive Remuneration (OaER, known as the 'Minder Initiative') requires listed Swiss AG/SA companies to submit annually to binding approval by the general meeting the total remuneration of the board of directors and management. Shareholders vote on a maximum overall amount. The board of directors publishes an annual remuneration report.