Pitfalls in relation to sick pay

Under Swiss law, an employer is obliged to provide sick pay for a specific period of time which progressively increases in line with the number of years of service (Article 324a ss. Swiss Code of Obligations). Usually, employers provide daily sickness allowance insurance for their employees covering 80% of salary during a period of up to 730 days of illness. It is not uncommon for an employer to agree to pay the remaining 20% of salary as a social benefit.

Contract terms providing for such additional benefits require particular care, as was recently confirmed by a decision of the Swiss Federal Supreme Court (4A_50/2011 of 6 April 2011).  The case before the Court concerned the meaning of a contract clause in the following terms:

You will be insured under the collective daily sickness allowance insurance which will be financed by the employer. In the event of incapacity to work due to illness, you will be paid 100% of salary for up to 730 days from the beginning of the illness.”

The employee fell ill during his notice period and was still sick after his  employment came to an end. A dispute arose over whether the employer’s obligation to make salary payments ended on the termination date or continued for the duration of the illness up to a total of 730 days.

The Swiss Federal Supreme Court held that where the employment contract does not provide for daily sickness allowance insurance, sick pay by the employer is presumed to end on the last day of the employment contract.  In contrast, where an employment contract does provide for daily sickness allowance insurance, there is a presumption (unless the contract states otherwise) that an employee whose employment ends while they are receiving sickness allowance will nevertheless continue to receive such benefits until they recover or the insured period expires, whichever happens sooner.  Furthermore, (and again, unless the contract says otherwise) in the event that the employer has agreed to pay 100% of salary which is only partly covered by the insurance, the employer must continue to pay the difference for this entire period.

In light of this case, employers should take care to explicitly limit their liability to make payments to the duration of the employment contract.