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Question
"What should all be included in an employee participation program?"
Jurilo Answer
An employee participation program (EPP) is an instrument relevant to employment law and taxation that enables employees to participate in the company – typically in the form of shares, options, or profit-sharing. For such a program to be legally effective and practicable, it should meet certain minimum content and legal requirements.
Essential Contents of an Employee Participation Program:
1. Legal Basis and Form:
- The program should be in written form, especially if it is part of the employment contract or a supplementary agreement (Art. 320 para. 1 CO).
- It can also be regulated in a set of rules that becomes part of the employment relationship.
2. Participation Conditions:
- Clear definition of which employees can participate (e.g., by function, length of service, performance).
- Possible conditions such as probationary period, minimum employment duration, or waiver of termination.
3. Type of Participation:
- Shares (with or without voting rights), options, virtual shares (phantom shares), profit-sharing, etc.
- For options: exercise conditions, lock-up periods, term, exercise price.
4. Valuation Principles:
- How is the value of the participation calculated? (e.g., market value, book value, company valuation)
- For non-listed companies: valuation method and timing of valuation.
5. Vesting and Lock-up Periods:
- Staggered timing of ownership transfer (vesting).
- Lock-up periods for sale or exercise.
6. Departure and Termination of Employment:
- Regulation of what happens to the participations upon termination, retirement, disability, or death.
- Repurchase rights or obligations of the company.
7. Forfeiture of Participation:
- Conditions under which the participation is forfeited (e.g., in case of summary dismissal by the employer pursuant to Art. 337 CO).
8. Tax Treatment:
- Transparency regarding tax consequences for employees (e.g., taxation upon allocation or exercise).
- Reference to reporting obligations to tax authorities.
9. Confidentiality and Secrecy:
- Protection of trade secrets, especially when aware of sensitive company data.
10. Jurisdiction and Applicable Law:
- Generally Swiss law and jurisdiction at the employer's registered office or the employee's domicile pursuant to Art. 34 CPC.
Legal Framework
- The EPP must not violate mandatory employment law (e.g., equal treatment requirement, wage protection under Art. 322 CO).
- A clear distinction must be made between wage components and participations, particularly with regard to social security contributions and continued wage payment obligations.
- For listed companies, additional stock exchange regulations must be observed (e.g., disclosure obligations under financial market legislation).
Conclusion
An employee participation program should be carefully designed to avoid employment law, tax, and corporate law risks. It is advisable to develop such a program in close coordination with legal and tax professionals.
Sources
- https://www.fedlex.admin.ch/eli/cc/27/317_321_377
- Art. 320 para. 1 CO
- Art. 322 CO
- Art. 337 CO
- Art. 34 CPC
