A recent decision from the Swiss Federal Supreme Court provides an important reminder that, even within multinational corporate groups, employers cannot assume that one group company can act on behalf of another when managing employment relationships. The Court ruled that a parent company could not validly terminate an employee’s employment or enter into a separation agreement where the employee was legally employed by a subsidiary.

The facts

The case concerned a senior executive who was originally employed by the parent company of an international group. His employment was later formally transferred to a subsidiary, with the transfer documented in writing and accepted by the employee. Following the transfer, the subsidiary became responsible for paying his remuneration and remained the contractual employer.

Despite this, the executive continued to occupy highly senior group-wide roles. He served in positions including Global Chief Operating Officer and Deputy CEO of the parent company, participated in executive management activities, reported directly to the Group CEO and performed duties across the wider corporate group.

Several years later, the executive entered into a separation agreement with the parent company providing for the termination of his employment and significant compensation payments. When a dispute arose, the matter reached the Swiss courts.

Parent company was not the employer

The Swiss Federal Supreme Court held that the separation agreement was void because the parent company was not the employee’s contractual employer. The Court reaffirmed a fundamental principle of Swiss law: a corporate group is not treated as a single legal employer. Each company within the group remains a separate legal entity with its own rights and obligations.

Although the executive worked closely with the parent company and held senior group-wide responsibilities, those operational realities did not alter the legal identity of his employer. The decisive factor was the employment relationship established through the parties’ contractual arrangements and their documented intentions.

Operational control does not equal employer status

The judgment will be particularly relevant for multinational businesses where employment structures can be complex. The Court’s decision confirms that such arrangements do not automatically transfer employer status. The entity that is party to the employment contract generally remains the legal employer unless there has been a proper transfer of the employment relationship.

Before negotiating a termination or separation agreement within a multinational group, employers should verify which entity is the employee’s legal employer. Senior reporting relationships, management responsibilities and group-wide functions may not be enough to give another group company authority to terminate the employment relationship.

Fuente: Crowe