Intra-group staff leasing on an international basis

Practice of intra-group staff leasing before June 2017

Given the fact that with intra-group staff leasing there’s no intention of making a profit in most cases and therefore it isn’t of a commercial nature, the State Secretariat for Economic Affairs (SECO) and the cantonal employment market authorities pursued a liberal practice for intra-group staff leasing until June 2017. This meant that one group company was able to lease employees to another group company without any issues or the need for a licence. Some groups were even merged to form companies whose sole purpose was the leasing of staff without the need for licences in order to flexibly cover the staffing needs of group companies.

But on 20 June 2017, SECO issued a directive to the cantonal employment market authorities listing specific indicators that must be fulfilled in order for intra-group staff leasing without licences to continue. SECO justified this directive based on the fact that it had never been the intention of the legislator to exempt intra-group staff leasing from the licence requirement as a general rule, which is by all means true.

SECO indicators for licence-exempt intra-group staff leasing

According to the directive from 20 June 2017, when assessing the licence requirement for intra-group staff leasing, the indicators listed below, rather than the criterion of commercial nature as defined in the directive, are relevant:

“Within the meaning of an exception, staff leasing can be permitted within a group of companies without the need for licences if the leasing relates to an individual case and is exclusively for the purpose of acquiring specialist, language or other experience that serves the transfer of expertise within the group or that occurs on an occasional basis. The criteria listed below can be an indicator of licence-exempt intra-group staff leasing:

• The employee is employed primarily to perform work at one group company. The leasing of staff to another company within the group is fundamentally not intentional and occurs occasionally in individual cases.
• Staff leasing isn’t the main purpose of the lending company.
• Staff leasing takes place for a limited period.
• Staff leasing takes place occasionally. The employer can, for example, bridge a decline in orders and the hirer can cover a short-term need for additional personnel within the group.
• The focus is upon the acquisition of experience and/or the accumulation/forwarding of specific knowledge and expertise.
• The employee has the opportunity to work abroad or gain professional experience in another group company.
  
• The transfer of expertise takes place within the group, whereby, for example, new software is implemented throughout the entire group or an employee is trained on how to use a new machine.

Appraisal

First, it’s important to recognise that these indicators don’t represent hard-and-fast rules that absolutely must be followed to the letter. On the contrary, the list of example characteristics that are typical of licence-exempt intra-group staff leasing are intended to make it easier for the cantonal employment authorities to identify such leasing.

However, in doing so, this SECO provision also causes considerable legal uncertainty. In addition, the SECO directive doesn’t qualify as either legislation in the formal sense or as an ordinance of the Federal Council. What’s more, given the fact that SECO had to quickly intervene in 2017 in order to put an end to a business practice for intra-group staff leasing that wasn’t provided for under law, after five years it’s now questionable from a legal perspective and therefore also unsatisfactory that this important topic in practice is still not regulated either at a legislative level or in the form of ordinances.

Intra-group staff leasing on an international basis

The Recruitment and Hiring of Services Act (AVG), which governs the leasing of staff at a legislative level, states the following:

“For the leasing of staff abroad, an operating licence is required from SECO in addition to the cantonal licence. The leasing of staff from abroad in Switzerland is not permitted.”

Clarification is required for this provision with regard to the intra-group leasing of staff from Switzerland abroad. If the criteria listed above are met, the intra-group leasing of staff abroad requires neither a cantonal licence nor a SECO licence. SECO expressly states this in its directive:

“If cross-border staff leasing takes place within the framework described above, this can be done without the need for a licence – contrary to the legal provision of Art. 12 para. 2 of the AVG.”

Unfortunately, the directive does not comment on the reverse case, i.e. when personnel is to be hired out from abroad to Switzerland within the group. Despite the unambiguous legal regulation which doesn’t permit the leasing of staff from abroad in Switzerland, the same applies: if intra-group staff leasing from abroad in Switzerland is set up in such a way that it can occur without the need for a licence in line with the above-listed SECO criteria, then it’s permitted.

Groups that lease employees from group companies abroad to Swiss group companies are, therefore, required to adhere to the indicators defined by SECO in its directive in order to prevent the prohibited leasing of staff from abroad. Violations of the licence requirement and of the prohibition of leasing staff from abroad in Switzerland can result in penalties (fines of up to 100,000CHF for the lending company and up to 40,000CHF for the hiring company). 

Options in practice

A secondment is an alternative option to staff leasing. With a secondment, an employee is sent to a company abroad, usually for a duration of one to two years and on rare occasions for more than three years. During a secondment, the employee is normally subject to the social security system in their original country of residence. Unlike with staff leasing, the right of instruction isn’t transferred. The employee serves its employer abroad, where they perform a specific job on the basis of a service contract between the two companies. For the purpose of the secondment, a secondment agreement is usually drafted between the employer and the employee as a supplementary agreement to the employment contract. This governs various aspects such as relocation and living costs. The secondment of an employee from a group company abroad to a group company in Switzerland is generally possible without a licence. Of course, the provisions of the Posted Workers Act, which regulates minimum work and wage conditions, must be complied with.