Due to the free movement of labour within the European Union and EFTA, a considerable number of employees in Switzerland are exposed to so-called wage dumping. Wage dumping refers to the payment of wages below the market level, usually for foreign labour, which imposes unfair competition on employees. In this article you will find out what wage dumping is, which sectors are most affected by it and what measures are being taken to combat wage dumping in Switzerland.
What is wage dumping?
Wage dumping is the practice of offering an employee unreasonably low wages and unfavourable working conditions. This practice became widespread with the entry into force of the Agreement on the Free Movement of Persons (AFMP) and the opening of borders, which enabled many migrant workers to come to Switzerland. The new competition puts Swiss workers under pressure by creating unfair competition that depresses salaries in the sectors most affected by wage dumping.
The principle of wage freedom in Switzerland
In Switzerland, Article 322 of the Code of Obligations (CO) gives employers and employees the freedom to jointly and freely negotiate the monthly salary to be paid. The employer is therefore free to offer a lower wage than the current market wage, and the employee is also free to accept this.
In some cases, this principle can lead to the employer taking advantage of the employee's nationality or place of residence and offering them a lower wage than the current market average for the sector in question: this is precisely wage dumping.
The Agreement on the Free Movement of Persons (AFMP)
The so-called free movement of labour is one of the factors that have led to wage dumping. This freedom of movement is made possible in particular by the Agreement on the Free Movement of Persons (AFMP), which is an international agreement between the European Union and Switzerland. This agreement gives EU citizens the right to settle and work freely in Switzerland. The agreement stipulates that these workers may not be treated differently from Swiss workers, especially with regard to wages.
The same freedom of movement also applies to workers from a member state of the European Free Trade Association (EFTA), who enjoy the same rights as workers from the European Union. This agreement, which came into force in 1994, applies to Iceland, Liechtenstein, Norway and Switzerland.
The newfound freedom of movement goes hand in hand with a lack of systematic monitoring of wages and working conditions for EU and EFTA employees. This lack of control increases the risk of labour abuse and wage dumping.
Who is affected by wage dumping?
Wage dumping affects both employees living in Switzerland and cross-border workers, but it is mainly concentrated in certain professions and economic sectors that are more affected than others. These are primarily sectors in which less qualified workers are employed.
The sectors most affected by wage dumping in Switzerland are: the construction and finishing trades, the cleaning industry, the hotel and catering industry, the provision of services, security and surveillance. In its report of 3 May 2011, the Swiss Directorate of Labour SECO states that most wage violations were found in horticulture, construction, trade, manufacturing, the energy sector and mining.
What protective measures are there against wage dumping?
To combat wage dumping, the Swiss authorities have taken several so-called "accompanying measures" to carry out checks and impose fines in the event of non-compliance with the applicable legislation. Employers who engage in wage dumping can face a fine of up to several tens of thousands of francs.
The first accompanying measures were taken on 1 June 2002 as part of the Agreement on the Free Movement of Persons with the European Union. Since then, these support measures have been improved several times in 2006, 2009 and 2013.
The legal instruments used in Switzerland to combat wage dumping have three main focuses:
- If working conditions and wages are deemed to be abusive, the provisions on minimum wages and working hours already contained in collective agreements can be extended.
- If working conditions and wages are deemed to be abusive, the provisions on minimum wages and working hours already contained in collective agreements can be extended.
- In sectors and companies without a collective labour agreement, the Confederation and cantons are authorised to stipulate binding minimum wages in a temporary standard employment contract (NAV). However, this is only possible if there is a pattern of abuse.
What are collective labour agreements?
In sectors where no collective agreement applies, so-called collective labour agreements ("GAV") exist in accordance with Article 356 CO. These agreements can be used to set binding minimum wages that apply in the event of abusive and repeated wage dumping in a profession, industry or location. According to the Federal Statistical Office, in 2021 alone, the social partners involved in the most important GAV's were able to achieve an average increase of 0.2% in minimum wages and 0.4% in effective wages.
Negotiations on a GAV take place between employers or their associations and the employee associations. In addition to wage agreements, GAV's can also contain points on bonuses and a 13th month's salary, continued payment of wages if the employee is unable to work, protection against dismissal or working time regulations. The new provisions of the Posted Workers Act of September 2016 also allow for the extension of collective labour agreements.
The so-called third economic sector is currently the one in which most collective employment contracts are concluded in Switzerland (source: Federal Statistical Office, as at 2018). This sector includes healthcare, financial and insurance services, public administration and the hospitality industry. The statistics also showed that of the 581 GAV's concluded in 2018, the vast majority (503) stipulated minimum wages for the respective sector, while a further five at least recommended them. This shows that GAV's are an effective means of combating the unfair exploitation of employees and wage dumping.
How are working conditions in Switzerland monitored?
The accompanying measures to prevent and punish wage dumping are based on labour market inspections. These checks are carried out annually by the authorities in the sectors of the economy where wage dumping is most common.
According to SECO, more than 160,000 employees in 41,305 Swiss companies were inspected in 2019. These checks affected 8% of Swiss employers, 29% of posted workers and 32% of self-employed service providers. There was a slight increase in wage dumping cases in 2019. The number of minimum wage violations in 2019 in sectors with an extended collective labour agreement (GAV) was 21%, 1% higher than in the previous year.
Who monitors working conditions and wages?
In Switzerland, working conditions and wages are monitored by two types of commissions. The first is the Joint Committees set up by the social partners (i.e. trade unions and employers' organisations). These commissions are responsible for monitoring the areas of activity covered by a collective labour agreement.
On the other hand, the so-called Tripartite Commissions (TK), which are made up of representatives of the state and the social partners, monitor the sectors in which there is no collective labour agreement (Article 360b CO).
Tip: If you would like to defend yourself against a case of wage dumping, it is highly recommended that you seek advice from a labour law specialist. They can inform you of your rights and options for action and support you with their expertise during a lawsuit.
What are the consequences for companies that practise wage dumping?
A company that engages in wage dumping has been at great risk since the new provisions of the Posted Workers Act (PWA) came into force in September 2016. Previously, companies that violated minimum wages and working conditions were penalised with fines of up to CHF 5,000. In practice, however, these fines did not prove to be binding enough to combat wage dumping and stricter measures were introduced as a result. From now on, companies that are penalised for wage violations risk a fine of up to 30,000 francs. If in doubt, seek expert advice from a labour law lawyer so that you know exactly what your rights are and can assert them.
In addition to financial sanctions, companies also face penalties that can significantly damage their reputation. Companies that violate the law may be banned from offering their services in Switzerland for a limited period of time or irrevocably. Even if the companies in question are allowed to continue offering their services in Switzerland, they may be obliged to extend standard employment contracts with minimum wages (Article 360a, paragraph 3 CO). In addition, the names of all companies sanctioned for wage dumping are recorded by the authorities and made available to the public.
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FAQ: Wage dumping in Switzerland
Wage dumping means that an employee is offered less than the market rate of pay and/or less favourable working conditions. In general, these wages and working conditions are mainly offered to cross-border commuters, i.e. foreign workers.
The free movement of labour within the European Union and some countries with agreements with Switzerland has enabled or intensified the practice of wage dumping. The influx of foreign labour from countries with lower incomes and costs of living has created pressure on the wages of Swiss employees due to the possibility of free wage setting between employees and employers.
The sectors most affected by wage dumping are those that often employ less qualified workers.These are primarily construction companies, cleaning firms, hotels, restaurants, security and surveillance services and service companies.
Yes, since 2002, several so-called "accompanying measures"have been taken in Switzerland to combat wage dumping.Compliance with these measures is monitored annually by the authorities. In the event of repeated violations, the employer in question faces financial sanctions.
Employers who engage in wage dumping now face fines of up to CHF 30,000. In addition, they may be temporarily or permanently banned from offering their services in Switzerland. Companies convicted of wage dumping are also registered by the authorities and their names are made public.
Yes, minimum wages can be set in collective and standard labour agreements. The former are mainly used in sectors where there is no collective labour agreement.
The enforcement of working conditions and minimum wages in Switzerland is carried out by two types of commissions: the Joint Commissions, which are formed by the social partners, and the Tripartite Commissions (TK), which are made up of the social partners and state representatives.