Consultant versus employee

Case 1: Technical Consultant

1. facts of the case

Hans Suter is a Swiss citizen living in Aarau. He has been employed as a computer scientist by the software company Tech Consult AG for several years. His gross monthly salary is currently CHF 10,000 and is paid in 13 instalments. According to the applicable employment contract, the notice period is three months.

On 30 June 2021, Hans Suter received a letter from the human resources department of Tech Consult AG stating that he would be given the opportunity to work as a freelancer for Tech Consult AG from 1 October 2021. The basis for this new activity is to be an unlimited consultancy contract between Tech Consult AG (client) and Hans Suter (agent). After changing his status from employee to agent of Tech Consult AG, he shall be allowed to keep his access badge as well as his previous email address (hans.suter@tech-consult.ch). In addition, Hans Suter shall be allowed to continue to use the company name and logo of Tech Consult AG on his business cards and business correspondence.

The consulting contract provides, among other things, for the possibility that Hans Suter may accept further orders from third parties in addition to his work as a computer scientist for Tech Consult AG. However, the conclusion of such further contracts is subject to the approval of Tech Consult AG.

Tech Consult AG offers Hans Suter an hourly rate of CHF 130 as compensation. The personnel department of Tech Consult AG has calculated this as follows:
Gross salary CHF 130,000 x 2 = CHF 260,000 : 2,000 working hours = CHF 130
Tech Consult AG guarantees Hans Suter a workload of 80% in the first year, corresponding to 1,600 working hours.

In the second year the assured utilisation is 60% and from the third year of the contractual relationship Tech Consult AG no longer gives any assurance.

Questions

1. What might be the motivation of Tech Consult AG for the offered reorganisation of Hans Suter's job? What could be the motives for Hans Suter to accept the offer?
2. How do you assess the Tech Consult AG proposal from a legal point of view (labour law, contract law)?
3. How should Hans Suter's new status be qualified from the point of view of social security law, assuming that in addition to the Tech Consult AG contract he is able to acquire two further clients with whom he can realise a turnover of CHF 5,000 each in the first year?
4. How should the facts of the case be qualified from an income tax perspective?

Case 2: Assignment of an employee abroad (International Assignment)

1. facts of the case

Beratung und Service GmbH is an internationally active consulting company headquartered in Düsseldorf, Germany. The company has around 500 employees in Germany and advises medium-sized and larger companies in various areas of corporate management. Claudia Füller is a management consultant employed 100% by Beratung und Service GmbH and lives with her husband and two children in their own family home in Cologne, Germany.

Beratung und Service (Schweiz) AG, based in Uster, Canton Zurich, is a 100% subsidiary of Beratung und Service GmbH. In Uster, Beratung und Service (Schweiz) AG has 500 m2 of office space. In addition, the Swiss company currently employs a total of 60 people, including its own management, which is responsible for all matters relating to the Swiss market.

Claudia Füller will be seconded to Switzerland from 1 November 2021 for at least twelve months and will be deployed together with the Swiss team of the Group primarily for two important mandates. There is a possibility that Ms Füller's assignment can be extended up to a maximum of three years in total.

Claudia Füller intends to travel from Cologne to Uster on Monday morning and, if possible, return to her place of residence on Thursday. On Fridays she works from her private residence in Cologne. From Monday to Thursday, Claudia Füller lives in a studio in Uster.

During her secondment, Ms Füller continues to receive her salary of EUR 150,000 gross plus a discretionary performance-related bonus. For the assignment in Switzerland, Beratung und Service GmbH pays her a lump-sum annual compensation of EUR 30,000, which covers all costs.

Questions

1. What labour law issues arise in the present case?
2. How do you assess the facts of the case from the point of view of authorisation law (residence or migration law, work permit)?
3. What are the income tax consequences of Claudia Füller's secondment and how are the income taxes paid?

Case 3: Corporate bodies

1. facts of the case

Pharma Xintia AG is a Zurich-based company active in the field of pharmaceutical research and development. Pharma Xintia AG is owned by two private entrepreneurs, Xaphir Chunio (79%) and Reto Stücheli (21%).

Pharma Xintia AG has developed a medical product and an associated therapy against a common skin disease and aims to launch and market the product and therapy on the Swiss market under the name "Mioris".

Peter Huber is a German citizen residing and living in Zurich. He holds a "B" residence permit and, as a pharmacist, initially worked as a consultant at Pharma Xintia AG from August to October 2018. As such, he was in charge of marketing Mioris. Subsequently, Pharma Xintia AG and Peter Huber entered into a new contract on 10 November 2018 with effect from 1 December 2018, under which Peter Huber assumed the management of Pharma Xintia AG as Managing Director with a 50% part-time position and also acted as the sole director of Pharma Xintia AG as of 1 January 2019. This new contract is designated as a "Mandate Contract" and provides in clause 2 that the objective of Peter Huber's activities is to achieve positive operating results in accordance with the present five-year plan. The contract also contains a detailed list of duties in the annex, to which Peter Huber had to strictly adhere. According to these specifications, his responsibilities included, among other things, the development of a marketing concept for Mioris, the realisation of the approval of Mioris in Switzerland, as well as the preparation of budgets and business plans, etc. In the new contract of 10 November 2018, it was also agreed that the contractual relationship could be terminated by either party with three months' notice. As remuneration, Peter Huber received a monthly lump sum of CHF 10,500 for his 50% employment as Managing Director and member of the Board of Directors.

Peter Huber had to strictly adhere to the job specifications and always obtain the consent of the majority shareholder, Xaphier Chunio, within the scope of his activities. For reasons of safety and to protect company secrets, Xaphier Chunio demanded that Peter Huber work exclusively on the business premises of Pharma Xintia AG.

On 31 January 2021, Pharma Xintia AG proposed to Peter Huber to replace the contract of 10 November 2018 by a new contract according to which the remuneration would be paid depending on the achieved sales figures. Peter Huber did not accept this proposal, which is why Pharma Xintia AG terminated the contract on 10 February 2021 with effect from 31 May 2021.

Questions

1. Is the legal relationship between Pharma Xintia AG and Peter Huber as Managing Director and member of the Board of Directors to be qualified under civil law as an employment relationship or as a legal relationship with self-employed activity? On what grounds?
2. The parties (Pharma Xintia AG and Peter Huber) have qualified their legal relationship as self-employment. After Pharma Xintia AG terminated him, Peter Huber no longer agrees with this and claims that under the contract of 10 November 2019 it was a dependent activity. What are the consequences for Pharma Xintia AG and Peter Huber if the competent authorities and the court qualify the legal relationship as dependent activity?
3. Assuming that Peter Huber has acquired the shares of Pharma Xintia AG from the two previous shareholders as of the end of 2019 and has since been the sole shareholder of Pharma Xintia AG and also the sole member of the board of directors and managing director. How should the legal relationship be qualified in this case? On what grounds?
4. What tax law issues arise if Peter Huber wants to bill his activities as Managing Director and member of the Board of Directors of Pharma Xintia AG via his private company, PH Arkto GmbH, based in Zollikon?

Case 4: Sale of a corporation with earn-out clause

1. facts of the case

Karl Hotz is 60 years old, married and the sole shareholder of a very well run woodworking business in the Zurich Oberland (Schreinerei Hotz AG) with 50 employees. He himself works full time in the business and has paid himself an annual salary of around CHF 200,000 gross in each of the last few years. Schreinerei Hotz AG specialises, among other things, in innovative woodworking and finishing and has clients throughout Switzerland and in nearby foreign countries.

The annual turnover of Schreinerei Hotz AG is around CHF 25,000,000 and the annual profit is around CHF 3,000,000. Karl Hotz has been looking for a suitable successor for some time. His two children are not interested in taking over the carpentry business (the daughter is studying medicine and his son is a graduate chemist in an international company).

Finally Karl Hotz has found an investor, Initial Capital AG, a private equity company based in Zug, who wants to acquire the shares of Schreinerei Hotz AG. Initial Capital AG has made the following offer to Karl Hotz:

• Base purchase price: CHF 20'000'000;
• Earn-out of a maximum of CHF 10,000,000 depending on sales in the three years following the completion of the transaction;
• Commitment of Karl Hotz to continue working for three years after completion as
  employee or as consultant (for know-how transfer and customer care and transfer) with a remuneration of CHF 120,000 gross per year;
• Prohibition of competition for three years from the date of execution of the purchase agreement.

Questions

1. What are the advantages and disadvantages of the two variants (consultant or employee) from a civil law perspective?
2. What tax considerations should be made with regard to Karl Hotz's continued employment after the completion of the purchase agreement?
3. What risks does the offer entail for Karl Hotz and for Schreinerei Hotz AG or Initial Capital AG?