Swiss Ability to Fire Staff at Will Is a Model Merz Can Dream Of

(Bloomberg) — Switzerland’s economic resilience is showcasing the prowess of one of Europe’s most business-friendly domains, where companies can fire workers with relative impunity.

The freedom to largely dismiss staff at will, along with leaner regulation and low taxes, is treasured by employers in a country whose competitiveness keeps getting squeezed by a perennially strong franc, and some of the world’s highest salaries.

With those pressures unceasing, and as exporters still reel from a spell of outsized US tariffs, the Swiss model of flexibility has preserved dynamism. It’s a key bulwark for an economy that has chosen to go it alone, against the grain of a world where smaller players often cluster in blocs such as the European Union.

The approach stands out all the more in contrast to Germany, whose chancellor, Friedrich Merz wants to unburden companies of regulation and unwieldy labor rules, and this week called on lawmakers to help “fundamentally improve the business environment.” Switzerland’s economy has outperformed its northern neighbor every year since 2018, and is on track to do so again.

“Liberal labor laws are not just ‘nice to have’ for Swiss companies, but an absolutely crucial factor in offsetting adverse local conditions such as high wage costs and the strong franc,” said Eva Bruhin, head of employer issues at manufacturing lobby Swissmem.

Switzerland’s labor market offers the least strict protection in Europe, and is globally undercut by just three jurisdictions including the US, according to an OECD comparison.

The rules make it easy for companies to restructure, though layoffs of as few as six people at a time must be reported to authorities and usually require support and compensation.

Recent examples include cuts around 15,000 staffers by UBS Group AG, the country’s biggest bank, and several hundred by drugmakers Novartis AG and Pfizer Inc. Businesses can also shed staff for underperformance.

“If someone acts silly or not according to rules, I can easily terminate his employment,” said Claudio Picech, chief executive officer of infrastructure provider Equans for Switzerland, a part of the Bouygues SA group.

Picech formerly led the Italian divisions of Alstom Power SA and Siemens AG. Swiss labor laws were one important reason for him to come back to his home country after 15 years in Italy.

“The fights with the unions, the court cases, paying compensations for years — I lived through all of it,” he said.

Now, three years since his return, Picech is more circumspect on Switzerland’s labor flexibility, because it cuts both ways, he says — employees sometimes leave companies after just a short while for a new opportunity, and that turnover of talent at companies hurts the Swiss economy.

A stark difference from the American hire-and-fire approach is generous state support to cushion the blow. For those affected, the welfare system pays as much as 80% of their last salary, for as for as long as two years after termination.

Benefits can reach as much as 8,000 francs ($10,000) per month and are intended to ensure fired workers can keep their standard of living without constraining companies, according to Michael Siegenthaler, head of labor market research at the KOF economic institute in Zurich.

“The idea is to protect the person, not the job” in a system that “makes it easier to overcome crises and facilitates structural change,” he said. “In other countries, employees remain longer in jobs that are unproductive.”

France is particularly onerous there, but Germany is also a case in point. In its signature auto industry for example, Volkswagen AG clinched an agreement with labor representatives to allow phased departures of as many as 35,000 people by 2030 — including through retirement packages — in response to weak European demand, the rise of Chinese competition and high costs.

The ability in Switzerland to shed workers much more easily, as well as policies to switch to short-time working, has been a critical factor in allowing businesses to successfully weather shocks in recent years, according to Bruhin at Swissmem.

Examples she cites include President Donald Trump’s imposition last year of 39% US tariffs on many Swiss goods — since reduced to 15% — the German car industry’s downturn, and the franc’s spike in 2015, when central-bank officials scrapped their ceiling on the currency, hurting exporters.

Meanwhile job flexibility helps stoke investment. In a poll among 193 member companies of Swissmem, it was ranked among the top three reasons, ahead of low taxes.

Of course for employees, it’s a challenge to live without much labor protection, notwithstanding the generous welfare benefits.

“Many of our members are terrified of losing their jobs,” said Peppina Beeli, head of policy at Unia, Switzerland’s largest union. The organization represents workers in comparatively low-paying industries including construction, manufacturing, hospitality and logistics.

She says one effect of the Swiss regime is asymmetric treatment, with older employees, active union members and pregnant women facing a substantially higher danger of being laid off.

“Although women can’t be fired for 16 weeks after birth, there are many terrible stories of mothers who are put onto the street right after the period has passed,” Beeli said.

Another problem is the potentially large fiscal cost. Tito Boeri, chairman of the economics department at Milan’s Bocconi University, said that the state essentially pays for firms’ flexibility through unemployment benefits and short-time work compensation.

“It allows for more mobility,” he said. “But not all countries can afford such a system.”

Low joblessness in Switzerland does help. The last time unemployment exceeded 4% was after the 2008 financial crisis; data on Friday showed it at 3% in December. Against that backdrop, the fund that pays support to laid-off workers reported a surplus of 1.4 billion francs in 2024.

While Germany’s unemployment is comparable, its economy’s prospects are currently far less rosy. Economists forecasts show growth there will finally return this year, but that Switzerland is still likely to outpace it. And as for Merz’s call for action to help business, his Social Democrat coaltion partners are skeptical of the conservative chancellor’s policies.

“Those who want growth must protect jobs, promote innovation and investment, and strengthen social security,” Matthias Miersch, head of the SPD’s parliamentary caucus was quoted as saying by the RND media group.

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