Switzerland: When a “Consulting Agreement” Becomes an Employment Contract: Swiss Federal Supreme Court Confirms Contract Qualification

On 18 March 2026, the Swiss Federal Supreme Court issued its decision 4A_601/2025, upholding the rulings of the Labour Court of Meilen and the Cantonal Court of Zurich. The decision clarifies the criteria for distinguishing an employment contract from an independent contractor arrangement, with important implications for companies operating in the private equity sector and beyond.

 

1. General Overview: Employment Contract vs. Independent Contractor

Swiss law distinguishes between an employment contract (Arbeitsvertrag) under Art. 319 et seq. of the Swiss Code of Obligations (CO) and an independent contractor or mandate agreement (Auftrag) under Art. 394 et seq. CO. The distinction is significant: employees benefit from mandatory protections, including notice periods, continued salary in case of illness, and protection against abusive dismissal, none of which apply to independent contractors.

The key criterion for qualification as an employment relationship is subordination — whether the individual is integrated into the employer’s organisation and subject to its instructions regarding the manner, time, and place of work. Swiss courts assess the actual circumstances of the working relationship, not merely its contractual label. Formal indicators such as invoicing through a third-party company or the absence of social

2. Facts of the Case

A private equity company (A. AG) engaged an individual (B.) as an Investment Manager from August 2021, initially under a first contract and subsequently under a “Consulting Agreement” entered into in December 2021. Although the agreement described the remuneration as a “Fee” and billing was handled through a third-party company, the contract required B. to be available full time from 07:30, for ten hours per day including weekends, to monitor emails constantly, and to comply with strict reporting obligations. It also included a share buyback obligation upon departure. In March 2022, A. AG terminated the arrangement summarily. B. continued working until May 2022 and subsequently claimed outstanding monthly salary payments for the remaining contractual notice period.

Both the Labour Court of Meilen and the Cantonal Court of Zurich qualified the agreement as an employment contract and upheld B.’s claims. A. AG appealed to the Federal Supreme Court.

3. Key Legal Findings

The Federal Supreme Court dismissed the appeal and confirmed the following principles:

First, the contractual label is not decisive. Even where an agreement uses the terminology of an independent mandate — referring to fees rather than salary and using the term “Consulting Agreement” — Swiss courts will look beyond the form to assess the substance of the relationship.

Second, strict temporal availability and reporting obligations are strong indicators of subordination. Requirements such as fixed daily working hours, constant availability, and regular reporting strongly suggest integration into the employer’s organisation.

Third, the absence of social security contributions and billing via a third-party entity are formal factors of only secondary relevance when substantive indicators of subordination are present.

The Court found that the cumulative weight of the substantive indicators — full-time commitment, strict availability, structured reporting, and the share buyback clause — clearly pointed to an employment relationship, notwithstanding the formal presentation of the arrangement.

4. Practical Significance

This decision serves as an important reminder that the legal characterisation of a working relationship depends on its actual content, not on how it is labelled. Companies — especially in the financial services and private equity sectors — that engage individuals under mandate or consulting arrangements should carefully review the terms and practical implementation of those arrangements. Where the individual is integrated into the company’s operations and subject to detailed instructions, the risk of reclassification as an employment relationship is real and carries significant legal consequences.