Why Switzerland voted against national statutory minimal wage?

In a landmark popular vote against minimal wages on 18 May 2014, Swiss voters were asked to decide on a popular initiative proposing a constitutional amendment that would have provided for a nationwide statutory minimum wage of 22 Swiss francs (US$25) per hour, or 4,000 francs per month. A majority of 76.3% of the votes cast, and all 26 Swiss cantons, turned the initiative down. Switzerland will, therefore, continue to be one of the very few countries in Europe without a national minimum wage, as 21 of 28 EU member states apply nationwide minimum wages.

Prime arguments against

Although it is difficult to analyse the reasons for the outcome of the popular vote, the prime arguments against it were: the liberal Swiss labour law as a widely recognised key success factor of the Swiss economy; the constantly record-low Swiss unemployment rate of between 2.5% and 4% (it stood at 3% in April 2014); and a network of trade-specific and often local or regional collective bargaining agreements providing for minimum wages negotiated between employer associations and unions of the relevant trade, rather than imposed by statutory law.

The Swiss way: voluntary self-regulation by collective bargaining agreements. Swiss voters recognised that the existing system of self-regulation by negotiated collective bargaining agreements is much smarter than nationwide statutory minimum wage regulation. The Swiss system allows minimum wages to be differentiated locally, regionally and sector-wise by trade, and as a result such regulation is limited to trades for which the need of enhanced employee protection is mirrored by a certain degree of unionisation.

Due to the voluntary nature of self-regulation, no employer and no employee can be forced to become or remain a member of an employer association or union privy to a collective bargaining agreement.

Governmental imposition of collective bargaining agreements by way of exception only. There is, however, an exception to self-regulation in this field. The scope of a collective bargaining agreement may be extended by the government to other employers and employees of the same trade, and declared compulsory within such extended scope. However, to proceed the government needs, as a rule, a joint request of the employer associations and unions privy to the relevant collective bargaining agreement.

Exception to the rule

Without such an application it may only by way of exception declare a collective bargaining agreement compulsorily applicable to unbound employers of the same trade if they abuse their freedom by repeated widespread wage dumping.

Even in such exceptional cases, however, the following two conditions must be met for any declaration of compulsory application: first, the employer associations privy to the relevant collective bargaining agreement must represent more than half of all employers of the extended scope; and second, they must at the same time employ more than half of all employees employed in the extended scope.

Double hurdle

Because of this double hurdle, collective bargaining agreements and their minimum wages apply nationwide without any exception but for the following few trades or industry sectors: the concrete goods industry; the railway construction industry; the catering industry; the body leasing industry; hairdressers; scaffolders; security services providers; and dental laboratories.

But wherever collective bargaining agreements are extended to unbound employers and employees of the same trade, and declared compulsory, the government cannot set minimum wages other than the negotiated amounts set out in the relevant collective bargaining agreement.

Collective bargaining agreements allow differentiation. Compared to undifferentiated nationwide minimum wages, minimum wages negotiated in collective bargaining agreements allow differentiation by trade, industry sector, branch, location, region, skill set, education, age, years of service, etc., and yield, therefore, much more reasonable amounts.

As a result of such differentiation, many minimum wages set forth in collective bargaining agreements equal, fall short of or exceed the unreasonably undifferentiated nationwide minimal wage turned down in the 18 May 2014 popular vote.

Only a minority of Swiss industry has collective bargaining agreements. Despite this discussion, it should not be overlooked that for wide parts of Swiss industry no collective bargaining agreements apply at all. According to the latest available statistics of the Swiss Association of Unions (2011) only about 20.9% of employees who were full-time, or at least 50% part-time employed, were covered by collective employment agreements.

This mirrors the fact that only a minority of Swiss employees is unionised – according to the latest relevant statistics of the Swiss Federal Office the figure was about 16% of all gainfully employed in 2009.

Status quo

This is why unions and leftist parties had launched their popular initiative for a nationwide minimum wage. As it was turned down by an overwhelming majority of Swiss voters, Switzerland will continue on its way of self-regulation by collective bargaining agreements covering only a minor part of Swiss industry.

Other key elements of liberal Swiss labour law. As explained, the defeat of the popular initiative on minimum wages on 18 May 2014 was a landmark for the preservation of a key element of the traditionally liberal Swiss labour law.

But it’s not the only one. Switzerland has still one of Europe’s highest average weekly working hours – 41.7 in contrast with 39.7 in the EU – and nowhere in Europe is it as easy and inexpensive to terminate employment agreements as in Switzerland, as terminations respecting the (reasonably short) applicable notice period may be given at any time, without giving reasons and without any severance pay.

Felix Egli is a senior partner and the head of China Desk at Vischer; Wu Fan is a counsel on Vischer’s China Desk