- · When a Swiss MBO is structured as a business transfer rather than a share deal, Article 333 CO/OR automatically assigns all employment contracts and their obligations to the acquiring managers.
- · The transferor must inform and consult employees before the transfer under Article 333a CO/OR, and failure to do so creates legal exposure for the incoming buyer.
- · Pension fund continuity is mandatory: the new employer must replicate existing BVG/LPP coverage and transfer vested benefits, as confirmed by Federal Supreme Court precedent.
- · Successor liability extends beyond wages to include accrued vacation, overtime, training commitments, and any applicable non-compete arrangements.
A management buy-out is, in many respects, one of the cleaner forms of business succession. The acquirers already know the business, the staff know the acquirers, and continuity is the stated objective on all sides. Yet the legal mechanics of how the transaction is structured can quietly introduce a layer of employment and pension obligations that, if underestimated in the deal room, become considerably more expensive to address after signing.
The critical variable is the deal structure itself. In a share deal, the employing legal entity remains unchanged. Employment contracts continue as written, pension fund membership persists, and Article 333 of the Swiss Code of Obligations never enters the conversation. In an asset deal or any MBO organized as a business transfer, the picture changes fundamentally. Article 333 CO/OR activates automatically, and with it comes the full spectrum of successor liability that Swiss employment law attaches to the transfer of a going concern.
This distinction is not a technicality. It is the structural choice that determines whether the acquiring managers inherit a workforce or inherit a workforce plus every accumulated obligation attached to each employment relationship.
The provision is precise. When a business or a part of a business is transferred to a third party, all employment relationships and their associated rights and obligations pass to the acquirer by operation of law. The employee's consent is not required; only an active refusal by the employee can prevent the assignment. The acquirer does not select which contracts to absorb — they absorb all of them, together with everything attached.
In practice, this means the incoming managers must account for obligations that may predate their involvement in the business by years. Accrued but untaken vacation entitlements, banked overtime, contractual training commitments, and any non-compete clauses embedded in individual employment agreements all transfer alongside the contracts themselves. The new employer steps into the shoes of the former employer with no reduction in the historical liability stack.
The Swiss SME Portal provides a useful overview of MBO structuring considerations for founders and managers navigating this terrain, and it underscores that deal structure selection carries consequences well beyond tax and financing.
Before the transfer takes effect, the obligation is not only on the acquirer — the transferor carries its own procedural duty. Article 333a CO/OR requires that the transferring employer inform employees, or their representative organization if one exists, in good time before the transaction closes. The information provided must cover the reason for the transfer and its legal, economic, and social consequences for the workforce.
Where the transfer involves measures that will affect employees — a reorganization, a change in reporting lines, an alteration of working conditions — the employer must also consult the relevant employee organization or, where no such organization exists, the employees themselves, before those decisions are taken. Consultation in this context is not a formality to be satisfied with a form letter on the day before signing. It is a substantive process that must precede the employer's decision, not follow it.
The exposure created by non-compliance falls on both sides of the transaction, but the incoming buyer bears the operational consequences. An MBO that closes without proper employee consultation can face claims, grievance procedures, and the kind of friction that makes the first months of new ownership far more difficult than they need to be. Swiss labor tribunals do not look charitably on procedural shortcuts in this area.
Of all the obligations that travel with a business transfer, occupational pension liability deserves particular attention. Swiss law under the BVG/LPP framework requires that, when an employee's employment transfers to a new employer, the vested pension benefits accumulated under the old employer's pension fund must be transferred to the new employer's pension fund. This is not optional and it is not negotiable.
More significantly, the new employer is required to maintain pension coverage on terms no less favorable than those the employee enjoyed under the predecessor. The Federal Office of Social Insurance administers the BVG/LPP framework and is explicit that occupational benefit rights survive an employment transfer intact. The BVK guidance on job changes and pension rights confirms the mechanics: vested benefits follow the employee, and the new employer must be enrolled in a recognized pension institution capable of receiving and continuing that coverage.
The Federal Supreme Court addressed this directly in its 2011 decision (BGE 137 V 463), confirming that where an employment contract expressly incorporates occupational pension coverage under a BVG plan, the new employer following a business transfer must continue that coverage under identical terms. The court left no interpretive room for acquirers who might prefer to rationalize pension arrangements post-closing.
For acquiring managers in an MBO context, this has structural implications. If the target company participates in a collective or industry pension fund and the acquirer does not, the transaction must account for the cost and process of establishing or joining a qualifying pension institution before the transfer closes. Leaving this to post-closing administration is a common and avoidable mistake.
The employment due diligence in a business-transfer MBO should be understood as a liability mapping exercise, not a headcount review. Advisors and acquiring managers should be systematically reviewing the following:
The full inventory of employment contracts, including any side letters or amendments that modify standard terms. Historical vacation and overtime accruals that have not been settled. Any contractual commitments to training, professional development, or certification support. Non-compete or confidentiality provisions that may constrain the acquirer's post-closing operational flexibility. The identity and terms of the current pension fund arrangement, and the costs associated with transferring fund membership or establishing new coverage.
This review should occur before the purchase price is set. The successor liability that Article 333 transfers is not contingent on discovery; it transfers regardless. Pricing that does not account for these obligations is pricing that underestimates the true cost of the acquisition.
It is worth observing that debates about retirement system design and pension adequacy are active in many jurisdictions. Social media commentary on pension policy rarely maps cleanly onto the precise legal obligations that govern Swiss occupational benefits in a transactional context, but the underlying concern — that pension rights should be portable, protected, and not quietly eroded during organizational changes — is broadly shared. One post that circulated recently illustrated the kind of public frustration that pension policy discussions can generate:
🚨 AUSTRALIA ALREADY BUILT THE SOLUTION — NOW USE SUPER TO CUT THE $60 BILLION PENSION DRAG. Australia has already spent decades compelling workers to save for retirement with CONCESSIONAL TAX TREATMENT. Australians have built one of the world's largest pools of retirement capital.§ @WorldWitho1g
The Swiss BVG/LPP system operates on a comparable philosophical premise: mandatory, employer-supported occupational savings that follow the employee through career transitions. The legal framework enforcing this continuity in a business transfer context is precisely what Articles 333 and 333a, together with the BVG statutes, are designed to protect.
For M&A advisors, fiduciaries, and legal counsel involved in Swiss MBO mandates, the practical takeaways from this framework are straightforward.
First, the share deal versus business transfer distinction should be resolved early in the structuring process, with full awareness of the employment law consequences of each path. Second, the Article 333a consultation process should be planned as a transaction milestone, not an afterthought. Third, pension fund continuity should be verified and costed before signing, not after. Fourth, the representations and warranties section of any purchase agreement should address the completeness and accuracy of employment liability disclosures, with appropriate indemnification for undisclosed obligations.
The acquirer in an MBO is not simply buying assets or shares. In a business transfer, they are stepping into an ongoing employment relationship with all the weight that Swiss law places on that relationship. The framework is protective of employees for considered policy reasons, and the transactional community is best served by treating that framework as a fixed parameter of deal design rather than a variable to be negotiated away.
Swiss employment law in the context of business transfers is not punitive toward acquirers. It is, however, unambiguous. Article 333 CO/OR does not require that the acquirer agree to inherit employment obligations — it simply confirms that they have. The discipline required of MBO participants is the discipline of thorough preparation: understanding what travels with the business before committing to the price at which it is purchased.
Discretion in process, precision in due diligence, and permanence in the obligations assumed — these are the terms on which Swiss business transfers operate, whether or not all parties have read the relevant articles of the Code of Obligations before the deal closes.
