Employment in Financial Services

The Employment Act 2006 and the Equality Act 2017 prescribe general employment rights and obligations for both employers and employees, including those in the financial services industry.

The Isle of Man Financial Services Authority (IoM FSA) is responsible for the regulation and supervision of financial services providers in the Isle of Man. Among other things, regulated financial institutions must comply with the rules set down by the IoM FSA in its Financial Services Rule Book 2016 (as amended) (the Rule Book). The IoM FSA applies “fitness and propriety” criteria to holders of certain key roles within a licence holder. This entails the IoM FSA assessing an individual’s integrity, financial standing, competency and capacity to undertake the role.

The requirement for an individual to be “fit and proper” depends on the nature of the role rather than their job title, but generally applies to key person or senior managerial roles (also known as Controlled Functions), where the individual has significant influence or control over the regulatory matters of the financial institution or to roles that have a bearing on the regulatory objectives of the IoM FSA and its ability to meet them.

Employment law in Switzerland is based mainly on the following sources, set out in order of priority:

• the Federal Constitution;
• Cantonal Constitutions;
• public law, particularly the Federal Act on Work in Industry, Crafts and Commerce (the Labour Act) and five ordinances issued under this Act regulating work, and health and safety conditions;
• civil law, particularly the Swiss Code of Obligations (CO);
• collective bargaining agreements, if applicable;
• individual employment agreements; and
• usage, custom, doctrine, and case law.

Depending on the regulatory status of the employer and the specific activities of financial services employees, respectively, Swiss financial market laws may also apply. They are, in particular, the Federal banking, financial institutions and insurance supervision regulations.

There are no prescribed rules relating to compensation payable to financial services employees and any remuneration, bonuses or clawback will be a matter of contract between the financial services employee and the financial institution. Inevitably, this will reflect what is typical in the market for experienced, qualified, financial services personnel performing the role for which they are applying or are currently carrying out.

Swiss civil law provides for special rules that govern the compensation of current and former members of inter alia the board and executive committee (Ordinance against Excessive Compensation) of Swiss companies limited by shares that are listed on a Swiss or foreign stock exchange. In addition, there are disclosure provisions listed companies need to follow concerning remuneration under stock exchange regulations.

In addition to the above, FINMA has formulated ten principles regarding remuneration that banks, securities firms, financial groups and conglomerates, insurance companies, insurance groups and conglomerates are required to implement. The principles serve as minimum standards for the design, implementation and disclosure of remuneration schemes.

These schemes should not incentivise to take inappropriate risks and thereby potentially damage the stability of financial institutions.

One of the focal points of the principles is variable remuneration that depends on business performance and risk. In particular, all variable remuneration must have been earned by the company over the long term. Consequently, remuneration is dependent on performance, taking into account the sustainability of such performance as well as the risks. That said, FINMA’s principles do not limit the amount of variable remuneration. However, FINMA aims to prevent the granting of high remuneration based on large risks and the generation of short-term, unsustainable earnings. Furthermore, persons who have significant responsibility relating to the risk or receive a high total remuneration, must receive a significant part of the variable remuneration on a deferred basis and consequently, in a way that is linked to the current risk. Under the FINMA principles, "clawback" and "malus" arrangements are permitted.

The IoM FSA does not regulate the use of post-termination restrictive covenants for employees in the financial services sector. Post-termination restrictive covenants will be a matter of contract and will typically include non-compete, non-solicitation and non-dealing restrictions. These are subject to the same common law rules on interpretation and enforceability as in any other sector. Restraint of trade provisions are, in principle, contrary to public policy as a result of which it is for the employer to justify the length and scope of the restrictive covenant and show that it goes no further than necessary to protect its legitimate business interests. If a restraint is considered to be excessive, the courts will not generally rewrite or modify it to make it enforceable and, therefore, the whole of a defective covenant could fall away or be of no effect.

There are no particular rules that apply concerning the use of post-termination restrictive covenants for employees in the financial services sector in Switzerland. Rather, general post-contractual non-compete regulations come into play: the parties of an employment contract may agree on a non-compete clause, which must be included in the employment contract in writing to be valid. For the non-compete clause to be relevant, it must be sufficiently limited in terms of time, place and subject matter. Normally, the duration of a post-termination non-compete clause is no more than one year; however, the statutorily permissible duration is three years.

As a prerequisite for a contractual non-compete clause to be binding, access to sensitive data is required. The employee must either have access to customer data or manufacturing or business secrets. However, access alone is not enough. There must also be the possibility of harming the employer using this knowledge.

If a relationship between the customer and the employee or employer is personal (which is, for example, the case for lawyers or doctors), a post-termination non-compete clause is not applicable according to the Federal Supreme Court.

If there is an excessive non-compete clause, this can be restricted by a judge. In practice, most of the time, no restriction of the post-termination non-compete clause is imposed if the employer offers consideration in return for the agreement. The prohibition of competition may become invalid for two reasons. Firstly, the clause can become irrelevant if the employer has no more interest in maintaining the non-compete clause. Secondly, the clause is not effective if the employer has terminated the employment relationship. However, this does not apply if the employee has given the employer a reason to terminate the employment relationship.

Swiss employment law does not provide for any compensation for a post-termination non-compete clause.