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Factual Employment Contract: When is the salary owed?

Anyone who performs work without having a valid employment contract quickly runs the risk of being deprived of their rightful salary. The de facto employment contract is a legal institution that protects the employee’s right to wages.

Although in practice the written form is common, the employment contract can in principle be concluded free of form (Art. 320 para. 1 CO). Consequently, the declarations of intent required for the conclusion of the employment contract may be exchanged tacitly or by implication. However, the law requires the written form for certain agreements (e.g. change of notice periods, post-contractual non-competition clause). Now what happens if the employment contract subsequently turns out to be void or unilaterally non-binding, but the employee has already performed services based on the supposedly valid employment contract? The legislator has created the legal institution of the factual employment contract or de facto employment contract for such situations.

Protection of the factual employee

If the employee performs work in good faith in the service of the employer on the basis of an employment contract that subsequently proves to be invalid, the parties must fulfill the obligations arising from the employment relationship in the same manner as if the contract had been valid until it is terminated by one of the parties due to its invalidity (Art. 320 para. 3 CO). The existence of a de facto employment contract requires the following prerequisites:

  • Conclusion of an employment contract: In principle, an exchange of concurring declarations of intent with the intention of concluding an employment contract must have taken place.
  • Invalidity of the concluded employment contract: The concluded employment contract must subsequently prove to be invalid, whereby the term invalidity is to be understood broadly. In addition to defects in content or form, grounds for invalidity may also exist due to lack of capacity to act or overreaching.
  • Work already performed: The employee must have already performed work based on the concluded employment contract.
  • Good faith of the employee: The employee must have been in good faith when performing the work, i.e. he must not have been aware of the invalidity of the concluded employment contract.

Factual Employment Contract: Wage Protection and Right of Termination

If these requirements are met, a factual employment contract with all the rights and obligations of a conventional employment contract has been concluded. The main purpose of the de facto employment contract is to protect the employee who should receive a fair wage for work performed in reliance on the validity of the concluded employment contract. However, this does not change the fundamental invalidity of the concluded employment contract. Therefore, each party has the right to terminate the employment relationship immediately as long as there is ground for invalidity. It should be noted that the provisions on protection against dismissal do not apply because they require the existence of a valid employment contract.

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