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Subject: Employment & Pensions
Reading time: 5 Min
14.03.2024

Internal investigations – a balancing act for HR and in-house counsel

Urs Feller and Marcel Frey analyze a recent Federal Tribunal Decision that clarifies the rights of a suspected person in internal investigations. The decision dealt with the question what types of formal guarantees a person faced with allegations of sexual harassment of colleagues at the work place may expect and which rights do not come into play, contrary to the situation in a criminal investigation.

Internal investigations – The balancing act for HR and in-house counsel between formal guarantees and business pragmatism

1) Backdrop: Federal Tribunal Decision of January 19, 2024

a) Introduction

In-house legal counsel and human resource department heads of most companies invariably have to deal with sexual harassment complaints at least once in their careers. Heightened awareness to issues of GBV and related social ills but also employee rights have made the professional and at the same time sensitive handling of such occurrences a challenging task for the involved parties. A recent Federal Tribunal decision may shed some light on how best to deal with such tasks in internal investigations.

b) Facts of the matter

On the August 29, 2018, a female employee reported cases of sexual harassment by a male employee at the workplace to the company's internal ombud for behaviour and ethics. Based on the report, the employer initiated an internal investigation. On the October 23, 2018, the employment contract of the male employer was terminated in keeping with the normal three months' notice to the end of January 2019. Owing to sickness and accident leave of the employee, the employment relationship was eventually extended until the end of August 2019.

c) Procedural history

After an unsuccessful attempt at conciliation, the male employee filed a lawsuit against the employer with the Zurich Labour Court on July 13, 2020. He sought an amendment to his work reference letter and a compensation amount for unlawful dismissal.

The Zurich Labour Court accepted the employee's plea for an amendment of the reference letter, but dismissed the request for compensation in its ruling of March 26, 2021. The employee appealed the decision on the compensation issue to the High Court of the Canton of Zurich. On May 23, 2023, the High Court repealed the Labour Court's decision and obliged the defendant company to pay to the appellant a compensation amount of CHF 70,000 (plus default interest of 5%). The employer in turn appealed this decision to the Federal Tribunal which had to decide on the lawfulness of the termination.

On the January, 19, 2024 the Federal Tribunal annulled the ruling of the Zurich High Court (confirming the first instance judgment of the Zurich Labour Court) and dismissed the request for compensation, finding that no unlawful termination had been issued.

2) Formal requirements for an internal investigation

a) Analog application of criminal procedure guarantees?

In its appeal to the Federal Tribunal, the company contested the High Court's ruling which had found that its internal processes had not been adhered to (thus entitling the employee to compensation). The employee had criticized the internal investigation as having been unfair: contrary to the internal company policy, he had not been afforded the right to have a person of trust accompany him to the internal hearing where he was confronted with the allegation of sexual harassment. He had also not been informed in advance about the topic of the hearing and had been taken by surprise by the allegations levelled at him. As such, he had not had any time to prepare his defence (i.e. checking dates of the alleged actions, or seeking out persons to act as witnesses in his favour). He had never been confronted with the identity of the person that had brought the complaint and the description of the occurrence had remained vague thus making it impossible for him to defend himself adequately. The employee claimed that, given the seriousness of the accusation (which could have constituted a criminal offence), the treatment received did not constitute fair proceedings.

The Zurich High Court had concurred with this line of argument, noting that the internal investigation bore likeness to a criminal investigation. As such, the employee should have been afforded similar rights and procedural guarantees.

The Federal Tribunal disagreed with the line of argument.

b) Termination Right

At the outset, the Federal Tribunal stressed the right of the employer to end an employment relationship at any time, as long as contractually agreed or statutory notice periods were upheld. It reiterated that an employer need not motivate a termination and did not have to provide any particular reasons to end a labour contract, thus underlining the liberal Swiss concept of termination freedom. At the same time, the Federal Tribunal recalled that in certain instances (referring to art. 336 Code of Obligations), a termination may be considered to be unlawful.

c) Findings of the Zurich Labour Court

The Federal Tribunal recapped the first instance court's findings. The Zurich Labour Court had noted that whether or not the termination had been lawful or not (which would give rise to a claim for compensation), it did not matter, whether the allegations of sexual harassment were true or not. Solely determinant was the question whether the company had adequately investigated the allegations. This investigation had proceeded according to the internal guidelines of the company. The resulting report showed, that the investigating team had carefully gone about its work, analysing both damaging as well as alleviating circumstances. The company eventually came to the conclusion that the allegations were more likely true than not.

The alleged transgressions with the regard to the internal rules (right to have a person of trust present during the internal hearing) were deemed not to have been so severe, as to negate the entire internal investigation. As such, the company had rightfully held a grounded suspicion of sexual harassment which made the continuation of the employment contract no longer bearable.

d) Findings of the High Court of the Canton of Zurich

The Federal Tribunal went on to analyse the findings of the second instance court. The High Court had taken into account the gravity of the allegations and likened the proceedings to a criminal investigation (also quoting an earlier Federal Tribunal decision that had referred to scholarly opinions in this regard, without itself taking an explicit position on the matter though). As such, the employee reported to the internal ombudswoman was – in the view of the High Court – entitled to a complete investigation with similar guarantees and a clear understanding of the allegations levelled against him. The High Court found that the employee had not been afforded the rights outlined in the internal notice on sexual harassment, had been taken by surprise by the hearing and had not been accompanied by a person of trust.

e) No Federal Tribunal jurisprudence requiring analogue application

To date, the Federal Tribunal has not published a decision which confirmed an analogue application of the criminal procedure guarantees in internal investigations. With the present decision the Federal Tribunal clarified that it did not apply nor endorse such an analogy for internal investigation. Internal investigation followed their own procedure and rules. The procedural guarantees of the Criminal Procedure Code simply did not apply to internal investigations. As civil rights they did not – save for few exceptions – extend their scope to relations between private parties.

f) Differences in legal basis

In its analysis, the Federal Tribunal pointed out that the legal basis for an internal investigation and a criminal investigation were vastly different. Whilst in private law relations the parties were at liberty to conclude or terminate a contract, in criminal proceedings the accused was subjected to the might and powers of the state. In criminal proceedings, the state could impose fines, monetary penalties, as well as custodial sentences or a lifelong imprisonment.

On the other hand, in the private law sphere, the worst consequence an employee could face was the termination of the contractual relationship. Private law relations are based on voluntary relationships between individuals. Legal issues are handled based on the individual agreement or the underlying legal framework. This allows for each party to voluntarily terminate a contract within a period of notice.

g) Caveat: Abusive termination

The Federal Tribunal did not turn a blind eye to obviously abusive terminations, which could give rise to rights of compensation, depending on the manner in which the terminating party exercised its right. A terminating party clearly had to act in good faith. This underlines the importance of conducting an internal investigation with a focus on safeguarding individual rights. In general, deceitful and contradictory behaviour of the terminating party could render a dismissal abusive. An unlawful termination occurs where an employer light-heartedly and without reasonable cause accuses the employee.

The lawfulness of a dismissal had to be assessed in each individual case according to the circumstances and the reasons. Unlawfulness and the legality of a termination of a suspicion could only be determined by the courts.

h) The internal investigation

The Federal Tribunal summarized the internal investigation and found that after the complaint lodged by an employee with the internal ombudswoman, the complainant and other persons were questioned. The reported employee's internal e-mail account was reviewed (in part) with a view to any statements about the employee that had lodged the complaint. Lastly, the reported employee was invited to a hearing and questioned, after which he had the opportunity to review the minutes of the hearing.

According to the Federal Tribunal, the company concluded that the defence of the reported employee was not credible and stood in contradiction to the statements of other employees questioned. It concluded that the alleged behaviour had very likely occurred. The recommendation in the report was that a disciplinary procedure should be initiated. The disciplinary panel issued a formal termination after reviewing the report.

i) No overarching internal rules, no unlawful termination, legality of termination on suspicion

The Federal Tribunal concurred with the appealing company that the fact that the reported employee was not advised as to the charges ahead of the hearing was not detrimental. Requiring such advance notice would be farther-reaching than what the Criminal Procedure Code would require.

The Federal Tribunal further held that a deficiency of the investigation process, such as the absence of a "person of trust" at the interview, could not constitute such a grave mistake as to give rise to an abusive termination. The "accusation principle", a fundamental rule of criminal court procedures, was not applicable in internal investigations thus it was not required that the employee be made aware in all detail where and when exactly the alleged behaviour was said to have taken place. Doing so would also create an untenable tension between the legitimate self-protection interests of the reported person and the person lodging the sexual harassment complaint. In unison, scholarly opinion supports that such a person may remain anonymous and such person's identity may not be communicated to the reported person.

On the whole, the Federal Tribunal noted, that the allegations had been sufficiently detailed and that the internal investigation had not brought to the fore the conspiracy alleged by the employee. Contrary to criminal law, terminating an employee solely based on a suspicion was not unlawful in Switzerland, even if – after the termination – it comes to light that the suspicion was unfounded. The Federal Tribunal held that for this reason it was obvious that the employer was not obliged to prove the suspicions.

The Federal Tribunal concluded that the termination had not been issued light-heartedly or without reason. The freedom to terminate may not be overburdened by overarching principles borrowed from criminal law. It found that no abusive termination had been issued and no compensation was due.

3) Conclusion

The Federal Tribunal decision gives some pointers to internal counsel how to best organise internal investigations. While personal rights of employees should be protected and transparency promoted, the procedural guarantees and rights of persons accused by the state in criminal proceedings do not come into play one-to-one in company internal matters.

The judgment by the Federal Tribunal clarifies to some extent the degree to which reported employees can invoke procedural guarantees and to which level employers must regulate their internal processes.

HR departments and in-house counsel are relatively free in ascertaining the reasons upon which to base a recommendation for termination. Nevertheless, correspondences and interviews should be taken in written form, to establish a certain degree of evidence. HR departments (and in-house attorneys) should strive to establish a reasonable suspicion before the employer issues a termination. Mere allegations may not justify an ordinary termination. The freedom of termination exists, yet it is limited by the boundaries drawn by abuse.

It would seem that the jurisprudence by the Federal Tribunal gives in-house legal departments more leeway in their managing of internal investigations with no strict adherence to criminal procedure rules required, thus limiting the risk of damages for unlawful termination on that front.