SWITZERLAND Law and Practice Contributed by: Christoph Neeracher, Philippe Seiler and Lukas Bründler, Bär & Karrer Ltd
good leaver. For the determination of a good reason, reference is usually made to the provisions of Swiss statutory employment law (Articles 340c and 337 of the Swiss Code of Obligations), indirectly including Swiss case law. Hence, a manager is typically considered to have good reason to terminate the employment rela - tionship in the case of, for example, a material salary cut by the employer for no objective reasons or in the case of severe harassment at work. No good reason would be attributed to the manager if, for example, the employer delayed making a salary payment. In addition, the breach of provisions of a related agreement commonly triggers good and bad leaver provisions; eg, if the manager materially breaches an investment agreement, corporate regulations of the company, or their employment or mandate agree - ment, the manager will be considered a bad leaver. 8.4 Restrictions on Manager Shareholders One of the most common restrictive covenants in Switzerland – which are part of the equity package and the employment contract – is the non-compete and non-solicitation undertakings during the time of the manager’s investment and for up to three years thereafter. In particular, if the manager is simultane - ously invested in the group as a shareholder and thus has various information and governance rights, a non- compete undertaking may be justified, even for a time after the manager has ceased to be an employee/ director of the company. However, based on Swiss statutory law, non-compete and non-solicitation undertakings may not exceed three years following the end of the employment relationship or the manager’s exit as a shareholder (in case of joint control). Further, the undertakings also need to be geographically limited as they other - wise would be considered an excessive undertaking on the part of the manager (eg, limited to the areas where the manager could harm the company with their knowledge). Excessive non-compete and non- restriction undertakings may be reduced by the court in the event that they are challenged, and the courts have broad discretion in doing so. The enforceability of non-compete and non-solicitation undertakings is often increased by stipulating contractual penalties for
the manager or triggering bad leaver provisions in the case of a breach by the manager. 8.5 Minority Protection for Manager Shareholders Managers who are not reinvesting sellers generally have limited minority-protection rights. The most common minority-protection right is the right of the manager to participate on the same terms and con - ditions as the investor in an exit, which is ensured through drag and tag rights. However, depending on the negotiating power of management, additional minority-protection rights (such as veto rights, board representation rights or anti-dilution protection) have been seen. 9. Portfolio Company Oversight 9.1 Shareholder Control and Information Rights The level of control of a private equity fund largely depends on the type of investment, ie, whether the fund invests as a minority shareholder or a majority/ sole shareholder. Typically, private equity shareholders taking non-con - trol positions seek protection via restrictions of the transferability of the shares, tag rights and put options, as well as certain governance rights, usually includ - ing the appointment of a representative on the board of directors and certain veto and information rights, which are, however, limited to fundamental rights with respect to the protection of their financial interest (dis - solution, material acquisitions or divestitures, capital increases, no fundamental change in business, etc). In the case of a majority stake in the company, the private equity shareholder has extensive control over the company, ie, the majority in the board of directors and only limited restrictions due to the veto rights of any minority shareholders. In addition, usually, protec - tion rights regarding the shareholding of the company will be implemented (in particular, transfer restrictions, right of first refusal and drag rights, as well as call options on the shares of the minority shareholders) to
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