Employment 2020

Last Updated September 08, 2020

Sweden

Law and Practice

Authors



Advokatfirman Cederquist KB is a top-ranked independent Swedish business law firm that offers full service from its office in Stockholm. The firm engages more than 100 of the best lawyers available on the Swedish market and has developed non-exclusive relationships with other leading law firms globally to help it assist clients in cross-border matters. Major international deals and transactions handled by the firm include acting as legal adviser in a number of corporate acquisitions of Swedish companies on behalf of foreign corporations, investment banks and law firms, as well as acquisitions of companies outside Sweden. Cederquist’s market-leading employment and benefits team manages risks in all labour law-related situations. The labour law practice consists of two partners and six associates and the practice handles all matters relating to the legal areas of labour, pensions and benefits, including executive employment agreements, termination and exit-related actions, collective redundancy situations, business transfers, outsourcing matters, reorganisations, employment protection, trade secrets, work environment issues, pension, incentive and bonus programmes, policies and collective agreements. Cederquist is a member of L&E Global, an alliance of employers’ counsel worldwide and the leading alliance for cross-border labour and employment law services.

On 1 January 2020 a revision of the Employment Protection Act entered into force. The employee's right to retain their employment until they reach the age of 67 has been extended to the age of 68. The procedural requirements applicable for termination of an employment have been removed for employees over the age of 68 and replaced with a simplified dismissal procedure without any requirement of an objective cause for dismissal. An employee who has reached the age of 68 can be terminated without cause and is not entitled to more than one month's notice. Further, such employee is not entitled to a right to priority for re-employment.

Furthermore, a general fixed-term employment or a temporary substitute employment will no longer transform into an indefinite-term employment if the employee has reached the age of 67, or, if the employee was employed after 1 January 2020, the age of 68.

Lastly, agreements on fixed-term employments may no longer be concluded solely on the basis that the employee has reached the age of 67.

A number of temporary measures have been taken in order to help Swedish businesses to mitigate the financial difficulties that may ensue owing to the COVID-19 pandemic. The measures include different forms of state-funded financial support to offer businesses an alternative to dismissals and to help reduce short-term liquidity issues.

State-funded financial support for short-term working arrangements was previously an option available for businesses only during times of particularly severe recession in accordance with permanent legislation. Such financial support is now temporarily available during 2020 for all businesses with temporary and serious financial difficulties due to the COVID-19 pandemic. The short-term working arrangements are referred to as "short-term lay-offs" and entitle employees to retain more than 90% of their salary, even if their hours of work are reduced by 20, 40 or 60%.

The state-funded financial support covers most of the cost for the reduced working hours during this period, which entails that businesses may temporarily cut their salary costs by about half. The financial support is initially granted for a period of up to six months, but an additional extension of up to three months' support is possible should the financial difficulties subsist. From May 2020 to July 2020 employers had the possibility to reduce their employee's hours of work by 80%.

From April 2020 to July 2020 a temporary measure was in effect meaning that employers were compensated by the state for the sick pay that employees are entitled to during the first 14 days of their sick leave. In order to prevent sick employees from going to work, the government also decided on a temporary compensation for the 20% deduction (Karensavdrag) of the sick pay. The compensation for the deduction is a standard amount of SEK804 and the provisions are currently set to apply until the end of September 2020.

In Sweden, there are no statutory definitions of white and blue-collar workers. Instead, these groups are defined by the applicable trade unions of which the workers are members and, therefore, different collective bargaining agreements apply to these two groups. In some labour market areas, the collective bargaining agreement regulations are uniform and a categorisation of these two groups of workers is not necessary.

General regulations regarding employment protection are found in the Employment Protection Act. Certain terms for employees in the public sector in Sweden are regulated through the Public Employment Act. However, the same rules essentially apply to private and public employees, and the Public Employment Act only contains a few specific rules for public employees.

The general rule is that an employment agreement is for an indefinite period, unless agreed otherwise. The Employment Protection Act allows for a general fixed-term employment when the employer is in need of fixed-term employees. A fixed-term employment agreement may also be concluded for a temporary substitute employment and for seasonal employment.

If, during the past five years, an employee has been employed either for a general fixed-term employment for an aggregate of more than two years or as a substitute for an aggregate of more than two years, the employment is transformed into indefinite-term employment. A general fixed-term employment may also be transformed into an indefinite-term employment if the employee has been employed in consecutive different fixed-term employments. A general fixed-term employment or a temporary substitute employment will not transform into an indefinite-term employment if the employee has reached the age of 67, or, if the employee was employed after 1 January 2020, the age of 68.

Note that collective bargaining agreements may contain regulations deviating from the statutory rules governing fixed-term employment.

In Sweden, an employment agreement does not have to take any specific form in order to be valid. However, Sweden has implemented the directive on an employer’s obligation to inform employees of the conditions applicable to the contract or employment relationship. An employer must provide certain information in writing to the employee concerning the principal terms of the employment within one month of the commencement of the employment. Failure to do so can result in an obligation to pay damages to the employee concerned.

The requisite information includes the name and address of the employer and the employee, the commencement date, the place of work, duties and title, whether employment is fixed or for an indefinite term, the length of the probationary period, periods of notice, payment and other employment benefits, the length of paid annual leave, the length of the normal workday or work week, and information on the applicable collective bargaining agreements.

The maximum normal working hours for a week are 40 hours. In addition to this, the Working Hours Act sets forth rules concerning overtime work as well as daily and weekly rest for employees.

Deviations from certain regulations in the Working Hours Act can be made by collective bargaining agreement, but not in individual employment agreements.

For part-time employees, the equivalent to overtime is called additional time, which comprises the working hours in excess of the employee’s regular working hours and on-call time. When there is a special need to increase the number of hours worked, an additional maximum of 200 hours may be worked per employee over a calendar year (general additional time). When there are special grounds, additional time in excess of general additional time may be worked, up to a maximum of 150 hours per employee over a calendar year. Together, extra additional time and general additional time may not exceed 48 hours per employee over a period of four weeks, or 50 hours over a calendar month.

Overtime comprises working hours in excess of regular working hours and on-call hours. Where additional working hours are required, overtime hours may not exceed 48 hours over a period of four weeks or 50 hours over a calendar month, subject to a maximum of 200 hours per calendar year.

Statutory law does not contain regulations regarding overtime pay, which is normally provided for in collective bargaining agreements. In general, employees may choose to receive overtime pay in terms of money or compensatory leave. If no collective bargaining agreement exists, the employee is not entitled to overtime pay unless agreed upon individually. If a collective bargaining agreement exists and provides a right to overtime pay, it may contain provisions that make it possible for the employee to waive the right to overtime pay and instead receive compensation in the form of compensatory leave. However, such waiver usually only applies to employees who have flexible working hours, or if special reasons are at hand.

There are no provisions regarding minimum wage requirements in Swedish law, but such provisions are often found in collective bargaining agreements.

In Sweden, it is common for employers and employees to agree that part of the full salary will be paid as variable salary. The different types of variable salary vary and can be paid out, inter alia, as commission (eg, a certain percentage of the contractual sum for provided services) or bonus (eg, variable salary paid out in accordance with specific and determined targets with financial parameters of the performance of the employing company and/or personal performance of the employee). The payment of variable salary is not regulated in statute and is rather a matter of negotiation between the parties to the employment agreement. It is most common for the terms for payment of variable salary to be set out in the employment agreement, or for the variable salary targets and the payment of variable salary to be decided annually at the employer’s discretion. It should be noted that variable salary generally qualifies for the payment of vacation pay in Sweden.

Thirteenth-month payments are not normally applied in Sweden, but some employers choose to award their employees with an annual bonus paid at the company’s discretion if the company has performed well during the year. Such a bonus is paid as a gratuity and normally does not qualify for the payment of vacation pay or occupational pension contributions.

There is no general government intervention on compensation and salary increases in Sweden, but such matters are often regulated in collective bargaining agreements. It should be noted that compensation in connection with vacation, parental and sick leave is statutorily regulated.

Vacation and Vacation Pay

Vacation entitlement is regulated by the Annual Leave Act, which distinguishes between vacation days and vacation salary, and between a "vacation year" (April 1st to March 31st) and a "qualifying year" (the 12-month period prior to the vacation year). The normal and minimum vacation entitlement is 25 days per year. An employee earns his or her entitlement to vacation salary during the qualifying year and is entitled to use his or her paid vacation during the vacation year. Collective bargaining agreements or employment agreements generally contain rules entitling employees to a longer period of annual leave – up to 30 paid days – if the employee is not entitled to overtime pay. This is normally the case for white-collar employees.

Employees are entitled to take a continuous four-week vacation during the period from June to August, unless there are circumstances justifying other arrangements. Employees who have been given a period of notice of termination of less than six months cannot be required to take their vacation entitlement during the notice period, unless they agree to do so. Under certain conditions, employees are entitled to exchange annual leave that has already been scheduled for sick leave or parental leave, for example. It is possible for employees to carry over their entitlement to paid vacation days to the next vacation year (but not unpaid vacation days), but only if the employee has earned more than 20 days of paid vacation, and only for those days that exceed 20 days.

Deviations from certain regulations in the Annual Leave Act can be made by collective bargaining agreement.

Vacation pay is usually paid out in connection with the employee’s use of their accrued vacation. According to the Swedish Annual Leave Act, vacation pay may be calculated in two ways: according to the same salary rule or the percentage rule. The same salary rule applies to employees whose remuneration is calculated on a monthly or weekly basis, while the percentage rule applies to employees whose remuneration is not calculated on a weekly or monthly basis or has a high variable element. If the variable elements of the salary amount to at least 10% of the total salary during the year, the percentage rule shall be used.

According to the same salary rule, the employee is paid their regular salary plus a vacation supplement of 0.43% of their monthly salary per day. For variable parts of the salary, the employee is paid 12% of the variable salary if they are entitled to 25 days of vacation. According to the percentage rule, the vacation pay for employees is 12% of the total salary during the accruing year when the employee is entitled to 25 vacation days.

If the employment ends before the employee has taken paid annual leave to which he or she is entitled, the employer must pay the employee in lieu of the unused vacation pay entitlement.

Required Leaves

An employee may go on parental leave until their child is 18 months old. Thereafter, the employee is entitled to leave for as long as he or she receives compensation from the state. Compensation is paid by the state for a total of 480 days per child. The compensation may be paid until the child reaches the age of 12 years, but only 96 days may remain when the child reaches the age of four years.

In addition to parental leave, the mother is entitled to parental allowance during the 60 days prior to the expected birth of the child. The father of the child may also be on paternity leave for ten days in connection with the birth of the child.

The entitlement to parental days is divided equally between the parents, but the parents have the right to transfer their entitlements to each other, with the exception of 90 days; these 90 days will be forfeited if they are not used. As a result, one parent may use a maximum of 390 days, during which the allowance is capped at 80% of the employee’s salary up to a certain salary level. If a collective bargaining agreement is in force in the workplace, the employee may be entitled to compensation from the employer in addition to the compensation from the state. A parent is also entitled to parental leave and temporary parental benefit if their child is sick.

An employee is entitled to mandatory sick pay payable by the employer, provided that the employment is expected to continue for more than one month or that the employee has been working for more than 14 consecutive days. During days 1-14 of the sick leave, the employee is entitled to 80% of the estimated salary and employment benefits the employee receives during a normal week. From the sick pay, a deduction of 20% is made (karensavdrag). If the employee falls ill again within five days, the previous sick leave period will continue and no further deductions will be made. From day 15 in the sickness period, the employee may be entitled to compensation payable by the state. The entitlement to such compensation is based on strict rules and is decided by the Swedish Social Insurance Agency. There is no obligation for the employer to provide any supplementary sick pay, unless such is provided for in an applicable collective bargaining or individual agreement.

Limitations on Confidentiality

An employee’s obligation not to reveal confidential information about the employer’s business follows from the employee’s duty of loyalty during the employment. However, according to the Trade Secrets Act, a disclosure of a company’s trade secret by an individual for the purpose of making public or revealing to a public authority or other authorised body a matter that may reasonably be suspected of constituting a criminal offence punishable by imprisonment or that is deemed to constitute another serious irregularity in the company’s business activities is not considered an unlawful disclosure. A comparable principle is found in the Whistle-blowing Act. As a main principle, there are no limitations on confidentiality agreements in terms of time, but such an agreement may be considered unreasonable and unenforceable by a court if it is too burdensome for the employee.

Non-disparagement clauses are not that common in Sweden, but the duty of loyalty includes a duty not to be disloyal towards the employer by way of disparagement. However, an employee has a right to put forward critique towards the employer when it is justified, as mentioned above.

Employee Liability

The main principle is that the employer is responsible for all damage caused by the employee in the employment. For damage that an employee causes through fault or negligence in his or her employment, the employee is responsible only to the extent that there are exceptional circumstances with regard to the nature of the act, the employee’s position, the interest of the injured party and other circumstances, according to the Tort Liability Act.

The main rule is that post-employment restrictive covenants are valid only if they are reasonable, taking many different factors into account, such as whether employees receive some kind of compensation for the restriction, whether the restriction is limited to certain companies, whether the restriction is limited geographically, etc. An overall assessment of all relevant factors has to be made in each individual case.

According to collective bargaining agreements and market practice, employers are obliged to pay approximately 60% of the monthly income from the employer as compensation for inconvenience caused by the non-competition clause. However, a general assessment of the reasonableness of a non-competition clause must be made in each individual case, which means that other types of compensation may also be accepted as long as they are linked to the non-competition clause.

Post-termination covenants are valid under certain circumstances. Covenants regarding confidentiality are normally used for all kinds of employees. However, non-compete covenants should normally only be used for employees whose position in the company makes such restrictions necessary. In principle, the period of a non-compete covenant should not exceed nine months, or, under certain conditions, a maximum of 18 months.

Non-compete covenants are normally combined with a contractual penalty, which must be reasonable in relation to the employee’s salary. Such a penalty is usually set at between three and six months’ salary for each breach. Furthermore, restrictive covenants may also be combined with a continuing penalty, and the employer can also be entitled to further damages if the damage caused by the employee exceeds the amount of the contractual penalty.

For employees, there is no limitation in time for non-solicitation covenants, but they generally follow the same time limitations set forth in non-compete covenants. A clause regarding the non-solicitation of employees does not usually need to be combined with any compensation in order to be considered reasonable (unlike non-competition clauses) but should be limited; eg, to colleagues that the employee has worked with. A general assessment of the reasonableness of a non-solicitation clause must be made in each individual case.

With reference to customers, there is no limitation in time for non-solicitation covenants, but they generally follow the same time limitations set forth in non-compete covenants. Furthermore, in the same way as non-competition clauses, a clause regarding the non-solicitation of customers needs to be combined with compensation in order to be considered reasonable. However, a general assessment of the reasonableness of a non-solicitation clause must be made in each individual case.

The General Data Protection Regulation (GDPR) is applicable in Sweden and provides protection for individuals against violation of their personal integrity by the processing of personal data. Accordingly, there are restrictions on employers’ use of data regarding employees, former employees and applicants. There are certain basic requirements for any form of processing of personal data that is fully or partly computerised, according to the GDPR.

Personal data may only be processed if it is lawful to do so. The personal data must be collected for specific, explicitly stated and justified purposes. The collected personal data needs to be relevant and necessary for the purpose stipulated and may not be stored for longer than necessary with reference to the specified purposes. It must also be accurate and processed in a manner that ensures appropriate security of the personal data. The GDPR also stipulates situations in which personal data may be processed if the individual has not given his or her consent to the processing. For example, personal data may be processed in order to satisfy a purpose that concerns a legitimate interest of the employer, provided that this interest outweighs the interest of the registered person in protection against violation of their personal integrity.

Certain types of personal data are considered special categories of personal data; for example, information about employees’ or applicants’ race or ethnic origin, genetic data, political opinions, religious or philosophical beliefs, membership of a trade union, or personal data concerning health or sexual preference. Special categories of personal data may only be processed in special circumstances.

The GDPR sets forth certain rights for the registered individuals, such as the right to information concerning the processing of their personal data, the right to access, and the right to rectification, erasure and restriction of processing.

Citizens of countries outside the EU must have a work permit to work in Sweden. In order for a person to obtain such a permit, the employer must have prepared an offer of employment and advertised the job in Sweden and the EU for ten days (this applies to new recruitment). The terms of employment must be equal to or better than those provided under a Swedish collective bargaining agreement or that are customary for the occupation or sector. In addition to this, the employee shall be entitled to health insurance, life insurance, industrial injuries insurance and occupational pension insurance. The employee must also earn enough from the employment to be able to support himself or herself, the gross salary should be at least SEK13,000 per month and the relevant trade union must have been given the opportunity to express an opinion on the terms of employment.

The Posting of Workers Act applies to posted workers in Sweden.

EU and EEA citizens do not need a visa and have the right to work in Sweden without work permits or residence permits. People who have a residence permit in an EU country but are not EU citizens can apply to obtain the status of long-term resident in that country, thereby enjoying certain rights similar to those of EU citizens.

Almost one out of ten employers in Sweden are members of an employers’ organisation and approximately 70% of employees in Sweden are members of a trade union. There are approximately 110 different trade unions and employers’ organisations on the Swedish labour market. The parties have agreed on more than 650 collective bargaining agreements, so trade unions are very prevalent on the Swedish labour market. The “Swedish model” of industrial relations is characterised by a high degree of organisation, even though trade union density is currently falling.

The Co-Determination Act contains the general provisions governing the relationship between employers and the trade unions in areas such as association, information, negotiations, industrial actions and labour stability obligations.

According to the Co-Determination Act, an employer has certain consultation and information obligations towards the trade unions. For example, prior to any decision to reorganise the business or terminate employment contracts, the employer must call for and conduct consultations with the trade unions under the applicable collective bargaining agreements (at both local and national level, if applicable). Even if the employer is not bound by any collective bargaining agreement, they are obliged to consult any trade union of which an employee concerned is a member regarding the planned reorganisation and potential redundancies.

The Act also contains certain interpretation regulations, to the benefit of the trade unions. Generally, these rules give the trade union the right to interpret the collective bargaining agreement until the matter has been finally decided by court, and are therefore important in the case of disputes.

The local trade unions usually elect one or more representatives to represent the employees at a workplace, under the provisions of the Trade Union Representatives Act. Employees who are trade union representatives may not be prevented from carrying out union work during working hours, may not be discriminated against due to their union activities and are entitled to a reasonable leave of absence to carry out their union activities. The local trade union representative shall manage questions relating to labour at the specific workplace – issues of salary, work environment, reorganisations, etc, are normally covered. A trade union representative enjoys extended protection in a redundancy situation.

Furthermore, the Board Representation Act entitles employees of private companies that are bound by collective bargaining agreements and have at least 25 employees to appoint two ordinary and two deputy employee representatives to the board of directors. Employees of companies that have at least 1,000 employees and are engaged in different industries are entitled to appoint three ordinary and three deputy employee representatives to the board of directors.

Moreover, Sweden has implemented the Works Council Directive and the Directive establishing a general framework for informing and consulting employees in the European Community.

Lastly, in a workplace where at least five employees are regularly employed, one or more safety representatives should be appointed, in accordance with the Working Environment Act. If the employer is bound by a collective bargaining agreement, the safety representatives are appointed by the trade union; otherwise, they are appointed by the employees.

The Swedish system is based on the principle that law and collective bargaining agreements together shall provide a comprehensive framework.

Through membership in an employers’ organisation, the employer is bound by the collective bargaining agreements applicable to that organisation. The employer is also obliged to apply the terms and conditions of the collective bargaining agreement to employees that are not members of a trade union. It is also possible for an employer to sign a collective bargaining agreement directly with one or more trade unions.

Once a collective bargaining agreement has been entered into and is in effect, an obligation to refrain from industrial action comes into effect and prohibits strikes or lock-outs. Breaking the peace obligation will incur liability for damages on the breaching party.

A dismissal must be based on objective grounds, which are not defined by statute or case law but can be either objective reasons or subjective personal reasons. Objective reasons are dismissals based on redundancy, reorganisation or the economic situation of the employer, while subjective personal reasons are all dismissals that relate to the employee personally, such as the employee’s conduct or performance.

An overall assessment of all the factors involved must be made when determining whether there are objective grounds for dismissal. A dismissal with notice will never be considered as being based on objective grounds if there were other alternatives available to the employer, such as relocating the employee elsewhere within the business. Thus, an employer must investigate whether there are any vacant positions within their business that the employee can be offered before a notice of termination is given.

Dismissal Procedure

The procedure for dismissing employees varies to some extent, depending on whether the dismissal is due to objective reasons or subjective personal reasons. The procedural requirements to follow are laid down in the Employment Protection Act. Prior to terminating an employment agreement due to objective reasons, the employer may be obliged to conduct consultations under the Co-Determination Act if the employer is bound by a collective bargaining agreement or if the employee is a member of a trade union.

The basic principle to be applied when the labour force has to be made redundant due to objective reasons is that the employee with the longest aggregate period of employment with the company should be entitled to stay the longest: the employer must select those to be laid off on a “last in, first out” basis. A condition for continued employment is that the employee has sufficient qualifications for one of the available positions that may be offered.

Prior to terminating an employment agreement for subjective personal reasons, the employer must notify the employee concerned in writing and the trade union if the employee is a trade union member, two weeks in advance. If an employer wants summarily to dismiss an employee without notice, the information must be given one week before the actual dismissal. The employee or the trade union may request consultations with the employer concerning the dismissal, within one week of receiving the information.

The employer must observe certain formal rules set out in the Employment Protection Act when serving a notice of termination to an employee. Notices shall always be made in writing and must state the procedure to be followed by the employee if they wish to claim that the notice of termination is invalid or to claim damages as a consequence of the termination. The notice shall also state whether or not the employee enjoys rights of priority for re-employment. Several statutes contain limitation periods for bringing employment claims, including the Co-Determination Act, the Annual Leave Act and the Employment Protection Act. Furthermore, the Limitations Act stipulates limitation periods for salary and pension claims.

Dismissal of Multiple Employees

In Sweden, there is no principal difference between a termination due to objective reasons (eg, redundancy) involving one employee or such a termination involving 150 employees. Hence, the Co-Determination Act does not recognise the term “collective redundancies”. In contrast to many other European countries where the obligation to consult collectively is triggered only if there are several redundancies, the provisions on obligations to consult according to the Co-Determination Act are applicable even if the redundancy concerns only one employee. Please see the outline for termination due to objective reasons described above.

If more than five employees are subject to a redundancy situation and their employments are being terminated, the employer is obliged to notify the Swedish Employment Agency a certain period in advance, depending on how many employees are being terminated. This also applies if the total number of notices of termination is expected to be 20 or more during a 90-day period. Failure to observe this notification obligation may result in a liability to pay a special fee to the state.

Statutory notice periods from the employer’s side vary between one and six months, depending on the length of the employment term, as described below:

  • one month if the length of the employment term is less than two years;
  • two months if the length of the employment term is at least two years but less than four years;
  • three months if the length of the employment term is at least four years but less than six years;
  • four months if the length of the employment term is at least six years but less than eight years;
  • five months if the length of the employment term is at least eight years but less than ten years; and
  • six months if the length of the employment term is at least ten years.

The length of the notice period may be extended by virtue of collective bargaining agreements or individual contracts. During the notice period, the employee is obliged to perform work for the employer and is entitled to salary and all other employment benefits. It is possible for an employer to release the employee from the duty to perform work during the notice period.

The minimum notice period in the case of a termination from the employee’s side is one month but can be extended by a collective bargaining agreement or an individual employment contract.

There are no statutory provisions regarding severance pay. However, an employee may be entitled to severance pay in accordance with an employment agreement or an exit agreement.

Please see above regarding union consultations and union representation where the employee is a member of a trade union.

Summary dismissal may take place where the employee has grossly neglected his or her obligations to the employer.

The summary dismissal may not be based exclusively on circumstances of which the employer was aware either longer than two months prior to the notice of summary dismissal or, should such a notice not be issued, longer than two months prior to the summary dismissal.

Prior to summarily dismissing an employee, the employer must notify said employee in writing and the trade union, if the employee is a trade union member, one week in advance. Within one week of receiving the information, the employee or trade union may request consultations with the employer concerning the dismissal.

The summary dismissal shall be in writing and shall be given to the employee personally. In the notification of summary dismissal, the employer shall state the provisions with which the employee must comply if he or she wishes to bring legal action alleging that the summary dismissal is invalid or to seek damages on the grounds of the summary dismissal.

Upon the employee's request, the employer shall state the circumstances invoked as grounds for the summary dismissal, in writing if the employee so requests.

Summary dismissal shall be deemed effected when the employee receives the notification of summary dismissal.

Summary dismissal means that the employee is not entitled to any notice period or other termination benefits, according to the employment agreement.

The employer and employee are free to enter into a final settlement in a termination agreement. Hence, the employment may be terminated disregarding the strict rules of the Employment Protection Act. Consequently, an employee may waive his or her contractual rights. As a rule, an employee cannot waive rights laid down in mandatory law that are not yet accrued, but an employee is free to waive rights that are already accrued. Normally, the employee is financially compensated in order to enter into an exit agreement with the employer that includes a full and final release. There are no specific procedures or formalities to consider when entering into a termination agreement with an employee.

There are no specific requirements for termination agreements in Swedish law. However, all agreements can be deemed unreasonable and amended or declared invalid by a court, according to general contractual law.

Dismissals that are considered discriminatory according to the Discrimination Act are prohibited. Furthermore, several other regulations protect employees from unfair dismissals. For instance, an employee may not be dismissed on grounds related to parental leave or leave of absence for educational purposes, or part-time employment. Trade union representatives also have specific protection against dismissal and against discrimination based on their union activities.

A trade union representative may not be given less favourable working conditions or employment terms and conditions as a result of his or her activities. Upon termination of his or her duties, the employee shall be ensured the same or a comparable position in respect of working conditions and employment terms and conditions as if he or she had no trade union-related duties. Furthermore, in conjunction with a termination due to redundancy and in conjunction with lay-offs, the union representative shall be given priority for continued work, provided it is of specific importance for trade union activities at the workplace.

In the case of wrongful termination of employment, the termination could be challenged by the employee as not having an objective ground and could be declared invalid by the court. The employer may be obliged to pay salary and benefits during the court proceeding, punitive damages (normally not exceeding SEK100,000), compensation for economic loss and the costs for the litigation.

Anti-discrimination legislation consists of the Discrimination Act, which prohibits both direct and indirect discrimination as well as harassment in working life based on sex, ethnicity, religion or other belief, disability, sexual orientation, transgender identity or expression, and age.

Furthermore, employers may not discriminate against part-time or fixed-term employees, nor may they treat an applicant or an employee unfairly on grounds related to parental leave under Swedish law. Trade union representatives are also protected from discrimination based on their union activities.

Where a person who believes that they have been subject to discrimination or reprisals proves facts that give cause to believe that they have been subject to discrimination or reprisals, the defendant must prove that there has been no such discrimination or reprisals.

A party who violates the prohibitions against discrimination or reprisals, or who fails to fulfil its obligations to investigate and take measures against harassment or sexual harassment under the Discrimination Act, shall pay compensation for discrimination for any humiliation and personal indignity resulting from the violation. When compensation is decided, the specific purpose of combating such violations of the Act shall be taken into consideration. The compensation shall be paid to the person offended by the violation.

An employer who discriminates against an employee, applicant, etc, or breaches the provisions regarding prohibition against reprisals shall also pay compensation for the loss incurred. However, this does not apply to loss that is incurred in conjunction with a decision pertaining to employment or promotion, nor to loss incurred as a result of discrimination in the form of insufficient access.

Furthermore, if someone is discriminated against by a provision in an individual contract or in a collective bargaining agreement in a manner that is prohibited under the Discrimination Act, the provision shall be modified or declared invalid if the discriminated person requests it.

The Labour Court is the first and only instance for employment disputes concerning a collective bargaining agreement or in accordance with the Co-Determination Act, or if a collective bargaining agreement applies between the parties. Other employment disputes are resolved in the district courts, with the Labour Court as the first and final instance of appeal.

Negotiations and consultations between employers and organisations can be held at both a local and a central level.

Regarding judicial disputes, since a trade union organisation has the right to bring an action before the court – regarding a dispute of collective bargaining agreement, for example – this constitutes a form of class action. According to the Class Action Act, an organisational class action can be commenced by a non-profit association that, according to its statutes, will protect the interest of its employees. Class action claims are uncommon in Sweden.

Further, the right to resort to industrial action is a constitutional right laid down in the Instrument of Government, which applies only to trade unions, employers or employers’ organisations. Restrictions of this right are set forth in the Co-Determination Act, which stipulates that an employer and an employee that are bound by a collective bargaining agreement may not initiate or participate in industrial action if an organisation is party to that agreement and has not duly sanctioned the action.

Normally, the employee is represented by a union representative in court if they are a trade union member. Hence, the employee bears no costs for his or her representation in court, as the costs are borne by the trade union. Employers are also sometimes represented by their employers’ organisation, but more often they are represented by an in-house legal representative or by a law firm.

The employer and the employee may agree in an employment agreement that any future disputes shall be settled by arbitration. Such a clause may be deemed unreasonably burdensome for the employee and set aside by the courts, particularly if the employee does not occupy a managerial or comparable position.

Dispute resolution regulations may also be specified in collective bargaining agreements.

For employment disputes, the main principle regarding liability for litigation costs is found in the Swedish Code of Judicial Procedure; ie, the losing party shall be ordered to bear the prevailing party’s litigation costs. However, according to the Labour Disputes Act, each party may be ordered to bear its own litigation costs if the losing party had reasonable grounds to bring the action. However, this rule is normally only applied in collective bargaining disputes.

Advokatfirman Cederquist KB

Hovslagargatan 3
SE-111 96 Stockholm
Sweden

+46 8 522 065 00

+46 8 522 067 00

advokat@cederquist.se www.cederquist.se
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KANTER Advokatbyrå KB is a Stockholm-based business law firm focusing on corporate/M&A, intellectual property and dispute resolution. KANTER has special expertise in several areas of law, such as employment and labour law. All partners have solid track records with leading law firms in Stockholm as well as in New York, London and Hamburg. The associates are skilled lawyers, also trained with renowned firms and in-house. The standalone business of the Employment and Labour Law Department makes it unique in Sweden, highly recognised and with an exceptional reputation. Further, the Corporate M&A department has naturally resulted in a substantial amount of work for the Employment and Labour Law Department at KANTER. The three-lawyer team provides clients with legal and strategic advice concerning all aspects of employment law, including protection of human capital and trade secrets, pensions and incentive schemes. The team is, in particular, focused on litigation and arbitration, as well as employment law issues in connection with M&A and business restructuring.

Developments in Swedish Employment Law

Impacts of COVID-19

The outbreak of COVID-19 has had a major impact on almost all aspects of Swedish society. Regarding the business community, several legislative measures have been implemented to mitigate the effects of COVID-19 and to support sustainable companies during this unprecedented time.

Regarding employment law, the most significant measure has been the implementation of governmental financial support for short-time work as of 16 March 2020. Under this legislation, employers can reduce their employees’ working hours and receive financial support (short-time work allowance) from the central government to compensate for a significant part of the costs for retaining the employees. The government will hereby cover 75% of the personnel costs, and the remaining 25% of the costs are shared between the employer and the employee. Short-time work is intended to be an alternative to the employer having to terminate employments on a greater scale. The aim is that affected employers shall be able to retain their employees and be able to quickly resume the business once the effects of COVID-19 have diminished.

In order to receive short-time work allowance, several requirements must be fulfilled, both in respect of the employer and the employees. The employer must, for example, be able to show that the employer has suffered temporary and severe financial difficulties due to COVID-19. The employer must also have utilised all other available measures to reduce the personnel costs. Further, the employer may not be insolvent or under company reconstruction, etc. If the employer is bound by a collective bargaining agreement (CBA), short-time work must be allowed under the relevant CBA. If the employer is not bound by a CBA, the employer must have reached written agreements with at least 70% of the employees within an operating unit, who fulfil the basic requirements on participation in short-time work. Furthermore, the financial support only encompasses employees who have held employment for a certain period of time.

The reduction of the employees’ working hours during the short-time work must be 20, 40 or 60%. During May-July, it was possible with a reduction of 80%. During the short-time work, the employee will receive approximately 90-96% of the ordinary salary, depending on the level of reduction in working hours. The short-time work allowance entails that the employer’s costs for personnel will be reduced by 19-72%, depending on the level of reduction in working hours. The short-time work allowance programme will remain in effect throughout 2020.

As of July, approximately 80,000 applications for short-time work had been filed, 74,000 of which have been approved. In total, 570,000 employees are reported to be or have been participating in short-time work during the period from 16 March 2020 up until the time of writing.

Other temporary measures that have been implemented are reduced employers’ fees and that the government covers certain costs in connection with employees’ sickness.

For companies that consider applying for the short-time work allowance, the following should, however, be noted. The conditions for the allowance may, at first sight, appear to be fairly straightforward. However, a more in-depth analysis show difficulties in both the interpretation and assessment of some of the conditions. The underlying legislation has not been applied before and is, furthermore, partially new. This entails that there are uncertainties regarding the interpretation and application. In addition, the final assessment of entitlement to the allowance is not made in connection with payment of the allowance. Instead, this is done at the end of the allowance period, which could be up to six months after the employer has been approved for short-time work and received the allowance. Therefore, the authors estimate that, during the months to come, there is a risk that numerous companies will be liable for repaying the allowance. The financial consequences could hereby be severe for the affected companies.

Retirement and termination of elderly employees

The Swedish Employment Protection Act (EPA) is one of the most fundamental pieces of legislation in Swedish Employment Law. The EPA is applicable to all employees except for, inter alia, employees who, by virtue of their work duties and conditions of employment, may be deemed to have a business executive position. The EPA is applicable to employees of all ages, but also includes specific regulations that become applicable when the employee reaches a certain age.

During 2020, there have been several changes in the EPA with regard to the rules relating to elderly employees. The changes concern the retirement obligation and termination of such employees. Prior to the change, an employee had the right to remain in the employment until the end of the month when the employee turned 67 years, also known as the “EPA age”. The EPA age has now been raised; to 68 years as of 2020 and to 69 years as of 2023. 

According to the EPA, the employer must have objectively justifiable grounds for terminating an employment. There are two different objectively justifiable grounds for termination: shortage of work (ie, redundancy) and personal reasons. If an employer terminates an employment without such reason, the employer may face both claims for annulment of the termination as well as compensation for violation of the EPA and damages for economic loss.

However, regarding elderly employees, the employer could previously terminate such employment by simply informing the employee, at least one month in advance, that the employment would terminate at the end of the month when the employee turned 67 years. A one-month notice period would hereby be applied. If such action was not taken by the employer within the stipulated timeframe, objectively justifiable grounds were required for the employer to be able to terminate the employment. Under the new regulations, this option has been excluded. In short, the changes entail that termination of an employee who has reached the EPA age can be made without objectively justifiable grounds. The employer can thus terminate the employment whenever the employer chooses. In return, the employee is entitled to his or her ordinary period of notice in the event of termination. Depending on the term of employment, the notice period can range between one and six months or, if the employer is bound by a CBA, even 12 months.

Modernisation of Swedish employment legislation

Swedish employment legislation is currently subject to reformation. The reformation aims to adapt employment protection to the changes and developments on the labour market. No legislative measures have yet been decided upon. However, in June 2020 the special investigator appointed by the government presented his proposal on legislative changes in the report “A Modernised Employment Law”.

The proposed reformation would mainly entail changes of the EPA. The proposal includes changes regarding the rules on order of priority in connection with termination by the employer due to shortage of work. Under Swedish law, it is not automatically the employee holding the position that has become redundant that is to be terminated. This is instead determined by the order of priority, entailing that an employee with a longer aggregate term of employment will have priority to continue the employment compared to an employee with a shorter aggregate term of employment, the “last in, first out” principle. According to the proposed changes, the employer would be entitled to exclude additional employees (five instead of three) before determining the order of priority and such change would thus give the employer a greater freedom to select which employees shall remain within the business.

An explicit obligation for the employer to offer the employees competence development has also been proposed, in order to strengthen the employees’ employability on the labour market. Further, the proposal includes measures for reducing the employer’s costs in connection with terminations as well as making the costs more predictable. Contrary to current regulations, the employment would no longer, as a rule, continue during the course of a dispute, where the employee has disputed the termination and requested the termination to be declared invalid. Furthermore, the proposed changes would entail a stronger protection for employees with a general fixed-term employment; ie, employees with a certain type of temporary employment.

The legislative changes are proposed to enter into effect in 2022. In the meantime, we can expect extensive negotiations on a political scale between the trade unions and employers’ organisations within the different sectors, attempting to find common, suitable solutions within the framework of different CBAs. Failure to do so would entail that the new regulations in the EPA become fully applicable for employers bound by any CBA.

Transparent and predictable working conditions

The EU has during 2019 adopted a new directive on transparent and predictable working conditions (Directive 2019/1152). The Directive aims to ensure safer and more secure employment, and, at the same time, ensure the adaptability of the labour market, and improve living and employment conditions. Under the Directive, all workers in the EU will have the right to more complete, written information on the essential aspects of the work. Further, minimum requirements are established regarding the duration of a probationary period, parallel employments, predictability of the work, transition to another form of employment and anti-abuse measures for zero-hour contract work, etc.

The Directive shall be implemented in national law by August 2022, at the latest. This will, at least, entail additional changes in the EPA.

Trends

Disputes related to disloyalty of employees

In recent times, there has been an increase of cases related to disloyalty of employees or former employees. The increase has been apparent in case law from the Swedish Labour Court. The most common situations are employees’ unauthorised use or disclosure of confidential information and engagement in business activities that are competitive with the business of the employer; eg, starting a competing business or accepting employment with a competitor.

Under Swedish employment law, the duty of loyalty is one of the most important principles in the relationship between an employer and an employee. This duty entails that the employee has to put the employer's interests first and above all other interests that the employee might have. The duty also entails that the employee is prohibited from harming the employer or its business in any way during the employment relationship. The duty of loyalty concerns different aspects of the employment relationship; among others, the employee's obligation on confidentiality and non-competition. The duty of loyalty applies automatically during the whole term of employment, including the notice period. However, in order for the employee to be bound by confidentiality or non-competition after the employment has expired, such restrictions must be expressly agreed upon before termination of the employment, and preferably in the original employment agreement. 

Regarding information about the employer's business, explicit regulations about confidentiality for employees towards their employer can be found in both CBAs and individual contracts. It is common to have confidentiality clauses in individual employment agreements, and there are no formal or procedural rules on how to conclude such agreements.

Further, the Swedish Trade Secrets Act is of great importance regarding confidentiality for employees, concerning such information that constitutes the employer’s trade secrets. The Act contains rules on responsibility and sanctions for an employee who, unauthorised, utilises or discloses trade secrets. The Act also contains different remedies available to the employer. However, as a rule, the Act only applies to breaches committed by the employee during the term of employment.

It is therefore advisable to include a confidentiality clause in the employment agreement, which prolongs the employee's confidentiality obligations after the employment has been terminated. The clause can also be accompanied by a clause on liquidated damages.

A common issue among employers is whether a post-termination non-competition clause in an individual employment agreement is enforceable under Swedish law. In order to enable an employer to protect its business, an employer may, in some cases, prohibit the employee from engaging in competing business for a certain period after the employment has terminated. In 2015, a new CBA regarding the use of non-competition clauses was adopted by the labour market organisations. This CBA has affected the labour market in general, and also sets the standard for employers not bound by the CBA. Therefore, the CBA is now the legal instrument under which the validity of a non-competition clause is determined.

The Swedish Labour Court has in its case law adopted a restrictive view on the use of non-competition clauses. According to the CBA and case law, a non-competition clause may only be used in relation to certain employees; typically employees that, due to their position, gain knowledge of and handle know-how specific to the employer; ie, trade secrets. Further, the employee must also have the knowledge, education or experience to make use of the trade secrets. The employee must also be compensated for the inconvenience caused by the non-competition clause. As a rule, the non-competition clause can only be in force nine months after termination of the employment. However, if there are justifiable reasons, the clause could be in force for a maximum of 18 months. If the non-competition clause is found invalid, the employer risks not having any protection at all against competitive measures by the former employee. Non-competition clauses are therefore to be used carefully and with restriction. 

As an alternative to a non-competition clause, the employer can always implement a longer period of notice for the employee. During the notice period, the employee is bound by the duty of loyalty, and thereby prohibited from engaging in competitive activities.

Foreign companies doing business in Sweden

The presence of foreign businesses in Sweden continues to increase. In this regard, there are some aspects that should be highlighted.

According to the Swedish Foreign Branches Acts, a foreign company that conducts business activities in Sweden must, as a rule, do so through a branch office or a Swedish subsidiary. A foreign company conducting business in Sweden has a duty to comply with several Swedish statutes, such as corporate statutes, and accounting and financial reporting legislation. According to case law, the term "business activities" has a wide scope, hence a wide range of activities has been deemed to constitute business activities. For example, concluding agreements in Sweden has been considered as business activities.

This entails that a foreign company intending to have a presence in Sweden generally will have to establish a branch office or a Swedish subsidiary. The foreign company will also be obligated to report tax in a certain way and is, in general, liable to pay income tax in Sweden. Therefore, a foreign company intending to have a presence in Sweden, of any kind, should carefully examine the options available in order to avoid unforeseen consequences and costs. 

Lastly, it should be noted that the obligation to conduct business through a branch office or a subsidiary does not apply if the foreign company, in its capacity as an employer, is posting employees to Sweden for work on a temporary basis.

GDPR

The months leading up to 25 May 2018 were characterised by intensive preparations for the entering into effect of the European General Data Protection Regulation (GDPR). The following year, work related to GDPR issues slowed down significantly. However, since the beginning of 2020, there has been a second wave of GDPR matters in Sweden.

During 2019, the Swedish Data Protection Authority (DPA) – the authority responsible for supervising the application of GDPR in Sweden – initiated its review of compliance with GDPR when processing personal data. One of the focus areas of the supervision was employers’ processing of their employees’ personal data, and especially the employer’s surveillance of the employees. The DPA has imposed fines in a number of cases and through its decisions clarified different aspects of the application of the GDPR. As of yet, however, no clarifying decisions have been made regarding the processing of employees’ personal data. The review will continue during 2020.

According to a recent case from the European Court of Justice (C-55/18 CCOO), the member states are required to direct employers to set up systems enabling measurement of the daily working hours of each employee. Under the Swedish Working Hours Act, the employer is already to some extent obligated to register working hours; for example, overtime and on-call time. However, there is no general obligation to register all working time. Therefore, legislative changes will most likely be necessary. Before such legislation enters into force, there should not be any risk of sanctions for employers that do not have such system in place.

Measuring or registering the employee’s working time constitutes a processing of personal data. When setting up a system for registering working hours, the employer will therefore have to comply with the provisions in the GDPR. The consequences of the GDPR in this respect remain to be seen.

KANTER Advokatbyrå KB

Engelbrektsgatan 3
114 32 Stockholm
Sweden

+46 8 407 37 00

info@kntr.se www.kntr.se
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Law and Practice

Authors



Advokatfirman Cederquist KB is a top-ranked independent Swedish business law firm that offers full service from its office in Stockholm. The firm engages more than 100 of the best lawyers available on the Swedish market and has developed non-exclusive relationships with other leading law firms globally to help it assist clients in cross-border matters. Major international deals and transactions handled by the firm include acting as legal adviser in a number of corporate acquisitions of Swedish companies on behalf of foreign corporations, investment banks and law firms, as well as acquisitions of companies outside Sweden. Cederquist’s market-leading employment and benefits team manages risks in all labour law-related situations. The labour law practice consists of two partners and six associates and the practice handles all matters relating to the legal areas of labour, pensions and benefits, including executive employment agreements, termination and exit-related actions, collective redundancy situations, business transfers, outsourcing matters, reorganisations, employment protection, trade secrets, work environment issues, pension, incentive and bonus programmes, policies and collective agreements. Cederquist is a member of L&E Global, an alliance of employers’ counsel worldwide and the leading alliance for cross-border labour and employment law services.

Trends and Development

Authors



KANTER Advokatbyrå KB is a Stockholm-based business law firm focusing on corporate/M&A, intellectual property and dispute resolution. KANTER has special expertise in several areas of law, such as employment and labour law. All partners have solid track records with leading law firms in Stockholm as well as in New York, London and Hamburg. The associates are skilled lawyers, also trained with renowned firms and in-house. The standalone business of the Employment and Labour Law Department makes it unique in Sweden, highly recognised and with an exceptional reputation. Further, the Corporate M&A department has naturally resulted in a substantial amount of work for the Employment and Labour Law Department at KANTER. The three-lawyer team provides clients with legal and strategic advice concerning all aspects of employment law, including protection of human capital and trade secrets, pensions and incentive schemes. The team is, in particular, focused on litigation and arbitration, as well as employment law issues in connection with M&A and business restructuring.

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