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SWEDEN: An Introduction to Employment

Contributed by Erik Danhard and Elin Pettersson, Hamilton

The Swedish labour law model 

Significant for the Swedish labour law model is that it is almost exclusively founded upon civil rules. By tradition, the Swedish legislature is only responsible for a minor part of the regulations on the labour market and the observance of statutory regulations. The vast majority of the regulations are instead established through collective bargain agreements ('CBAs'), entered into between an employer or employers’ organisation and a trade union. The Swedish labour market is characterised by self-regulation by the parties on the market, where CBAs play an important role.

Almost 90% of all employers in Sweden are members of an employers’ organisation, and since most of the larger companies in Sweden are members of different employers’ organisations, almost 90% of all employees in Sweden are also covered by terms and conditions of various CBAs. The high level of participation on the Swedish labour market is the basis of the co-determination between employees and trade unions on the one hand, and employers and employers’ organisations on the other.

A CBA is binding on all employers and individuals that are members of the organisation that has concluded the CBA. Further, an employer that is bound by a CBA is required to practise its regulations in relation to all employees occupied with work that is covered by that CBA. Contrary to systems in other European countries, there is no system in Sweden for making CBAs generally applicable (i.e. there is no procedure for enhancing a CBA to law).

There is no legal obligation for an employer to enter into a CBA. However, a trade union that wishes to enter into a CBA normally has a right to take industrial action against a company in order to try to conclude a CBA.

Issues related to conducting business activities and the posting of workers in Sweden

The requirements for a foreign company to conduct business activities in Sweden are set out in the Swedish Foreign Branches Act (the 'FBA'). According to provisions in the FBA, a foreign company must conduct its business activities in Sweden in one of three ways: through a branch office, a Swedish subsidiary or an agency with operations in Sweden. If that obligation is not observed, fines may be imposed.

There are several different statutory obligations for a foreign company conducting business activities in Sweden. Branch offices are subject to provisions in the FBA and Swedish subsidiaries to provisions under different Swedish corporate statutes. There is also bookkeeping, accounting and financial reporting legislation that has to be complied with.

Depending on whether a foreign company is deemed to have a permanent establishment in Sweden (according to Swedish tax legislation), different provisions regarding, inter alia, income tax and employer’s contributions may apply. A foreign enterprise may be deemed to have a permanent establishment in Sweden even when there is no fixed place in Sweden from where its business operations are carried out, such as when the business operations in Sweden are carried out through a dependent agent.

The above specified obligations in the FBA do not apply if the foreign company is posting employees in Sweden on a temporary basis. A posting is conducted when a foreign employer is using its employees in order to conduct services for another company in Sweden. In such cases, the Swedish Posted Workers’ Act (the 'PWA'), which incorporates the different EU Directives concerning the posting of workers, is applicable.

A foreign employer has to report the posting of employees in Sweden, along with certain information concerning the posting, to the Swedish Work Environment Authority. If that obligation is not observed, the Work Environment Authority could impose a fine on the employer.

If a foreign employee is posted in Sweden, the PWA lists a number of Swedish statutory provisions (known as the 'core obligations'), which the foreign employer must comply with, irrespective of under which legislation the employment relationship otherwise should be assessed. The core obligations include, inter alia, regulations on number of paid vacation days and working hours. A trade union may under certain conditions take industrial action against a foreign employer in order to conclude a so-called 'Posting CBA', regulating the terms and conditions related to the core obligations under the PWA.

News and current legal issues within Swedish labour and employment law

The Swedish Labour Court has previously adopted a highly restrictive approach to restrictive covenants in terms of non-compete clauses within employment relationships. Such restrictions may mainly be utilized in respect of an employee with knowledge of trade or manufacturing secrets and the employee must be compensated for the inconvenience.

During 2018, the Court further developed its case law regarding non-solicitation clauses (AD 2018 no. 61 and AD 2018 no. 62). Due to the fact that a non-solicitation clause could entail anti-competitive effects equal to the effects of a non-compete clause, the Court has expressed a restrictive view on such clauses. Consequently, non-solicitation clauses should not generally be included in all employment agreements, but rather utilized under certain circumstances for a limited range of employees and should be limited in time.

In our experience, a common legal issue for foreign employers conducting business in Sweden relates to the possibility under Swedish legislation to conduct background checks of employees and candidates, following the entry into force of the General Data Protection Regulation ('GDPR') on 25 May 2018.

The background checks commonly relate to criminal behaviour, financial stability and social media and press. Processing personal data relating to criminal behaviour (including conducting criminal background checks) is generally considered unlawful for private companies in Sweden. Conducting financial stability checks and social media and press checks can, under certain circumstances, be possible, however mainly in respect of employees in, and candidates applying for, certain management positions. Furthermore, consent is not considered an appropriate or oftentimes valid legal basis for processing any form of personal data relating to employees or candidates in Sweden.

Another common legal issue relates to the regulation of employment benefits and the right for the employer to change or remove such benefits. In Sweden, benefits are regulated on different levels. Contrary to many other countries, there are few benefits regulated by statutory legislation in Sweden. Typically, this only applies to vacation benefits. However, CBAs usually stipulate provisions regarding benefits, generally including provisions on e.g. pension and insurance benefits (the ITP pension plans). Furthermore, benefits are oftentimes agreed upon between an employer and employee on a contractual basis. In addition, benefits can also be provided on the basis of an employer’s right to manage the work (i.e. on a discretionary basis).

Benefits provided on a discretionary basis can be changed and removed by the employer. A contractually agreed upon benefit can only be unilaterally changed or removed by the employer if expressly stipulated in the agreement. If the agreement does not include such a right for the employer, changing or removing a benefit requires either (i) a re-regulation of the employment agreement, or (ii) that the employment agreement is terminated and the employee and employer enter into a new employment agreement on the desired terms.

Incentive schemes, e.g. bonus programmes, are regulated on a contractual basis between an employer and employee. However, depending on the character of the incentive scheme, statutory provisions on vacation pay as well as provisions on pension contributions in CBAs can become applicable also in respect of contractually agreed incentive schemes.