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SWEDEN: An Introduction to Employment

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Contributed by Jenny Jilmstad and Sandra Nilsson, Advokatfirman Schjødt

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 bargaining 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 per cent 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 per cent of all employees in Sweden are also covered by terms and conditions of various CBAs.

A CBA has a mandatory effect for an employer bound by a CBA. This means that any deviations from the terms of the CBA in individual employment agreements are invalid, if deviations are not explicitly permitted in the CBA. However, it is generally permitted to make deviations in individual employment agreements, if the deviations stipulate better terms than the 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 or to become a member of an employers’ organisation. However, a trade union that wishes the employer to enter into a CBA normally has a right to take industrial actions against a company in order to try to conclude a CBA. From a practical perspective, it is difficult for an employer to neglect a CBA if a trade union takes industrial actions against the employer. If the industrial actions last for a long period of time, it will negatively affect the possibility for the employer to conduct its business and will result in financial consequences.

Issues related to conducting business activities and 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 either through a branch office, a Swedish subsidiary, or an agency with operations in Sweden.

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. Furthermore, there are also obligations in relation to legislation on bookkeeping, accounting and financial reporting.

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 the employer’s obligation to pay social security 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 for a limited period of time. A posting is conducted when a foreign employer has sent its employees to Sweden in order to conduct services for another company in Sweden. In such cases, the Swedish Posting of Workers Act (the “PWA”), which incorporates the different EU Directives concerning the posting of workers, is applicable.

A foreign employer must 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 may 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 the number of paid vacation days and working hours.

News and current legal issues within Swedish labour and employment law

A current topic in Sweden is the modernisation of Swedish labour law in different aspects. In April 2019, the Government decided to appoint a special investigator to examine the possibilities to modernise and adapt the Swedish labour law regulations to better meet the market standards.

The scope of the investigation includes four main areas within labour and employment law. The first area includes examining proposals regarding extended exemptions from the provisions on the order of priority in the Employment Protection Act (the so-called “last in first out” principle). Another area includes to examine the possibilities to strengthen the employer’s responsibility for competence development for employees. Furthermore, the investigator shall examine the possibility to lower costs for termination of employments for smaller companies. The last main area of the investigation is to examine how to create a better balance in the employment protection for employees with different employment conditions.

The investigation shall be submitted to the Government at the latest on 31 May 2020. It is difficult to foresee the outcome; however, if legislative amendments are proposed, this will lead to significant changes of Swedish labour law.

On 1 January 2020, amendments to the Employment Protection Act regarding the right to remain in employment and a raise of the age limit for the national public pension entered into effect. The life expectancy in Sweden is increasing, which entails that the national public pension must cover a longer period of time. Therefore, it is required that the working life is prolonged by increasing different pension-related age limits in order to maintain a proper level of remuneration. There is no general retirement age in Sweden; however, there are age limits in legislation which will affect an employee’s decision on when to retire.

Under the provisions of the previous Employment Protection Act, an employee had the right to remain in employment up until the age of 67, and it was not permitted to force an employee to retire before the age of 67. As of 1 January 2020, an employee has the right to remain in employment until the age of 68, and as of 1 January 2023, this age limit will be extended to the age of 69. Under the previous provisions, an employer desiring an employee to leave their employment at the age of 67 shall give the employee a written notice. As of 1 January 2020, an employer must proceed with a termination of the employment relationship when the employee reaches the age of 68 (and 69 in 2023). However, the employer may apply a simplified procedure in relation to the termination of employment due to retirement.