SWEDEN: An Introduction to Employment
The Swedish Labour Law Model
Almost 90% of all employers in Sweden are members of an employers’ organisation, and thereby covered by the terms and conditions of collective bargaining agreements (CBAs). Since most large companies are members of an employers’ organisation, almost 90% of all employees in Sweden are also covered by CBAs. This means that the greater part of Swedish labour and employment law consists of regulations established through CBAs. Hence, the Swedish labour law model is characterised by self-regulation, where CBAs play an important role.
A CBA is binding on all employers and employees who are members of any of the organisations that have concluded it. An employer bound by a CBA is required to apply the regulations in that CBA to all employees occupied by the work covered by it. CBAs generally cover all key terms and conditions of employment, such as form of employment, salary, working hours, vacation, pension and other insurances, notice periods, etc. Furthermore, a CBA provides employees and trade unions a higher degree of co-determination regarding the employer’s business.
In contrast to other European countries, there is no system in Sweden for making CBAs generally applicable (ie, there is no procedure for the government to enhance a CBA to the status of a law), neither is there any legal obligation for an employer to enter into a CBA. However, a trade union that wishes to enter into a CBA with an employer has, under certain circumstances, the right to take industrial action against the employer in order to conclude a CBA. Recent experience has shown the extensive lengths to which trade unions may be prepared to go to take such action to compel employers to conclude a CBA. Generally, the risk of becoming subject to industrial action in this respect increases with the size of the employer.
Due to the long-standing tradition of self-regulation by parties on the labour market through CBAs, the Swedish legislature is only responsible for a minor proportion of the regulations on the labour market. For example, there is no statutory minimum wage in Sweden. Another significant feature of the Swedish labour law model is that the statutory regulations almost exclusively consist of civil rules for which there is no regulatory oversight, except in the areas of work environment and working hours.
Issues related to conducting business activities in Sweden and the posting of workers in Sweden
When conducting business activities in Sweden, a foreign company must – as a main rule – conduct its business through a branch office or a Swedish subsidiary. If that obligation is not observed, fines may be imposed. The Swedish branch or subsidiary must comply with Swedish accounting and financial reporting legislation.
A foreign company established within the EU can post employees in Sweden on a temporary basis. A posting is conducted when a foreign employer sends one or several employees to Sweden to perform services for a recipient there, usually a customer or a group company. The Swedish Posting of Workers Act (PWA) is then applicable, which incorporates an EU Directive concerning the posting of workers.
A foreign employer must report the posting of employees in Sweden, along with certain information concerning the posting, and provide details for a contact person in Sweden to the Swedish Work Environment Authority. If that obligation is not observed, the Work Environment Authority could impose a fine on the employer.
The PWA lists a number of Swedish statutory provisions (the so called core obligations) that a foreign employer must comply with if one of their employees is posted in Sweden, irrespective of which country’s law would otherwise be applicable to the employment relationship. These core obligations include, inter alia, regulations on the number of paid vacation days, parental leave and working hours.
The foreign employer must ensure that the posted employee receives at least the same basic work and employment conditions as those that would have applied if the posted employee was employed directly by the Swedish recipient to occupy the same role (the so called principle of equal treatment). This principle applies to certain categories of conditions, one of which is pay.
If a foreign employer were not to comply with these core obligations or the principle of equal treatment regarding pay in the PWA, a Swedish trade union may have the right to take industrial action against such employer in order to conclude a CBA for the posted employees. However, a trade union’s right to take industrial action against a company based within the EU is only granted if the actions do not interfere with fundamental EU principles regarding free movement.
If the posted employee is a temporary agency worker, different rules apply. In such cases, the employee must be granted at least the same basic working and employment conditions as someone hired directly by the company. If the foreign employer does not comply, it is liable to pay financial compensation to the employee.
Conducting business in Sweden as a foreign company also gives rise to several tax issues. A foreign employer paying compensation to employees for work conducted in Sweden must generally be registered as an employer in Sweden and pay the employer’s contribution on the salary. If the foreign company is considered as having a permanent establishment in Sweden, additional obligations are imposed on the company. For example, the foreign company is liable to pay business income tax in Sweden and is subject to different tax administration obligations.
Trends in Swedish labour and employment law
The Swedish Agency Work Act grants workers who have been assigned to a client company for more than 24 months in a 36-month period the right to be offered permanent employment by the client company, or to receive compensation equivalent to two months' salary. There has been some uncertainty about the scope of the Act, which has led to many Swedish companies offering employment or compensation to all categories of agency workers. The following conclusions can be drawn from the recent case law of the European Court of Justice.
A company, or part of a company, must conclude contracts with workers with the purpose of assigning them to a client company. It is not enough for a company to merely supply one or more, or occasionally a proportion, of its workers. Agency work should be distinguished from the provision of services.
In regard to the client company, the employee must be under its supervision and direction, and thus in a subordinate position. The client company must impose on the worker the services to be performed, the manner of their performance and the requirement to comply with its instructions and internal rules. Additionally, the client company must also monitor and supervise the way in which the worker performs his or her duties. It is not enough to merely verify the work carried out or give general instructions.
The worker must have been employed for the purpose of being assigned to a client company.
Our conclusion is that fewer employees are covered than previously thought. For example, consultants who work on projects and mainly take instructions from the consultancy company, and workers who during their ordinary employment are temporarily relocated to a client company, are not covered. Highly specialised consultants who cannot be managed by the client company are also not covered.