Memorandum. General Overview Employment Law/Sweden

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1 Memorandum General Overview Employment Law/Sweden

2 1. General 1. Brief Introduction The Swedish labour law model is based on civil rules that govern most aspects of the employeremployee relationship. Traditionally, the labour market is, to a great extent, self-regulated by the parties (employers organizations and trade unions). Almost all disputes are settled in civil court proceedings. Where collective bargaining agreements apply, the one and only instance is the Labour Court. For employers that are not bound by collective bargaining agreements, the first instance is the district court, with the possibility to appeal to the Labour Court. However, the majority of disputes are solved by the parties in the labour market, before a court proceeding is initiated. Key Points An employment agreement is entered into for an indefinite term or, if certain conditions are met, for a fixed term. The employee must observe the statutory notice period in order to terminate an employment. A citizen in a non-eu or EEA country must have a work permit and a residence permit before entering Sweden to work. Mandatory laws and regulations in collective bargaining agreements, if any, provide a comprehensive framework for the terms and conditions of the employment. An employment may only be terminated on object grounds, i.e. redundancy or personal reasons. The employer has certain consultation and information obligations towards trade unions even if the employer is not bound by any collective bargaining agreement. 2. Legal Framework Swedish employment legislation is divided into two main groups, the individual side and the collective side. The main legislation on the individual side, i.e. the relationship between the employer and the employee, is the Employment Protection Act. The act applies to all employees in the public and private sector, except for, inter alia, employees in managerial or comparable positions, i.e. managing directors and members of the employer s family. The provisions in the act are mandatory and provide a strong employment protection. Other acts on the individual side concern, for example, working time, annual leave, parental leave and discrimination. The main legislation on the collective side, which governs the relationship between the employer and the trade unions, is the Co-Determination in the Workplace Act. The act contains rules regarding collective bargaining agreements and the consultation and information obligations. Another example of legislation at the collective side is the Board Representation Act regarding employee representation at the company s board. 1

3 By way of collective bargaining agreement, it is possible to deviate from certain regulations in law. As a consequence, collective bargaining agreements play an important role in the legal framework and are traditionally largely influential. 3. Expected Developments A new act is proposed that prohibits an employer from requiring, inter alia, employees and job applicants to present or submit extracts from the criminal record, unless it is a statutory obligation. If the employer does not observe the proposed prohibition, the employer may be liable to pay damages. The act was proposed to enter into force in June However, the legislative process has been delayed, and most likely a new act will not enter into force before fall Further, amendments of the Swedish Employment Protection Act have been proposed regarding fixed-term employment. In case of a chain of different types of fixed-term employment contracts during a certain period of time, a fixed-term employment will automatically be converted into an employment for indefinite term. The legislative amendments are proposed to enter into force on 1 May Employment Contracts 1. Minimum Requirements According to the Employment Protection Act, the employer is obliged to provide the employee with certain information in writing within one month from the starting date. The following information must be Included: Information about the employer and the employee Date of employment and work place Information about the position Employment term Notice period Salary and other benefits Number of vacation days Working hours Collective bargaining agreement, if applicable 2. Fixed -term/open-ended Contracts The Employment Protection Act provides and governs, inter alia, the different types of employments that are permissible in Sweden. As a general rule, employment agreements are 2

4 entered into for an indefinite term (open-ended contracts). However, under certain circumstances, a fixed-term employment is acceptable. According to the act, fixed term employment may be used in the following situations: General fixed-term employment for a maximum two years Temporary substitute employment Seasonal employment Employment of employees that have attained the age of 67 A fixed-term employment is generally terminated automatically when the agreed employment term has lapsed, unless otherwise agreed. The employer may have to observe certain notification obligations towards the employee and the trade union. If explicitly agreed, a fixed-term employment may be terminated in advance provided that objective grounds are at hand. It is important to note that a fixed-term employment will, under certain circumstances, automatically transfer into an employment for an indefinite term after an aggregated time period of two years during a five years period. A collective bargaining agreement may increase or limit an employer s possibility to engage employees on a fixed-term basis. 3. Trial Period A trial period of a maximum of six months may be agreed. The employment can be terminated by either party upon expiry of the trial period, or at any time during the trial period, unless otherwise agreed. Objective grounds for termination of the employment must not be at hand. In the event of termination, the employer must give the employee at least two weeks notice. If the employee is a trade union member, the trade union shall be notified at the same time. If the employer does not observe the notice period, the employer may be liable to pay damages. The employment contract automatically converts into an indefinite-term contract if the employee continues to work after the trial period. 4. Notice Period The notice of termination must be in writing and contain certain information stated in law, such as, whether priority to re-employment exists and how the employee shall proceed if he/she would like to challenge the termination of employment. The notice of termination shall be given personally to the employee. Statutory notice periods vary between one and six months, depending on the length of the employment term as described below. 1 month if the length of the employment term is less than 2 years 2 months if the length of the employment term is at least 2 years but less than 4 years 3

5 3 months if the length of the employment term is at least 4 years but less than 6 years 4 months if the length of the employment term is at least 6 years but less than 8 years 5 months if the length of the employment term is at least 8 years but less than 10 years 6 months if the length of the employment term is at least 10 years The length of the notice period may be extended by virtue of collective bargaining agreements or individual contracts. In relation to employees on parental leave, the notice period will start to run from the date when the employee is supposed to return to work, i.e. from the expiry of the parental leave. During the notice period the employee is obliged to work and is entitled to salary and all other employment benefits. Any garden leave must be individually agreed with the concerned employee. 3. AUTHORISATIONs FOR FOREIGN EMPLOYEES 1. Requirement for Foreign Employees to Work Citizens in a European Union (EU) or European Economic Area (EEA) country are entitled to work in Sweden without obtaining a work permit or a residence permit. For Swiss citizens, a residence permit is required (no work permit required) if the work in Sweden continues for more three months. Generally, non-eu and EEA citizens must have a work permit, as well as a residence permit, before entering Sweden to work. However, experts and some other employee categories, may work in Sweden under certain circumstances without a work permit. Depending on the length of the work conducted in Sweden, tax issues will arise. For example, the employer may have to pay social security contributions. 4. Working Conditions 1. Minimum Working Conditions The terms and conditions for employment are regulated in the individual employment agreement and/or in the collective bargaining agreement (if applicable). Mandatory rules regarding, inter alia, working hours, working environment, equality and non-discrimination, must also be observed. 2. Salary There are no provisions regarding minimum salary stipulated in law. Thus, the employer and the employee are free to agree on any salary level. However, collective bargaining agreements 4

6 normally contain provisions regarding a minimum salary level as well as minimum annual salary raise. 3. Maximum Working Week The working time is regulated in the Swedish Working Hours Act. The provisions in the act may be deviated from by virtue of collective bargaining agreement. According to the act, the statutory ordinary working time is a maximum of 40 hours per week. Under certain circumstances, the ordinary working time may instead be an average of 40 hours per week for a period of a maximum four weeks. The ordinary working hours together with the overtime hours (please see below) may, during each seven day period, not exceed an average of 48 hours during a period of a maximum of four months. During each 24-hour period the employee is entitled to 11 hours rest. Normally, the period between midnight and 5 a.m. shall be included in the rest period. 4. Overtime According to the Swedish Working Hours Act there is a possibility for the employer to require the employee to work overtime (maximum of 200 hours during a calendar year), as well as additional overtime (maximum of 150 hours during a calendar year). However, the overtime and the additional overtime may not in total exceed 48 hours during a period of four weeks, or 50 hours during a calendar month. No payment for overtime work is required under Swedish law. However, overtime compensation is often required under collective bargaining agreements. In some situations, depending on the type of work, salary level and the number of vacation days, employees may be exempted from the provisions on overtime compensation. 5. Holidays According to the Swedish Annual Leave Act the employee is entitled to annual leave benefits such as vacation leave, vacation pay and compensation in lieu of annual leave. Normally, the employee is entitled to a minimum of 25 vacation days per year. The qualifying year runs from 1 April to 31 March. The following 12 months is the vacation year, when vacation may be taken. During the vacation, the employee has a right to vacation pay to the extent that the employee has qualified for such pay. Thus, the vacation may consist of both paid an unpaid vacation days. Employees may carry over days not taken in excess of 20. Generally, any saved paid vacation days must be used within five years. In most of the collective bargaining agreements deviations from the act are standard, especially regarding calculation of vacation pay and vacation accrual. 5

7 5. Rights of Employees in Case of a Transfer of Undertaking 1. Employees Rights In Sweden, the EU Acquired Rights Directive is implemented by the Employment Protection Act. The act stipulates that in conjunction with a transfer of business, or part of a business, from one employer to another, the employees will automatically be transferred to the acquiring company on unaltered terms and conditions. The transferring company may not terminate employment agreements solely due to a transfer of business. Thus, pre-transfer termination of employment may result in damages or even a ruling of invalidity. However, post-transfer, the acquiring company is free to initiate a redundancy programme subject to Swedish law. The employees may refuse the transfer and will, in such a case, remain employed by the transferring company. If the transferring company has no business left, such employees will be made redundant. 2. Union Consultation Prior to the decision to transfer the business (or a part of it), the acquiring company, as well as the transferring company, must, as a rule, call for and conduct union consultations with the local union representatives under the applicable collective bargaining agreements. Even if the companies are not bound by collective bargaining agreements, they are obliged to consult with any trade unions of which any concerned employees may be members. Union consultations must be initiated and concluded before a decision regarding the transfer is made. If the consultation requirement is not observed, the breaching company may be obliged to pay damages to the unions concerned. 3. Requirements for Takeover Party The transferring company will remain liable (jointly with the acquiring company) towards the transferred employees for liabilities pertaining to the time prior to the transfer. If the transferring company is bound by a collective bargaining agreement, such agreement shall apply, where relevant, to the acquiring company. The collective bargaining agreement may in theory be terminated by the transferring company (but the employment terms must remain unaltered for one year). This may, however, be regarded as an aggressive action and may, thus, be difficult in practice. Specific rules apply if the acquiring company is already bound by a collective bargaining agreement. 6

8 6. Termination of Employment Contracts 1. Grounds for Termination According to the Swedish Employment Protection Act, an employment may only be terminated by the employer if objective grounds are at hand - either shortage of work (redundancies), or personal reasons (serious misconduct or disloyalty). However, the employer and the employee are free to enter into a settlement, whereby the employee is financially compensated, and the employment may be terminated disregarding the strict rules of the act. If the employee s misconduct or disloyalty is extremely serious the employer may summarily dismiss the employee (i.e. the employment is terminated immediately without observing any notice period). A fixed-term employment is generally terminated automatically when the agreed employment term has lapsed, unless otherwise agreed. If explicitly agreed, a fixed-term employment may be terminated in advance provided that objective grounds are at hand. 2. Shortage of Work With respect to redundancies it is sufficient if the employer decides to reorganize its activities in one way or another, regardless of profitability. In a redundancy situation, any employee concerned must in the first place be offered any (reasonable) vacant position in the company, provided that the employee has sufficient qualifications (or will have within six months) with regard to that specific position. If there is no vacant position to offer, the redundancy process will take place. In these situations, the employee with a longer period of employment has a priority to remain employed, compared to an employee with a shorter period of employment (the last in - first out principle). Thus, there is no room for cherry-picking. If the employer has different locations, the order of priority normally applies for each location (office, plant etc.) separately. Specific rules in the collective bargaining agreements may apply in this regard. Before any decision is taken regarding redundancies and termination of employment, union consultations must be initiated and concluded. If the employer does not observe its obligations to consult, it may be obliged to pay damages to the trade unions. It can be noted that employees who are made redundant may have a preferential right to reemployment if there is a future need to increase the work force. Specific rules in the collective bargaining agreement may apply if the employer plans to hire agency workers or similar. If five or more employees are made redundant in the same region, the employer is obliged to notify the Swedish Public Employment Service. The termination of employment may not become effective earlier than two months after such notification. If more than 25 employees are concerned the time period is extended to four months, and if more than 100 employees are 7

9 concerned, the time period is extended to six months. Notification is normally done at the same time as the trade union consultations are initiated. If the notification obligation is not observed, the employer may be ordered to pay a fine. 3. Personal Reasons Objective grounds for termination due to personal reasons could be, for example, distinctive lack of capability, negligent performance, serious misconduct, theft, disloyalty or other aggravating circumstances relating to the employee and his/her individual performance. It should be noted that the employer has the burden of proof in this regard. Further, the employer has a responsibility to provide support to the employee to Improve. This procedure is often timeconsuming and takes a lot of effort from the employer. As a general rule, a termination of employment due to personal reasons must be made within two months from the time the employee committed the breach (or the employer knew about the breach). At least two weeks before a notice of termination due to personal reasons is given to the employee, the employee and his/her trade union must be informed about the employer s plan to terminate the employment. The employee and the trade union may, within one week, request consultation regarding the planned termination of employment. In case of consultation, the formal notice of termination may not be given before the consultation has been concluded. 4. Severance Payment There are no mandatory payments to the employee, i.e. no severance payment is required under Swedish law, but may be stipulated in the individual contract. 5. Options for Employee The employee may terminate the employment without any cause. The employee must observe the notice period stipulated in law, individual agreement or collective bargaining agreement. During the notice period the employee is obliged to work and is entitled to salary and benefits. 6. Protection Against Wrongful Termination In case of wrongful termination of employment, the termination could be challenged by the employee and declared invalid by the court. The employer may be obliged to pay salary and benefits during the court proceeding, punitive damages (normally not exceeding SEK 100,000), compensation for economic losses (normally varies between monthly salaries), and its own and the employee s litigation costs. 8

10 7. Trade Unions and Employers Associations 1. Brief Description of Employees and Employers Organizations The Swedish labour system is based on the principles that law and collective bargaining agreements together shall provide a comprehensive framework. Trade unions and employer s organizations represent around 110 parties on the Swedish labour market. The parties have agreed on more than 650 collective bargaining agreements regarding salary and general employment terms and conditions. Almost 90 percent of all employers in Sweden are members of an employers organization. Approximately 70 percent of the employees working in Sweden are members of a trade union, which is a fairly high number. Through membership in employers organizations, the employer is bound by the collective bargaining agreements applicable for that organization. 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. 2. Rights and Importance of Trade Unions The high level of unionization on the labour market is the foundation to the co-determination between employees and trade unions on the one hand, and employers and employers organizations on the other hand. The main rules and regulations regarding co-determination are laid down in the Co-Determination in the Workplace Act. According to this act, the employer has certain consultation and information obligations towards the trade unions. For example, prior to any decision to reorganize the business and prior to any decision to terminate employment contracts, the employer must call for and conduct consultations with the trade unions under the applicable collective bargaining agreements (both at local and national level, if applicable). Even if the employer is not bound by any collective bargaining agreement, the employer is obliged to consult the planned reorganization and potential redundancies with any trade union of which a concerned employee is a member. The act also contains certain interpretation regulations to the benefit of the trade unions. These rules are important in the case of disputes, since they, as a general rule, give the trade union the right to interpret the collective bargaining agreement until the matter has been finally decided by court. When a collective bargaining agreement has been entered into, a peace obligation for the parties immediately takes effect. The peace obligation prohibits any use of industrial action, such as strikes or lockouts. Breaking the peace obligation will incur liability for damages on the breaching party. 9

11 8. EMPLOYEE REPRESENTATION 1. Types of Representations All employees have a right to belong to a trade union, to exercise the rights of membership in such an organisation, and to participate in such an organisation or the establishment thereof. An employer may not infringe on such rights. 2. Appointment of Representatives If the employer is bound by a collective bargaining agreement, the unions under that agreement may appoint local union representatives amongst the employees at the workplace. There is no limitation in the number of local union representatives that the trade union may appoint. Further, the trade union decides on the length of the representative s term. 3. Tasks and Obligations of Representatives The local union representative shall manage questions relating to labour at the specific workplace. Issues that are covered normally relate to salary, work environment, reorganisations, etc. The union representative is entitled to time off in order to conduct union work. Further, a union representative enjoys an extended protection in a redundancy situation. 4. Employees Representation in Management In a company that employed an average of 25 employees during the last financial year, there is a right to employee representation in the management. The trade unions under the collective bargaining agreement have a right to appoint two ordinary members of the company s board, as well as two substitutes. In companies with more than 1,000 employees three ordinary members and three substitutes may be elected. However, the number of employee representatives on the board may not be higher than the number of other board representatives. The employee representatives should preferably be elected from the employees in the company (or the company group). This right to employee representation only applies in relation to companies that are bound by collective bargaining agreements. 9. SOCIAL SECURITY 1. Pension Benefit The Swedish pension system is based on an income-related pension, premium pension and guarantee pension. The pension system is administrated by the state and financed by employers 10

12 and employees jointly. The employers contribution is paid through the employer s social security contributions. 2. Contributions The employer s social security contributions amount to percent (2015) of the employee s gross salary (paid in addition to the salary). The employer s social security contributions are mandatory and include specific charges, such as, old-age pension, survivor s pension, fees for health insurance and work injury. The fees constitute parts of the Swedish social security system. 3. Insurances There is no obligation under the law for the employer to provide the employees with different insurances (except for insurances included in the mandatory employer social security contributions), such as, group life insurance (TGL) or work injury insurance (TFA). However, employers that are bound by collective bargaining agreements are obliged to take out certain insurances in addition to the insurances included in the employer social security contributions. 4. Parental Leave The employee may be on parental leave until the child is 18 months regardless of whether the employee receives compensation from the state or not. Thereafter, the employee is entitled to leave for as long as he/she receives compensation from the state. In addition to the parental leave, the mother of the child may be on maternity leave 7 weeks before the estimated birth as well as 7 weeks after the child s birth. Further, the father of the child may be on paternity leave for 10 working days in connection with the child s birth. Compensation is paid by the state for a duration of 480 days per child. If the child was born before 1 January 2014 the compensation, however, may be paid until the child reaches the age of eight years. If the child was born on 1 January 2014 or thereafter, the compensation may be paid until the child reaches the age of twelve years, but only 96 days may remain when the child reaches the age of four years. One parent may use a maximum of 420 days. The remaining 60 days must be used by the other parent. Generally, during 390 days the compensation amounts to approximately 80 % of the salary up to 7.5 price base amounts (SEK 333,750 for 2015). For the remaining 90 days, the compensation is SEK 180 per day. If a collective bargaining agreement applies, the employee may be entitled to certain compensation from the employer (in addition to the compensation from the state). 5. Pension In addition to the state pension, it is common that the employees are entitled to supplementary pension provided by the employer. For employers not bound by collective bargaining agreements, such additional pension benefits are completely discretionary. However, employers bound by a collective bargaining agreement are obliged to provide the employees with a supplementary pension. 11

13 The ITP pension plan is a supplementary pension plan and is by far the predominant pension scheme for white-collar employees in the private sector. The ITP-plan includes old-age pension, supplementary old-age pension, disability pension and family pension. Depending on the employee s age he/she belongs to ITP-1 (a defined contribution plan) or ITP-2 (a defined benefit plan). For blue-collar employees the SAF-LO pension plan applies (a defined contribution plan). 6. Sick Pay The employee is entitled to mandatory sick pay payable by the employer, provided that the employment is expected to continue for more than 1 month or if the employee has been working for more than 14 consecutive days. During days 2-14 of the sick leave, the employee is entitled to 80 % of salary and benefits. No compensation is paid for day 1 (Sw. karensdag). If the employee falls iii again within 5 days, the previous sick leave period will continue. As from day 15, 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 Security Agency. There is no obligation for the employer to provide any supplementary sick pay, unless a collective bargaining agreement is in place. 12

14 Hamilton Advokatbyrå L&E Global Sweden The firm of Hamilton was established in Stockholm in 1964 and has since its inception been committed towards providing corporate and commercial legal advice of the highest quality. The firm has experienced a continued growth over the years and the firm is today one of the largest leading law firms in Sweden. This firm has an outstanding reputation for its work on employment litigation and arbitration matters. It is equally strong on non-contentious work, handling collective agreements and incentive schemes and offering support on corporate transactions. Clients particularly highlight the continuously excellent support provided throughout the group. The firm represents a number of Swedish and international listed companies, as well as various state and government entities and authorities. Hamilton has been recognized as a first-tier firm by Chambers Europe and is recommended by The Legal This memorandum has been provided by: Hamilton Advokatbyrå Hamngatan 27 Box 715 SE Stockholm P

15 Contact Us For more information about L&E Global, or an initial consultation, please contact one of our member firms or our corporate office. We look forward to speaking with you. L&E GLOBAL Avenue Louise 221 B-1050, Brussels Belgium Stephan Swinkels, Executive Director This publication may not deal with every topic within its scope nor cover every aspect of the topics with which it deals. It is not designed to provide legal or other advice with regard to any specific case. Nothing stated in this document should be treated as an authoritative statement of the law on any particular aspect or in any specific case. Action should not be taken on this document alone. For specific advice on any particular feature you should seek advice from the L&E Global representative stated in this memorandum. This document is based on the law as of June

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