CURRENT ISSUES. Upcoming changes to the Employment Protection Act. page 1

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1 NO. 17 MARCH 2007 EDITOR: Advokat Maria Gill LEGALLY RESPONSIBLE: Advokat Magnus Wallander Stockholm CONTACT PERSONS: Advokat Magnus Wallander, Stockholm Advokat Henric Diefke, Göteborg Advokat Madeleine Rydberger, Malmö Dr. Christian Bloth, Rechtsanwalt, Frankfurt From this issue onwards the Newsletter will be called Employment Law and Pensions. As indicated by this change of name, our ongoing focus will now include legal development in the area of pensions. This is a natural step for us, as our department now additionally deals with pension matters. In this issue, among other things, we report on an important judgement from the European Court of Justice in the pensions area and consider its consequences in Sweden. We also discuss coming changes in the Employment Protection Act (Sw: lagen om anställningsskydd), trade union blockades against smaller companies to procure the signing of collective bargaining agreements and some interesting case law. A noteworthy development is the recent decision of the European Court of Human Rights regarding so-called monitoring fees (Sw: granskningsarvoden) which are charged by trade unions also in relation to employees who are not members of such unions. CURRENT ISSUES Upcoming changes to the Employment Protection Act As indicated by the Budget Bill (see Newsletter no 16 (2006)), the Government intends to amend the Employment Protection Act. The proposed amendments may in part be regarded as a reversion of the amendments which were passed by Parliament in May 2006 but which have not yet entered into force. A working group at the Government office has issued proposed draft legislation in the form of a Ministry Memorandum, which is currently subject to a referral procedure with a view to presenting the government bill in April. The intention is that the new rules will enter into force 1 July A summary of the rules will be found below. The starting point from a Swedish perspective is that an employment arrangement should be permanent. Under the new rules, fixed-term employment will be permitted in four different situations: (i) free agreed fixed-term employment (Sw: fri visstidsanställning), which replaces most of the present kinds of fixed-term employments; (ii) substitute employment (for example when the ordinary employee is on parental leave); (iii) employment for persons over 67 years of age (i.e. employees entitled to pension); and (iv) seasonal employment. If an employee has been employed under either free agreed fixed-term employment or substitute employment for a total of two years within a period of five years, the employment will automatically convert into permanent employment. (At present, the conversion rule only applies to substitute employees who have been employed for a total of three years during a five year period. Thus, the proposed changes will act to strengthen the rights of the fixed-term employees.) However, probationary employment, seasonal employment and employment of persons over 67 years of age are not affected by the conversion rule. The qualification period for the priority right to re-employment will remain the same, being a total of twelve months employment during the past three years. On the other hand, the time period for the priority right will be extended from nine to twelve months after termination of employment. Under the new legislation, an employer will be under an obligation to inform fixedterm employees on parental leave of any vacant positions (whether permanent or probationary), but only if requested by the employee. Under the current law, and in order to protect older employees, certain employees are entitled to count an additional employment month for each month of employment actually commenced after the employee attains 45 years of age (when calculating the employment period). These rules will be revoked by the proposed changes. This will page 1

2 effect calculation of the period of employment with respect to: (i) order of priority; (ii) priority right to re-employment; (iii) priority right to an employment with extended working hours; and (iv) damages under Section 39 of the Employment Protection Act. In addition, when calculating damages under Section 39 of the Employment Protection Act, the raised level of damages for employees over 60 years of age will be revoked. The argument put forward for this latter change is that the present rules may conflict with the upcoming prohibition against age discrimination (a government bill on such a prohibition is expected before the end of 2007). Employees who receive so-called special employment support (Sw: särskilt anställningsstöd) will no longer be exempted from application of the Employment Protection Act. However, this will only apply for persons employed as of 1 July 2007 or later. We will revisit this matter in a coming Newsletter. Contact person: Advokat Maria Gill, mgi@msa.se Boycott of small companies in an attempt to procure collective bargaining agreements Under Swedish law, employee associations and employers associations are entitled to take organised actions unless otherwise stipulated by law or agreement. The Codetermination in the Workplace Act (Sw: lagen om medbestämmande i arbetslivet) imposes an obligation of peace (Sw: fredsplikt) on the parties following the signing of a collective bargaining agreement. A party to a collective bargaining agreement is normally prohibited from taking organised actions against the counter-party. The peace obligation only applies to parties of a collective bargaining agreement. Thus, a company which is not bound by a collective bargaining agreement may be exposed to organised actions by a trade union which wishes to enter into a collective bargaining agreement with that company. The company may also be exposed to considerable sympathy actions by other trade unions. It is permissible for a party (including those bound by a collective bargaining agreement) to take actions to support another party in a permitted primary conflict. In the last few months there have been several cases which have received considerable attention in the media where unions have acted against small businesses in an attempt to procure their entry into collective bargaining agreements: In Gothenburg, a union has boycotted a small restaurant business with only a few part-time employees, none of whom are members in the union. The young owner has now decided to sell the business instead of signing a collective bargaining agreement. In Kristianstad, the Union of Commercial Employees (Sw: Handelsanställdas förbund) has issued a boycott against a cosmetic store, which has resulted in the employer entering into a collective bargaining agreement. In Smålandsstenar, the Swedish Forest and Wood Trade Union (Sw: Skogs- och träfacket) has recently terminated a boycott of almost four months against two pallet manufacturers. The companies avoided entering into collective bargaining agreements by promising that their employees would be entitled to employment terms which were at least as beneficial as those stipulated under the agreements. Under the terms of settlement, the union was guaranteed ongoing insight into the relevant companies activities by requiring the owners to report to an independent accountant regarding salaries, terms of employment and insurance. However, the settlement did not include a peace obligation rule, with the effect that the union may resume the boycott should the employment terms be changed. The Swedish Industrial Workers' and Metalworkers' Union (Sw: IF Metall) issued a boycott against a plastics manufacturer (also established in Smålandsstenar) after mediation failed. The boycott was terminated when the union was satisfied that the company employees were in fact family members. In response to these union actions, claims have been made that the unlimited right to take organised actions should be restricted. It has also been noted that several member states within the EU have provisions on fairness relating to such actions. The Confederation of Swedish Enterprise (Sw: Svenskt Näringsliv) has submitted a proposal to the Government on amending the law so that an organised action must be in reasonable proportion both to its purpose and to the damage it may entail. However, the Minister of Labour, Mr Littorin, has dismissed these claims on proportionality. He maintains that a change of the rules regarding organised actions are distant. However, there does not appear to be a consensus among the parties in the Government regarding this question. Contact person: Jur kand Anna Duvander, adu@msa.se page 2

3 PENSIONS Proposed new rules for premiums on foreign pension insurance Denmark has tax rules which allow tax deductions for premiums on pension schemes where the relevant pension insurance contract has been entered into with a Danish pension institute. However, there is no such advantage if the contract has been signed with a pension institute established in other EU member states. In a judgement of 30 January 2007, the EC Court ruled that the requirement of establishment in Denmark was contrary to the provisions governing the fundamental freedoms enshrined in the EC Treaty. The background to the case was as follows. By 1999 the Commission had notified Denmark that it considered the tax rules to be incompatible with the free movement for employees, capital and services. Denmark was of the opinion that the restrictions on such freedoms were justified by overriding reasons in the public interest and the need to maintain the national tax system s cohesion. However, the EC Court ruled that the Danish tax rules constituted an obstacle to the above-mentioned freedoms and that the legislation neither could not be justified by the considerations of the effectiveness of the supervision of taxation and the prevention of tax avoidance, nor by the need to guarantee the cohesion of the tax system. Sweden has a similar requirement of national establishment in relation to obtaining postponed taxation. Premiums for pension insurance are only deductible if the insurance has been issued by a pension institute established in Sweden. This requirement also applies to an employer s premiums for an occupational pension scheme, in order to avoid that the employee will be taxed for the amount of such premium. To adapt the Swedish legislation to community law, it is proposed that current requirement on establishment be extended to cover any institute established within the European Economic Area. To ensure that payments from foreign pension institutes are taxed, the institute will be obliged to provide statements of earnings and deductions on the pension insurance to the Swedish Tax Agency. In addition, it is proposed that the specific rules on capital pension insurance (Sw: KPförsäkring) be abolished, since they will be unnecessary following the proposed amendments to the establishment requirement. By way of an exception (supported in the Constitution), the announcement of the changes has been made in a way whereby a Bill for Legislation will later be passed by the Swedish Parliament, but with the effect that the new rules will apply retroactively from 2 February 2007 in order to prevent tax avoidance. There are also specific transitional provisions concerning insurance policies signed at the latest on 1 February Contact person: Jur kand Anna Duvander, adu@msa.se Insurance carriers appointed under the new ITP-plan As reported in Newsletter no 14 (2006), a collective bargaining agreement regarding a new premium based occupational pension scheme (the new ITP-plan) has been reached and will enter into force 1 July Procurement of insurance carriers has now been concluded and agreements have been signed with the following companies: Traditional pension insurance: Alecta, AMF Pension, Länsförsäkringar Liv, Nordea Liv & Pension and Skandia Liv. Fund insurance: AMF Pension, Länsförsäkringar Fondliv, Moderna Försäkringar, SEB Trygg Liv and Swedbank Försäkring. The ITP-premiums of employees not making any active choice will be invested in traditional pension insurance with Alecta. Contact person: Advokat Maria Gill, mgi@msa.se NEWS FROM THE COURTS The European Court of Human Rights judgement on the Swedish Building Workers Union s monitoring fees In Newsletter no 16 (2006), we reported on the then awaited judgment of the European Court of Human Rights (the Court ) regarding the question as to whether collectively agreed monitoring fees can be charged from employees who are not members of a trade union. The five applicants in the case were not members of a trade union. Their employer had, in accordance with an agreement with the trade union s local branch, Byggettan, deducted a fee from the employees wages, as compensation for Byggettan s monitoring of salary conditions. This fee had then been transferred to Byggettan. In the proceedings the applicants claimed several infringements of the European Convention on Human Rights and Fundamental Freedoms (the Convention ). They claimed, inter alia, that their negative freedom of association had been violated since the fee page 3

4 was tantamount to a forced membership of the trade union and contributed to the general union activities. Further, they claimed that they had been discriminated against, as compared with both members of the Swedish Building Workers Union (Sw: Sveriges Byggnadsarbetareförbund) and members of other trade unions. Finally, they alleged that the levying of monitoring fees on their wages constituted a violation of their property rights. The Court found that the five applicants property rights under Article 1 of Protocol 1 of the Convention had been contravened. The deduction of the monitoring fee could be considered to have been made in pursuance of a legitimate public interest purpose given that the inspection work aimed to protect the interests of construction workers generally. In 1999, 250 workers who were not member of a trade union had their wages adjusted as a result of the union s monitoring activities, thus showing that they did receive a certain service in return for the fee paid. The court stated, however, that the fees should be for inspection purposes only and not used to finance other union activities. It could not be ascertained whether profits had been made from the monitoring activities, nor whether such surplus had been used to cover part of the costs relating to other activities, such as wage negotiations or political work. The Court found that the five applicants had not been given sufficient information to verify how the fees were actually used. They were entitled to this information given that those fees were paid against their will and to an organisation with a political agenda which they did not support. Given that the Swedish authorities organised its labour market by delegating the regulation and legislation of important labour issues to independent organisations, through a system of collective bargaining agreements, the Court found that the Swedish state was under an obligation to protect the applicants interests against such organisations. To sum up, the Court stated that the union s wage monitoring activities lacked transparency and that it was not proportionate to make deductions to the applicants wages without giving them a proper opportunity to control how the funds were spent. As the Court had found that a violation of the applicants property rights was at hand, the Court did not try the other claimed breaches, e.g. negative freedom of association. The Swedish state was obliged to pay EUR 5,000 by way of non-pecuniary damages to each of the applicants. It remains to be seen how the labour market partners will handle this judgement in practice. The Confederation of Swedish Enterprises and the Swedish Constructions Federation are of the opinion that monitoring fees should be stopped instantly. The Swedish Building Workers Union has objected on the basis that a refusal by any employer to execute the wage deduction would qualify as breach of the collective bargaining agreement. (European Court of Human Rights, application no /01, Evaldsson and others vs. Sweden) Contact person: Rechtsanwältin and EU- Advokat Kerstin Kamp-Wigforss, kka@msa.se The obligation to transfer a redundant employee to a vacant position After an administration manager of a municipality was made redundant, the trade union SKTF brought an action against the municipality in the Labour Court, claiming that the dismissal should be declared invalid. Before executing the dismissal, the municipality had prepared a priority list under section 22 of the Employment Protection Act (the Act ) and offered the administration manager a position as an economist, which was then held by the person on the priority list who had the shortest period of employment. The administration manager declined the offer. Not until then did the municipality perform a transfer investigation, which revealed that there was an open position as headmaster in the municipality. However, the municipality was of the opinion that the administration manager was not sufficiently qualified for the position as headmaster. SKTF based its action on the fact that the administration manager was sufficiently qualified for the position as headmaster and that the municipality had failed to fulfill its transfer obligation under section 7 of the Act by not offering him the position. The fact that the administration manager had declined the position as economist was not relevant according to SKTF in light of the fact that (in SKTF s opinion) a priority list under section 22 of the Act should not be prepared until it is proved to be impossible to offer the employee an open position. The municipality, on the other hand, was of the opinion that there was just cause for the dismissal, as the administration manager was not sufficiently qualified for the position as headmaster and had also declined the position as economist. The transfer obligation under section 7 of the Act provides that the transfer to a new position can take place without making any employee redundant (i.e. there must be a vacancy), while section 22 of the Act regulates the situation where several employees compete for remaining jobs. In previous case law, the Labour Court has held that the priority rules in section 22 of the Act are not page 4

5 applicable when an employee has declined an offer (under section 7 of the Act) to be transferred to an open position which he should have accepted, given that the dismissal would have been unnecessary had the offer been accepted by the employee. In this case the question was reversed: had the municipality fulfilled its transfer obligation (under section 7 of the Act) by preparing a priority list (under section 22 of the Act) and offering a non-vacant position, although it was not obliged to do so, when such position was declined by the administration manager? The Labour Court never considered this issue, since, when making an overall assessment, the court was of the opinion that due to lack of educational training and lack of experience of school activities the administration manager was not sufficiently qualified for the position as headmaster. As a result, the municipality was considered to have fulfilled its transfer obligation under section 7 of the Act and SKTF s action was therefore rejected. (Labour Court case no. 110/2006) Contact person: Jur kand Ola Axelsson, e- mail: oax@msa.se The obligation to negotiate under section 10 of the Co-Determination in the Workplace Act The case concerned the application of section 10 of the Co-Determination in the Workplace Act, which entitles a trade union to enter into negotiations with an employer regarding the relationship between that employer and a trade union member who is, or has been, employed by such employer. After a woman had applied for a position as chef at a restaurant, a dispute arose as to whether she had been properly hired or not. Whereas the woman claimed that she had been hired and then terminated without just cause, the restaurant claimed that she had only been interviewed and never hired. The dispute was heard by the district court of Uppsala, which ruled that no employment agreement had been reached. However, the woman s trade union then filed a suit with the Labour Court, on the grounds that the union, prior to the district court s ruling, had requested negotiations with the restaurant due to the alleged termination but that the restaurant had refused their request. Whereas the trade union insisted that this was a breach of section 10 of the Act, the restaurant claimed that the woman, from their perspective, had never been an employee and that section 10 of the Act therefore did not apply. The Labour Court stated that regardless of a party s own opinion as to whether or not an employment agreement has been reached, that party is still under an obligation to enter into negotiations as long as the issue has not been finally settled by the courts. However, such an obligation to enter into negotiations would not exist if the requesting party issued its request against its better judgement. In the light of this, the Labour Court ruled that the restaurant was in breach of section 10 of the Act and the trade union was awarded damages in the amount of SEK 15,000. (Labour Court case no. 115/2007) Contact person: Jur kand Johan Fredriksson, jfn@msa.se The extent of the obligation to transfer an employee following repeated mismanagement A repairer was dismissed on personal grounds after 16 years of service with the employer. The main issue in the case was whether the employer had reasonable grounds for such dismissal. The employer claimed that the employee had mismanaged his employment several times previously, as well as after the notice of dismissal was given, e.g. through unpermitted absence, negligence of working hours, abuse of company mobile phone for private purposes and by not changing into working clothes before clocking in for work. The Labour Court found the employee guilty of mismanagement and that he, despite recurrent orders and warnings of dismissal from the employer, continued to violate the rules of the company even after notice was given. Accordingly, the Labour Court considered it unlikely that the employee would in the future have complied with such rules. Before the dismissal, the employer had not endeavoured to transfer the employee to a vacant position (which is normally required, especially when the employee has been employed for several years). The Labour Court considered that the employee s insufficient respect for the rules of the workplace could, however, not be expected to be resolved by such a transfer. In the light of this and the conclusions regarding future behaviour which could be drawn, the court stated that the employer could not reasonably be required to attempt to transfer the employee to another position. Accordingly, just cause for dismissal was established. (Labour Court case no. 121/2006) Contact person: Jur.kand. Sofia Karlsson, e- mail sok@msa.se page 5

6 Dismissal due to industrial injury and the employer s responsibility as to rehabilitation The Labour Court has, on several occasions, considered the issue of whether a reduced working capacity caused by illness constitutes just cause for dismissal. In the case at hand, the employee had been employed as a post sorter at the Swedish Post Office since 2000 and had been on sick-leave since March 2002 due to pain in the right wrist and forearm. Following extensive rehabilitation efforts and investigations regarding a possible transfer of the employee to another position at the Swedish Post Office, the employer considered the employee no longer capable of performing work of any significance for the employer. Accordingly, the Employee was dismissed on personal grounds, based on the illness, in July The Labour Court shared the opinion of the employer and stated that the investigation regarding the health condition and working capacity of the employee indicated that the reduction of the employee s working capacity was of such a substantial nature that the employee was unable to perform work of any significance at the Swedish Post Office. Furthermore, the Labour Court found that the possibilities for adjusting work tasks or for introducing technical aid equipment were only limited in character, and would not change the conclusion of the Court. It was not reasonable to request that the employer should select suitable tasks from a job rotation scheme which involved several employees in order to adjust a specific position for the employee concerned. Hence, the Court concluded that the employer was entitled to dismiss the employee due to illness, since the reduction of the employee s working capacity was permanent and also of such a substantial nature that the employee was unable to perform work of any significance for the employer. (AD 2007 nr 12) Contact person: Jur kand Ebba Lanner, e- mail: ebl@msa.se SHORT NEWS Settlement in case regarding negative freedom of association A court settlement has been reached in one of the cases regarding negative freedom of association referred to in Newsletter no 16 (2006). In this case, five non trade union members were made redundant following an agreement between the employer and the Union of Salaried Employees (Sw: Tjänstemannaförbundet HTF) to deviate from the order of priority by way of a so-called priority agreement (Sw: avtalsturlista). Had the employer applied the principle of the Employment Protect Act, that is, last in, first out, four of the five women would have retained their employment. In order to secure the priority agreement with the union, the company paid the equivalent of 50 extra months wages, which was distributed by the union predominantly amongt its members. The five non trade union members claimed damages amounting to between SEK 120,000 and SEK 206,000. A court settlement has now been reached and they will each receive a settlement amount of SEK 60,000 from the company. Elimination of co-financing of health insurance An employer was previously obliged to pay a so called specific health in-surance fee (Sw: särskild sjukförsäkringsavgift) of 15 per cent in the event of sickness of its employees. The Parliament has decided to eliminate this fee from November Since the intention of such a change was to be cost neutral, the decision also meant an increase of the social security fees by 0.14 % from the turn of the year, i.e. up to per cent. Abolition of the employers obligation to make rehabilitation investigations A referral from the Ministry of Social Affairs proposes to abolish the current rule under the National Insurance Act (Sw: lag om allmän försäkring) which obliges the employer to make a so-called rehabilitation investigation (Sw: rehabiliteringsutredning) regarding sick or injured employees. At present, an employer is obliged to perform a rehabilitation investigation: (i) if the employee has been on sick leave for more than four weeks in sequence; (ii) if the work often has been interrupted by shorter periods of sick leave; or (iii) when the employee so requests. Instead it is proposed that the employer after consultations with the employee will submit relevant information to the Social Insurance Office in order to ensure an adequate rehabilitation plan. According to the proposal, the employer will also be responsible for taking the actions necessary for an efficient rehabilitation to take place. It is proposed that the new rules will enter into force by 1 July Contact person: Jur kand Sabina Axelsson, axe@msa.se page 6

7 Contact Details: STOCKHOLM Magnus Wallander Phone GÖTEBORG Henric Diefke Phone MALMÖ Madeleine Rydberger Phone FRANKFURT Christian Bloth Phone page 7