Significant Changes to the Labor Legislation

As part of the political deal which allowed the Social Democratic Party to form a government in 2018, at the time with the support of both the Centrist Party and the Liberals, several key Acts of the Swedish labor legislation are now undergoing important changes. The Swedish Employment Protection Act (Swe. “Lag 1982:80 om anställningsskydd” or “LAS”) and the Staffing Agency Act (Swe “Lag 2012:854 om uthyrning av arbetstagare”) will be most affected by this series of legislative changes.  

LAS, in particular, is one of the central parts of the Swedish labor legislation, and the changes were now undertaken have been a sensitive political issue for many years. The final draft for the legislative changes is partly based on the outcome of the series of negotiations between Sweden’s major labor unions and employer organizations of the country to ensure that the resulting framework takes the interest of all involved parties into account.     

The legislative changes will officially take effect on June 30th, 2022, but in the interest of giving all parties more time to adapt, a number of interim limitations have been added to the Act. The legislative changes will not be generally applicable until after October 1st, 2022, and with regards to some of the new rules, additional limitations have been added with regards to their initial applicability. Below we have summarized the changes most important to companies active in the Swedish labor market.   

More Extensive Redundancy Exemptions    

When a redundancy situation arises in a company, LAS has, since its inception, required the employer to create a termination priority list where all employees in the business unit are ranked by how long they have been employed. If any employments within the business unit are found to be redundant, each employee can only be subject to a redundancy termination if all the more junior employees within the business unit have already had their employments terminated.   

The definition of what constitutes a business unit varies between different industries and different collective bargaining agreements. If no collective agreement has been signed, each city or similar area could, if demanded by the employees’ labor union, be regarded as having only two business units: white-collar workers and blue-collar workers.   

If the termination priority list dictates that a junior employee whose specific business function is not redundant should still be terminated for the reason of redundancy, then the employer is expected to reassign their tasks to an employee with longer seniority. Some exceptions can be made if the senior employees demonstrably lack the fundamental skills or certifications necessary for doing the job of a junior co-worker, but in such situations, an employer has a far-reaching obligation to provide the necessary training. Only positions which could not be satisfactorily filled by someone after a maximum of around 6 months of on-the-job training (or a shorter period of full-time training at the employer’s expense), or which have been created specifically to allow continued work for a disabled employee can, as a rule, motivate the retention of staff which would otherwise have had their employment terminated. The termination priority rules are often criticized by Swedish employers for making it harder to onboard and retain younger staff members and for often forcing ailing companies to terminate the staff members most needed to adapt to new market trends.   

In an effort to limit the harm which these factors can cause to smaller companies, LAS has for many years allowed any company which 10 employees or less in Sweden to exempt up to two employees from the redundancy termination process. Through the ongoing legislative change, this option of exempting employees will be extended to all employers, regardless of size, and the number of employees who can be exempted will be increased to three. In accordance with the wording of the implementation rules, the old rules will, however, apply to all redundancy processes with regards to which the employer called a labor union negotiation before October 1st, 2022, as required when considering the termination of union members. The same rule should, as a rule, apply to non-union members who were informed of the planned redundancy termination before said date without union representation. 

Employment Seniority Will Influence Reassignments   

In recent decades it has, through a number of legal precedents for the Swedish Labor Courts, become increasingly clear that the old system with termination priority lists (see section above) in case of redundancies could be partially circumvented by solving redundancy situations by reassigning full-time employees to part-time positions. Hereby, employees who would have been very hard to terminate for reasons of redundancy could, often with short notice, be reassigned to lowly paid part-time positions while more junior employees were retained for full-time work. This somewhat controversial practice has by its critics been called “plaining” (Swe. “Hyvling”), since it is regarded as a systematic decrease of an individual’s paid work hours which can be used to place unwanted employees in a position where they will sooner or later feel forced to resign.
According to the new rules added to LAS, any reorganization of a business unit taking place after October 1st, 2022, through which one or more employees with similar work tasks will have their paid work hours decreased, must be carried out in accordance with the redundancy priority rules. Herby, the employees who have been employed the longest would be the last ones to have their paid hours reduced. Any employee who is lawfully reassigned under this new rule will, furthermore, have the right to retain their old work hours and salary for the same notice period as they would have had in case of a redundancy termination, up to a maximum of 3 months.

Changed Rules for Fixed-Term Employments    

Between the years 2006 and 2022, employers in Sweden were allowed to employ individuals on fixed-term contracts with a duration of up to 2 years per 5-year period. This type of temporary employment could furthermore be used without any specific reasons needing to be stated. If the period of total employment ever came to exceed 2 years during any given 5-year period, the employment would automatically become permanent (e.g., without fixed duration) regardless of what the parties had agreed. An employment can also become permanent if the employee has been employed for more than 2 years in total during a period longer than 5 years of “continuous employment”, the latter being defined as a period during which the employee has held repeated fixed-term employments with no more than 6 months between the start and end of each such employment. Since employments without fixed duration can be very difficult to terminate, this has caused many private companies and Swedish governmental authorities to rely heavily on fixed-term employees. In many cases, such employments are not extended beyond the 2-year limit, since the employer prefers to employ a new a fixed-term employee to replace the old one.  

Under the new rules adopted 2022, the maximum duration of a fixed-term employment is decreased from 2 years to 12 months per 5-year period, or period of continuous employment, after which the employment would become without fixed duration.

If an employee has had three or more fixed-term employments with the same employer during the same month, then the time periods between said fixed-term contracts will, going forward, also count towards the 12-month maximum. Employers will, furthermore, be obligated to provide any fixed-term employees they hire after October 1st, 2022, with a detailed written explanation of why employment was not offered without a fixed duration. The latter requirement is not expected to become much of a practical limitation for companies unless the reasons they choose to state are clearly discriminatory, or they have signed collective bargaining agreements imposing definite limits to what reasons they can offer for offering an employment only for a fixed period.   

Under the new rules, any employee who has been employed for more than 9 months since March 1st, 2022, will also, in case of termination, have the right to, upon request, be prioritized in future recruitment processes as long as they have the fundamental skill set necessary and the new recruitment takes place less than 9 months after the end of the original employment. 
According to the implementation rules, any fixed-term employment which is still ongoing on October 1st, 2022, will not become without a fixed duration until 2 years have passed since its original start date. Employees with fixed-term employments begun after October 1st 2022, will, however, be able to count any time spent under previous fixed-term contracts with the same employer towards the new 12-month maximum, going back to March 1st, 2022. Hereby, no employee should be able to claim permanent employment under the new rules until March 2023. They might, of course, qualify for permanent employment before that if they have fulfilled the old requirement of having worked a total of 2 years during the last 5-year period. Employees hired on fixed-term contracts.   

It is worth noting that the new rules on fixed-term employment will not directly affect the rules for substitute employees hired on the specific condition that they will be retained until a specific co-worker comes back from their leave. In accordance with preexisting legislation, any substitutes hired under such conditions will only become employed without a fixed duration after 2 years of substitute positions during any given 5-year period or period of continuous employment.  

Salary Claims During Termination Disputes    

Under the previous legislation, an employee who appealed a termination to a court of law would remain employed for the full duration of the legal dispute, with retained salary and benefits. This often created disproportionate costs for their employer, especially in situations where the employer was not able to find useful ways to use the terminated employees’ labor during the dispute. Under the new legislation, a terminated employment will always be regarded as ending at the end of the notice period, freeing the employer from the obligation to continue to pay the employee during any legal dispute which may follow. If the termination is found to be unlawful, the court might, however, retroactively reinstate the employee and order the employer to provide the employee with back pay with interest from the end of the paid notice period up until the present time. An employer who, in such a situation, refuses to reinstate an employee would instead have to pay substantial additional damages to the employee.


Full-time Work is Made the Norm  

Through the changes made in LAS, any employment contract entered, regardless of whether it was made in writing or verbally, will be presumed to be for full-time employment unless otherwise is expressly stated in its terms. An employer who offers a part-time employment would also, upon request, be obligated to explain in writing why they cannot offer full-time employment.   

This change is not expected to have much of a practical impact since it will remain possible to enter agreements regarding part-time work as long as that condition is clearly stated, but the new rules do underline the importance of clearly written employment contracts. It is, however, worth noting that preexisting legislation does exist through which part-time workers have the right to demand full-time employment if it can be shown that the employer has sufficient work assignments to offer for which the employee is objectively qualified. This makes it important to correctly phrase any explanation regarding part-time work, to avoid a situation where an employee can sue for a full-time position by disproving the reasons stated for the part-time nature of their employment.   

Employees are Given the Right to have Multiple Employments   

Through the changes made to LAS, employers are banned from forbidding employees from having one or more additional employment(s) with third parties. The only exceptions to this rule are the following situations:  
  1. When the third-party employment directly hinders the employee from performing their work, for example, if the employments have overlapping work hours.   
  2. If it can be shown that the third-party employer is a direct competitor to the employer wishing to enforce a limitation. 
  3. If it can be shown that the third-party employment will in some other way cause direct damage to the business of the employer wishing to enforce a limitation.  
Employers will, furthermore, be banned from discriminating against individuals who have or will have one or more parallel employments unless said employments would damage the employer in the manner outlined above. Violations can result in employees suing their employer for lost income. The new rules will be enforceable from October 1st, 2022, and onwards.

Long-Term Consultants Gains Right to Direct Employment  

Under the new rules added to the Staffing Agency Act, any consultant company employee who has been deployed to the same end client business unit for more than 24 months during the previous 36-month period would have the right to receive an offer of employment from the end client. The end client would themselves be responsible for ensuring that such an offer is issued within one month of the consultant qualifying for it, and failure to do so would allow the consultant to sue for damages. The employment offered must be without a fixed duration. If the consultant accepts the offer, their old employment with the consultant agency will end as soon as the employment with the end client begins, without any need for a notice period towards the consultant’s old employer.   

End clients who do not wish to offer a consultant direct employment can instead offer them statutory compensation, consisting of 2 months’ salary, within the 1-month deadline mentioned above. There is as of yet no case law regarding the extent of the damages a qualified consultant can claim if they are not offered employment or statutory compensation within the deadline, but such damages are likely to be higher than the statutory compensation which can be given before the deadline expired.   

This legislative change constitutes a very significant change to the Swedish labor legislation. To give all parties time to adapt, the implementation rules state that only time worked from October 1st, 2022, will count towards the 24 months required for the consultant to gain the right of a job offer. Thereby no end clients could be forced to issue such offers of employment until October 2024 at the earliest unless they have entered binding agreements to that effect.