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Labor and employment law challenges in business transformations

Sweden

Workforce restructuring

The key practical issues in workforce restructuring include:

  • Legal justification
  • Works council and employee representatives’ process
  • Labor administration process
  • Costs and timing
  • Litigation risk

Applicable legislation

The redundancy process in Sweden is governed by the Employment Protection Act (1982:80) as well as supporting regulations in the Employment (Co-Determination in the Workplace) Act (1976:580). However, the term “collective redundancy” is not legally defined. The legal process will remain same for terminating either one employee or the entire workforce.

The only difference is a duty to notify the Swedish Public Employment Service (Sw. Arbetsförmedlingen) when the redundancy comprises five employees or more.

Required legal justification

A lawful dismissal of an employee requires the employer to establish an “objective reason” for the dismissal. The objective reason can either be “redundancy” or “personal reason.”

The redundancy may basically be due to any economical or organizational reason, as long as it is not discriminatory and does not violate “good practice” on the labor market. One implication is that a profitable company may still contemplate a redundancy of its workforce. The Swedish legal phrase for “redundancy” may be literally translated as “shortage of work” (Sw. Arbetsbrist), which is in one way a misleading term as there is no requirement of an actual shortage of work.

Works council/unions or other employee consultation requirements

Consultation requirements with works council/unions

Prior to deciding upon a redundancy, and regardless of the size of it, if the employer is bound by a collective bargaining agreement (CBA), it must consult with the impacted trade unions. If the employer is not bound by any CBA, consultation needs to take place nonetheless if any of the impacted employees are unionized.

The employer must consult the impacted trade unions and provide them with the following information:

  • Reasons for the contemplated dismissals
  • Number of employees impacted by the contemplated dismissals and the employment categories to which they belong
  • Number of employees generally employed in the company and the employment categories to which they belong
  • Time period of the implementation of the contemplated dismissals
  • Method of calculation of any compensation to be paid in conjunction with termination in addition to what is required by law or applicable CBA
  • Copies of any notices that have been filed with the Swedish Public Employment Service with regard to proposed dismissals

Upon request, the employer must also provide a written assessment to the impacted trade unions detailing the possibilities of transferring the redundant employees to other positions. Further, the employer has an obligation to perform a work environment risk analysis, in accordance with the Work Environment Act. The risk analysis shall aim to identify any work environment risks (such as increased workload for the remaining employees) due to the reorganization and set out a plan to handle any identified risk. The risk analysis shall be carried out in cooperation with the designated workplace safety officer. The employer is not obligated to provide the risk analysis report; however, it should be made available at the workplace for review upon request.

Trade union consultations must be initiated and finalized prior to making any decision to reorganize the business or make employees redundant.

Consultation requirements with other employee representatives

No specific consultation requirements with other employee representatives exist.

Consultation requirements with employees

The employer is free to communicate with employees on the contemplated redundancy; however, the employer cannot communicate the final decision on the contemplated redundancy until after the trade union consultation is finalized.

Approval/notification of the labor authorities or other government authorities

Approval of the Swedish Public Employment Service or other government authorities is not required to dismiss any employees; however, the employer is obligated to provide a written notification, prior to the first dismissal, to the Swedish Public Employment Service only when the employer intends to make five or more employees redundant. The notification period may vary from two to six months depending on the number of the impacted employees.

The Swedish Public Employment Service must be notified:

  • At least 2 months before a cutback in operations that affects at least 25 employees
  • At least 4 months before a cutback in operations that affects more than 25 but no more than 100 employees
  • At least 6 months before a cutback in operations that affects more than 100 employees

Employee selection criteria

Employers are not free to choose which employees will be made redundant. When dismissing an employee due to redundancy reasons (i.e., the employee’s position is made redundant), the employer needs to follow a certain dismissal order. The order in which employees are to be dismissed follows a “seniority principle.” This principle, basically “last in, first out,” means that the employer shall offer to transfer the redundant employee to another position, if that position is held by someone with a shorter employment history at the company.

The application of the seniority principle on a redundancy is delimited to the operational unit (normally geographically delimited to a certain office) of the company.

Locally elected trade union representatives may be protected from dismissal provided the employer is bound by a collective bargaining agreement to that effect.

Further, certain categories of employees such as employees who are remunerated with special state employment support and employees with reduced working capacity are excluded from the selection process and may be given priority to continued work.

Employees on parental leave (on maternity leave prior to giving birth or on full-time parental leave) are not exempted. However, if given notice of dismissal, the notice period will not commence until the employee returns from parental leave, which may further delay the redundancy process.

An employer with no more than 10 employees may protect 2 employees from redundancy subject to such employee being of certain importance for the future business.

Actions required to limit the negative impact and social plan

Internal alternative employment/redeployment
Prior to terminating an employee, the employer must search for any vacant position (within the same legal entity) to offer the impacted employees subject to impacted employee having “sufficient qualifications.” An employee having “sufficient qualifications” for a vacancy does not necessarily mean the same thing as the employee being the best suited for said position (compared with other candidates). Basic skills for the role are considered sufficient, and the employer must also tolerate a training period.

If there is no vacancy to offer, or if the employee is found to lack “sufficient qualifications” for the available vacancy, the employer needs to follow the dismissal order based on the “seniority principle” (last in, first out).

Other measures
Most Swedish collective bargaining agreements contain an insurance that offers the dismissed employees help with finding new employment. Other than this, the employer has no further obligation to take actions to limit the negative impact of the collective redundancy.

Estimated timeline

Time anticipated to prepare for the contemplated collective redundancy process could vary between a couple of days to several months, depending on the complexity and extent of the reorganization.

The estimated timeline for the collective redundancy process could vary from a month to a year (or more) depending on the following factors:

  • Number of impacted employees: the employer’s obligation to provide notice to the Swedish Public Employment Service, when five or more employees are impacted due to proposed redundancy process, would further delay the process as the notice period may vary from two to six months depending on the number of the impacted employees.
  • Number of trade unions involved: the consultation process may usually take three to six weeks from the date of the employer’s request for a consultation. If more trade unions are involved, more time would be needed to complete the information and consultation process.
  • The complexity of the reorganization: whether or not the trade union accepts the employer’s assessment of transfer possibilities, and the employees’ qualifications (if applicable), etc., will affect the timeline.
  • The notice period for each impacted employees: the notice period stipulated by law is between one and six months depending on the years of service and age of the employees. However, individual agreements or a collective bargaining agreement may prescribe even longer notice periods.

Estimated costs

Mandatory costs

There are no legally required components of HR legal costs; however, costs for notice period and paid leave may occur for the employer.

Customary additional costs

Most collective bargaining agreements (CBAs) in Sweden provide insurance coverage that would include readjustment assistance and career support, as well as some economical compensation. The cost of the insurance is included in the premiums paid when bound by a CBA. Generally, the terms and conditions of the CBA dictate that the employer is the one who incurs this cost.

Hiring restrictions post-redundancy

The impacted employee would have the right of priority for re-employment if he or she has been employed by the employer for at least 12 months prior to receiving notice of dismissal. This priority right applies during the notice period and for a period of nine months after the cessation of the employment.

If the impacted employees request to benefit from the re-hiring obligation within the permitted time period, the employer must offer them all job positions corresponding to their skills for which an external hire is being considered.

Litigation risk

Interested parties

The following interested parties can bring lawsuits related to the redundancy process:

  • Trade unions: this applies if the employer failed to inform and consult with the trade unions prior to its final decision on implementing the contemplated collective redundancy. If the employer does not initiate a consultation, the trade union must first request a consultation before being able to go to court. This must be made:
    • Within four months of learning of the circumstance which the claim is based on
    • Within two years of the occurrence of that circumstance
    A claim for damages must be made within four months after finalizing the consultations.
  • Impacted employees: can sue for unlawful termination (termination in violation of redundancy principles established by law — for additional information see “Required legal justification”) and/or for noncompliance of the “Seniority Principle” (last in, first out). For unlawful terminations, the statute of limitation is two weeks after receiving notice of termination. If the notice did not contain the information regarding the employee’s possibility to appeal to the court, the limitation period is one month. The statute of limitations for claim for damages is four months.

Litigation cannot stop or slow down the collective redundancy process.

Damages and other remedies

Challenges could lead to two types of remedies:

Damages for unfair dismissal

If the employer failed to comply with the seniority principle, the employee may claim damages for the noncompliance and damages for loss of income up to 32 months’ salary, depending on length of service with the company.

If the employer fails to inform and consult with the trade unions prior to its final decision on implementing the contemplated collective redundancy, the employer is liable to pay damages to the impacted trade unions for such noncompliance.

Reinstatement

If a termination due to personal related reasons is challenged, the employment will continue until a verdict has been reached in court. Swedish courts may order “reinstatement” for unlawful terminations. However, it may not reinstate an employee if the termination was challenged only due to violation of the seniority principle.

Criminal sanctions

No criminal sanctions exist.

Country-specific issues

There are no other issues specific to Sweden.

Contact

Primary Contact for Sweden Labor and Employment Law

Paula Hogéus
Ernst & Young AB
+46 8 520 599 99

Global Labor and Employment Law Guide
Workforce restructuring
2016-07-01
Sweden
SE

Contacts