Proposed changes in the labor law legislation

UPDATED 2022-03-21: New section – The views of the Council of Legislation

The 27^th of January the Swedish Government presented a proposal referred to the Council on Legislation for consideration containing reforms on the area of labor law. The proposal means, among other things, that a termination by the employer shall be based on objective reasons (Sw. sakliga skäl), instead of the current objective grounds (saklig grund), that the rules on order of priority be changed so that all employers can exclude three employees in the event of termination due to redundancy, and that special fixed term employment (Sw. särskild visstidsanställning) replaces general fixed-term employment (Sw. allmän visstidsanställning).  The reforms are proposed to enter into force on the 30^th of June 2022 and will be applied for the first time on the 1^st of October 2022. 

The referral to the Council of Legislation states that the Swedish labor legislation should be reformed to meet the new challenges facing the labor market, to contribute to a more flexible labor market and to provide good conditions for adjustment and at the same time, safeguard employment security. Emphasis is placed on the reform being designed and implemented in a way that is in line with and strengthens the Swedish labor market model.

Below is an account of some of the most significant proposed amendments to the Employment Protection Act (SFS 1982:80) (EPA). 

The proposal entails a change from that a termination on the part of the employer must be based on objective grounds to that a termination must be based on objective reasons (section 7 EPA). The Government emphasizes that the reasons for the proposed amendments are to increase the level of predictability when an employer terminates an employee for personal reasons, as the termination rules are of central importance for the mode of operation between the parties.

The purpose of the change from objective grounds to objective reasons is to clarify that the focus of the review shall be on the seriousness of the breach of the employment contract. The Government further states that in addition to the overall assessment in the event of a termination, no trade-offs should be made against the employee’s personal interest of being allowed to retain his or her employment. Nor should any forecast be made as to whether the employee may, in the future, breach his or her obligations according to the employment contract. The government assess that the proposal to a greater extent becomes clearer that it is the circumstances at the time of termination that will form the basis for the overall assessment that must be made in the event of a termination. According to the Government, the proposed changes in the legislation shall not entail any material change in what is considered to constitute a sufficiently serious breach of an employee’s obligations under the employment contract for a termination for personal reasons to be justified. Nor shall the change affect the demarcation between termination for personal reasons and a summary dismissal.

The proposal also entails a change regarding the employer’s obligation to relocate an employee before he or she is terminated due to personal reasons. According to the proposal, the legal position should only be changed in the situation where an employee commits repeated breaches of the employment contract that are of sufficiently serious nature to form the basis for termination. In the event of a first beach of the employment contract, the employer shall continue to have an obligation to relocate the employee, unless there are special reasons that prohibits the relocation. In the event of continued or repeated breaches of the employment contract by the employee, the proposal means that the employer normally would not have to offer further relocations and have, given the first relocation, fulfilled its relocation obligation.

Exceptions from what should constitute objective reasons and the significance of the employer’s relocation obligation will in the future partly be regulated by collective bargaining agreements with the introduction of section 2 c EPA, provided that the agreement is concluded between an association of labor unions on the central level. However, this will not apply to employments in the Governmental sector. 

The Government proposes an amendment to the rules on order of priority in section 22 of EPA. The proposed amendment means that all employers, in the event of terminations due to redundancy, will have the right to exempt three employees from the order or priority. The reason for allowing all employers, regardless of size, to make exemptions from the rule on order of priority is, according to the Government, that it is necessary for employers to have the ability to be able to retain key skills in connection with restructurings in order to continue to operate and compete successfully with competitors. To be entitled to the exemption, the employer must, based on an assessment, deem that the persons who are to be exempted from the order of priority are of special importance for the continued operation of the company. However, the possibility of making exemption to the rules on order of priority is limited by the fact that no further exemptions may be made during a three-month period after the first exemption has been made. This applies regardless of how many people have been exempted during the first round of terminations. In practice, this means that an employer, who in the event of terminations due to redundancy exempt one employee from the rules on order of priority, and then wants to exempt two more employees two months later during another round of terminations, will not be able to exempt any employees from the order of priority during the second round of terminations.

This rule is optional in nature and other arrangements can be reached through collective bargaining agreements.   

Furthermore, the Government proposes that an employment should no longer continue during a dispute between the employer and the employee. If an employer has terminated an employee, the employee must end their employment at the end of the notice period, even if a dispute has arisen regarding the validity of the termination. If a dispute arises as to the validity of a termination or a dismissal, the employee shall no longer be able to obtain an interim court judgement that the employment shall continue until the dispute has been settled.

The reasons for the proposal are that the Government considers that the practical significance of the current provisions for an employee’s opportunity to return to work appears to be limited and that there is a need for lower and more foreseeable risks for employers in connection with dismissals. 

The Government proposes to replace the general fixed-term employment with the special fixed-term employment. The change is predicted to have an effect primarily when it comes to the time limit within which an employees fixed-term employment is to be transferred to a permanent employment. The proposal means that a special fixed-term employment shall be transferred to a permanent employment after 12 months, in contrast to a general fixed-term employment which is transferred to a permanent employment after 2 years.

A government bill regarding the above-mentioned proposals is expected to be presented during March of 2022. The amendments to the labor legislation are proposed to enter into force on the 30^th of June 2022 and be applied for the first time on the 1^st of October 2022. 

On the 3^rd of March 2022 the Council of Legislation published an opinion regarding the Governments referral with remarks on several of the proposed amendments.

The Council considered that it must be more clearly justified what makes the proposed requisite objective reasons more predictable than the current requisite objective grounds. The council fears that, without proper justification, the change in the wording of the requisites, may lead them to get different significance in different sectors of the labor market, due to old case law becoming obsolete and the possibility of changing the meaning of the requisite by way of collective bargaining agreements. The Council also questions the Governments chosen legislative technique for intending to significantly change the rules on ground for termination through a marginal change of wording in the legislation.

The Council further states that it is not appropriate for a court not to be able to pass an interim decision regarding the continuation of an employment during a dispute about valid termination or valid summary dismissal. The Council believes that the proposal does not consider the potential consequences for the employee and that the arguments against interim decisions are not convincing. In addition, the Council whishes a clarification from the Government regarding which circumstances that may be invoked in the event of a dispute between the employer and the employee.

Lastly the Council requests a further developed justification for what constitutes such special reasons that require the employer to make further relocation efforts of an employee and clarifications regarding certain parts of the proposed regulation regarding special fixed-term employment. 

It is positive that the government, together with the social partners, has succeeded in reaching a compromise that entails a reformed labor legislation. The proposal seems to be balanced in such a way that it benefits both employers and employees, while the legislation continues to be flexible through the possibility of adapting the regulations to the needs of different industries by way of collective bargaining agreements.

It is particularly welcomed that the Government through the proposal intends to increase the predictability of termination because of personal reasons and that the main rule becomes that an employment should not continue their employment during a dispute, as this should lead to more employers daring to pursue issues in court and thus increase the parties willingness to reach settlements.

In addition, the new rules on order of priority provide greater flexibility for all employers, regardless of size, an increased ability to carry out restructurings within a company but can also increase the risks of fictious redundancy. Furthermore, the amendments concerning special fixed-terms employment are of great importance for the employer’s recruitment process and the length of fixed-term employments.

KPMG continuously monitors the legislative process and updates the text if needed.

Please do not hesitate to contact us if you have any questions. 

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