Amendments to the Swedish Employment Protection Act and ITP 1 pension

by Sandra Nilsson


A woman sitting by her desk working
On 1 October 2022, amendments to the Swedish Employment Protection Act ("EPA") entered into force, following a legislative proposal regarding a reformed labour law. The amendments include, inter alia, changes to the last-in – first-out principle in a redundancy situation, a new rule setting out that an employee will not remain in employment if a termination of employment is disputed in court, and a new temporary form of employment called special fixed-term employment. The main amendments are summarized below.

Objective reasons for terminating an employment

One of the changes include that an employer must have objective reasons for terminating an employment (previously objective grounds). Objective reasons are either redundancy or personal reasons. In relation to personal reasons, it has been clarified in the preparatory works that the focus of the examination shall be on the seriousness of the breach of contract, which shall increase the predictability for the employee. Furthermore, it has been clarified that the employer shall make an overall assessment of the situation. The employee's personal interest for keeping the employment shall not be regarded. Lastly, an employer is only obliged to provide one offer of relocation to an employee in relation to a termination of employment due to personal reasons.

Changes to the last-in – first-out principle in a redundancy

The possibility for an employer to make exemptions from the "last-in – first-out" principle in a redundancy has been extended. The "last-in – first-out" principle sets out that an employer shall make a list of priority in a redundancy, where an employee with shorter length of service shall be made redundant prior to an employee with longer length of service. Previously, only employers with up to ten employees in total could exempt two employees from the list of priority, provided that they were of significant importance for the business. Following the amendments to the EPA, all employers, regardless of the total number of employees, can exempt up to three employees from the list of priority. However, a temporary limitation has been introduced, whereby an employer can make a new exception only after three months.

Disputes regarding claims for invalidity of an employment and increased damages

If an employee's employment is terminated by the employer, the employee may proceed with a claim for invalidity of the termination. Following the changes to the EPA, the employment will expire by the end of the notice period and not continue during the court procedure. Prior to the changes, the employee would remain in employment and keep salary and benefits during the entire court procedure, which could be very costly for employers due to the courts' long handling times.

Furthermore, the general damages for employers have been increased. The levels for damages are not set out by law, but will be developed by case law. The purpose is to be deterrent for employers. For example, an employer shall be obliged to pay general damages of SEK 135,000 if a termination of employment is deemed to not have had objective reasons, in addition to the economic damages for salary and benefits.

Special fixed-term employment

The general fixed-term employment has been replaced by a special fixed-term employment. A special fixed-term employment will transition to an employment for an indefinite term after 12 months (instead of 24 months). Furthermore, if the employee has had three or more special fixed-term employments during one calendar month, the entire calendar month will be regarded as one month of employment.

An income roof is introduced for employees under the ITP 1 pension plan

On 1 January 2023, a new income roof was set for employees who are entitled to pension contributions under the ITP 1 pension plan (a defined contribution plan).

The ITP pension plan applies for employers who are bound by a collective bargaining agreement. As a main rule, the ITP 1 pension plan applies for employees born in 1979 or later, however, employers who have applied for an exemption with the ITP board may apply the ITP 1 pension plan for all employees.

As of 1 January 2023, the income roof is capped at SEK 185,750 per month. If the employee's total salary payment, including variable salary, for one month is exceeding SEK 185,750, the exceeding part is not considered as pensionable income under the ITP 1 pension plan. However, employers and employees may mutually agree that salaries above this cap shall still be considered as pensionable income.

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