Important clarification from the Swedish Labour Court – Consultation obligations in termination processes

The concerned Company is a part of a Nasdaq-listed group and is not bound by any collective bargaining agreement. The parent company is listed on Nasdaq. In late 2023, the parent company’s board adopted a higher profitability target, and management concluded that a workforce reduction of approximately 45 employees in Sweden would be necessary.

On 24 January 2024, the Parent Company's board formally adopted the restructuring plan and the parent company published a press release. That same day, affected employees were offered termination agreements with one week to accept. The agreements stated that it was initiated by the Company due to redundancy and required the employee to waive the right of priority to re-employment.

The Swedish trade union named "Unionen" brought proceedings before the Swedish Labour Court, claiming damages for breach of two provisions of the Co-Determination in the Workplace Act:

• The Company breaching its obligation to initiate negotiations regarding redundancies under Section 13(2) before concluding the termination agreements; and
• The Company breaching its obligation to keep Unionen continuously informed under Section 19a.

The Company denied liability, maintaining that mutually agreed termination agreements do not constitute redundancy dismissals, and thus that the consultation obligation was not triggered by the process that the Company had carried out.

Termination agreements classified as redundancy dismissals
The central question was whether the termination agreements should be regarded as dismissals for the purposes of the Co-Determination in the Workplace Act and the EU Collective Redundancies Directive.

The Court held that "on grounds of redundancy" in Section 13(2) Co-Determination in the Workplace Act must be interpreted in light of the EU Directive, under which "dismissal" covers all cases where an employment contract ends without the employee's consent.

Since the workforce reduction followed directly from the board's decision and the employees had limited practical ability to decline the proposed solution, the termination agreements were classified as redundancy dismissals.

The obligation to consult with the trade unions arises as soon as redundancies become a possibility within a restructuring plan. The Court found that this point was reached in December 2023, when managers were tasked with identifying affected employees. 

Insider rules and the obligation to consult
The Company argued that the insider rules prevented it from disclosing the planned reductions before 24 January 2024, as the information constituted inside information under the insider rules. The Court did not dispute this.

However, the Court found no basis for the argument that the insider rules override the Co-Determination in the Workplace Act. The two frameworks serve different purposes and are both rooted in EU law. The insider rules contain an exemption permitting disclosure in the normal course of employment or duty, and the Company could have carried out the consultations under a duty of confidentiality for the involved parties, cf. Section 21 Co-Determination in the Workplace Act, which it did not do.

The ongoing information obligation under Section 19a Co-Determination in the Workplace Act
The Court held that the Company's information obligations were fulfilled through the consultation process under Section 13 and 15. No separate obligation under Section 19a arose, and Unionen's claim in this respect was dismissed.

Termination agreements trigger the obligation to consult. Voluntary termination agreements offered in the context of a workforce reduction are classified as dismissals within the meaning of the Directive, triggering the obligation to consult. Calling it a "voluntary agreement" does not change this, what matters is the actual purpose and context.

The obligation to consult arises early. The obligation arises as soon as redundancies become a possibility within as restructuring, not only once a final decision has been made.

Insider rules do not provide a general exemption. The two frameworks operate separately and must be complied with concurrently. Listed companies facing a restructuring whilst holding price-sensitive information should proactively initiate consultations and, where necessary, agree on confidentiality under the Co-determination Act rather than relying on insider rules to defer their obligations.

No dual information obligation. An employer who fulfils its obligations to consult and inform under the Co-determination Act does not additionally incur a separate information obligation under Section 19a.

If you have any questions regarding the implications of the judgment for your organization or the obligation to consult in restructuring situations, please do not hesitate to contact us.