Interesting cases from the Swedish Labour Court

According to a recent court case from the Swedish Labour Court (Sw. Arbetsdomstolen), two employees in a company can both be considered to have significant influence over a company's operations to the effect that both employees have a managerial or comparable position and are thereby exempted from the application of the Swedish Employment Protection Act (the "Employment Protection Act").

In the case, the employee(L.A.)'s employment was terminated by the employer. The question before the Labour Court was whether the employee held a managerial or comparable position, which would have the employee exempted from the application of the Employment Protection Act. For employees covered by the Employment Protection Act, the employer must show objective reasons for termination of an employment. The exemption is to be interpreted restrictively, and it requires that the employee not only has managerial functions, but also is entitled to salary benefits and other employment benefits that are typically granted to executives. The determination of whether an employee holds a managerial or comparable position depends on how the company's management is organized and exercised in practice.

L.A. was initially hired as a janitor, however, both the role and ownership in the company changed over the years. At the time of termination of the employment, L.A. owned half of the company's shares, alongside another individual named A.B., who owned the other half. L.A. had signatory powers and participated in meetings where various matters concerning the company's operations and management were discussed. L.A. had the authority to sign leasing, customer, and employment agreements and served as a substitute board member. The company's board of directors consisted solely of A.B., who presented himself externally as the CEO, although he did not formally hold the position as CEO until after the termination of L.A.'s employment. The Labour Court noted that in smaller companies, typically only one individual can be exempted from the application of the Employment Protection Act. Nevertheless, it had previously been deemed by the Labour Court that two individuals with equal ownership in a smaller company could be exempted from the application of the Employment Protection Act.

The Labour Court noted that L.A. and A.B. had equal salaries and comparable benefits. They both had signatory powers individually and shared the management of the company. Despite A.B. acting as the CEO and L.A. perceiving to have less influence, the Labour Court considered that L.A. had a significant role in the company and concluded that she held a managerial or comparable position. Consequently, L.A. was not covered by the Employment Protection Act. Hence, the company had not been required to have objective reasons for terminating the employment. The claim for invalidity of the termination of employment was dismissed.

The bus transports in the region of Uppsala had been outsourced to an operator. Following the award decision in a new public procurement process, the contract concerning operations of bus transports in Uppsala was awarded to a new supplier. Prior to the current contract ending, the supplier providing the services had terminated several employments of employees who worked with the bus traffic. The question before the Labour Court was whether the prohibition to terminate employments in connection with a TUPE transfer in the Employment Protection Act had applied, which would mean that the transferor had violated the prohibition when proceeding with the termination of employments.

According to the Employment Protection Act, in a transfer of operations, i.e. a TUPE transfer, employees' employment contracts, including the rights and obligations, automatically transfer from the previous employer to the new employer. Furthermore, a TUPE transfer itself cannot constitute objective reasons for termination of the employment. The assessment of whether a transfer constitutes a TUPE transfer depends on various factors, such as the nature of the business, which assets that are being transferred, whether the majority of employees have been transferred, and continuity of operations. Previous case law had distinguished between businesses that rely heavily on tangible or intangible assets and those primarily dependent on its workforce. To determine whether the prohibition on terminations applied in a situation where there will be a change of operators, the key factor was whether, at the time of the terminations, it was clear that the majority of employees would be transferred to the new employer.

The Labour Court noted that at the time of the terminations, the new operator had not entered into employment contracts with any of the employees from the previous operator. However, the previous operator was aware of the general shortage of bus drivers and that the new operator had initiated a recruitment process targeting employees from their operations. The recruitment process involved expressions of interest, testing, and interviews. It could be assumed that the previous operator was aware that the new operator intended to recruit as many employees as possible from their operations. However, the fact that tests and interviews were conducted with interested employees indicated an intention to make a selection among them.

Therefore, considering the practical assessment and the uncertainties involved, it could not be clearly established that the majority of employees would be taken over in connection with the transfer. As a consequence, the prohibition on terminating employees' employment in connection with a TUPE transfer did not apply. Hence, the transferor had objective reasons for terminating the employments due to redundancy.