Employees in managerial positions and the Swedish Employment Protection Act (1982:80)

The main rule is that the EPA shall apply to all employments in Sweden. However, there are explicit exemptions in the EPA that exempt certain employees from most of the provisions. One of these exemptions is applicable to employees in managerial or comparable positions. But how do you determine if someone holds a managerial position? What is essential for the assessment of the applicability of the exemption?

The consequences of an employee not being covered by the EPA is, e.g., that the employment may be terminated without considering the statutory notice periods and that the requirements for objective reasons for termination do not apply. The application of the exemption thus has a decisive impact on the terms of the employment, which highlights the importance of doing a correct assessment. The criteria for determining who is in a managerial position in a company has recently been touched upon in a court case from the Swedish Labour Court, AD 2023 No. 24. In this article, we look further into the circumstances highlighted by the Labour Court and summarise the important criteria to bear in mind when assessing whether an employee should be considered to fall within the scope of the EPA.

Regulation in the EPA

Pursuant to Section 1 of the EPA, the EPA applies to employees in both the public and private sector. The main rule is that the EPA applies to all employments. Who is to be considered as an employee is not explicitly stated in the EPA but is assessed based on a number of criteria, e.g., that it must be a natural person who has voluntarily undertaken to work for someone else. However, we will not examine the definition of an employee in more detail in this article. There are also exemptions to the general rule. The following employees are completely exempted from all provisions in the EPA:

  • employees who are employed to work in the employer’s household, and
  • employees who are employed in an upper secondary school apprenticeship.

In addition to the above-mentioned exemptions, the following employees are exempted from most of the provisions of the EPA:

  • employees whose duties and conditions of employment are such that they may be deemed to hold a managerial or comparable position,
  • employees who are members of the employer’s family, and
  • employees who are employed through special employment support, in sheltered employment or with wage subsidies for development in employment.

The fact that certain types of employees are exempted from most of the provisions has its roots in the new provisions of the EPA that entered into force in June 2022. In short, the new provisions entail that such employees, even though their employments are otherwise exempted from the EPA, are now subject to certain information requirements and provisions on loyalty.

AD 2023 No. 24

How do you determine if an employee holds a managerial or comparable position? This is something that the Labour Court was given the opportunity to consider in more detail in AD 2023 No. 24. The case concerns an employee who in June 2021 was terminated from her employment as a cleaner in a company with approximately 45 employees. The employee argued that the termination was not based on objective grounds (note that the concept of objective grounds was replaced by objective reasons on 1 October 2022) and therefore sought annulment of the termination as well as damages. The employer, in turn, argued that the employee in question was in a managerial position and that the provisions regarding objective grounds therefore did not apply.

It is important to bear in mind that the employee was also a deputy board member and shareholder in the employer company with a shareholding corresponding to 50% of all shares in the company. The remaining 50% of the shares were owned by the person who was appointed as the sole board member of the company and who at the time of the employee’s termination also held the position of CEO.

The Labour Court highlighted the following legal starting points as important for the assessment:

  • The exemption for employees holding managerial positions shall be applied restrictively.
  •  In order for an employee to be regarded as having a managerial or comparable position, the employee must not only have managerial functions, but should also be assured remuneration as well as other conditions of employment corresponding to those that a senior executive usually enjoys.
  • The way the management has been organised and exercised in practice is essential for the assessment.
  • As a general rule, there cannot be more than one person with a managerial position in a smaller company. However, in accordance with case law, there is support for two persons being covered by the exemption in smaller companies if they have the same influence over the company through their shareholdings or when they both share the managerial duties (cf. AD 1979 No. 60 and AD 2013 No. 4).
  • The circumstance that an employee owns shares in a limited liability company does not in itself entail that he or she holds a managerial position in the company. The important factors in the assessment are, inter alia, the influence the shareholder has over the company and the extent of which the shareholder is engaged in matters relating to the field of management (cf. AD 1983 No. 182 and AD 1996 No. 37).

The Labour Court’s conclusion:

The Labour Court stated that the extent of the employee’s shareholding (50%) strongly suggested that the employee had a managerial position, as the employee thereby had the opportunity to have significant influence over the company’s governance. The Labour Court then assessed how the company’s management had been organised and exercised in practice. The Labour Court highlighted, among other things, that the employee and the other owner had received the same salary and otherwise comparable benefits. The actual management of the company was also shared between the two owners and the Labour Court noted that they continuously discussed important decisions with each other. In light of these findings, the Labour Court concluded that the employee was to be regarded as a person holding a managerial position and was thus exempted from the provisions of the EPA. The employee’s claim for annulment of the termination and damages was therefore rejected.

Concluding remark

The starting point is that all employments in Sweden are covered by the EPA. However, there are statutory exemptions that exempt employees from the otherwise mandatory provisions. One of these exemptions has been discussed and summarised in this article and can be referred to as the managerial exemption. As mentioned earlier, it is not meant that the exemptions, neither the one for managerial positions nor the other exemptions, should be applied to any greater extent, as the employment protection provided by the EPA would thus risk being reduced. Each situation is unique, and it is therefore important to always carefully evaluate all circumstances when assessing whether an exemption could apply.

If you as an employer have questions or concerns about the assessment of whether an employee should be considered to hold a managerial position pursuant to the EPA, you are welcome to contact us at Vinge.