The Swedish Supreme Court rules on the authority of employees to act on behalf of their employer

In October 2014, the Swedish Supreme Court (ruling of 10 October 2014 in Case No. T 1310-12) ruled on whether a company was bound by a settlement agreement regarding customer claims relating to products manufactured by a division of the company that had been entered into by the division’s manager on behalf of the company. The company argued that the division manager had no authority to enter into the agreement in question on behalf of the company.

The court held that, in accordance with previous rulings (see the case reported on page 659 in NJA 2013), an employer may be bound by actions taken by an employee if the employer knowingly represents to a third party that the employee has authority to act on the employer’s behalf and the third party is induced by such representation to believe that the employee had such authority. As a general rule, a third party can reasonably rely on the authority of a manager of a clearly defined and independent division in a company to undertake such actions as are necessary in the ordinary course of the division’s business. However, entering into the agreement in question, which imposed a liability on the company of approximately SEK 3 million as well as liability for possible future damages, did not fall within the scope of the ordinary course of the division’s business. Accordingly, the division manager’s position alone was not sufficient for the customer to be able to reasonably rely on the authority of the division manager to act on behalf of the company when entering into the agreement. The court held that there were no other circumstances that could have induced such reasonable reliance and concluded that the company was not bound by the agreement.

According to the court’s ruling, actions undertaken by a division manager that are necessary in the ordinary course of the division’s business are, prima facie, binding upon a company. Furthermore, if a company acts in such a way that a third party is induced to believe that an employee has authority to act in respect of a particular matter, the company may be bound in relation to the third party by actions taken by the employee even if, according to internal instructions, the employee has no authority to take such action. In order to avoid employees acting beyond the scope of their authority and, potentially, binding the company in relation to third parties, companies should produce authorization manuals and implement them properly throughout the organization. 

The Swedish Labour Court bars a company’s claim against a former employee – the company had failed to follow the negotiation procedure stipulated in the applicable collective bargaining agreement 

In a recent judgment (AD 2014:88) regarding a company’s claims for damages against a former employee based on allegations that the employee was carrying on a competing business during the term of his employment, the Swedish Labour Court considered whether the company that was bound by a collective bargaining agreement (“CBA”) with a trade union was required to consult with the trade union in accordance with a specific negotiation procedure stipulated in the CBA (the “Negotiation Procedure”; Sw:förhandlingsordning) before bringing the claim to court.

The trade union argued that, in accordance with the Negotiation Procedure, the company was required to consult with the trade union before bringing the claim to court. As the company had failed to do so within the time limit specified in the Negotiation Procedure, the claim against the employee was barred. The company argued that the claim was primarily based on the individual employment agreement and the Swedish Tort Liability Act (Sw: Skadeståndslagen) and that, as the Negotiation Procedure was intended to be used exclusively in relation to claims based on the Swedish Co-Determination Act (Sw:Medbestämmandelagen) and the CBA, the company was not obliged to comply with the consultation requirement before bringing the claim to court. The court held that the purpose of the provisions in question was for all disputes pertaining to the employment relationship to be handled in accordance with the Negotiation Procedure. As consultations had not been held within the time limit specified in the Negotiation Procedure, the claim was barred. 

The court’s ruling emphasizes that it is important for companies that are contemplating taking legal action against a current or former employee to ascertain whether a CBA provides for any negotiation procedure that must be followed. As the case shows, negotiation procedures in CBAs usually encompass all disputes pertaining to the employment relationship and failure to properly follow these negotiation procedures will often result in a company’s claim against an employee being barred. 

The Swedish Labour Court requests a preliminary ruling from the European Court of Justice: Is it contrary to the EU Transfers of Undertakings Directive not to take into account the length of service with a former employer when determining the notice period to be given to an employee?   

In a rare decision (AD 2014:69), the Swedish Labour Court has requested a preliminary ruling from the European Court of Justice (the “ECJ”) in a dispute concerning the interpretation of a collective bargaining agreement (“CBA”). The case relates to the question of whether, when determining the notice period for employees who have been transferred from one employer to another in conjunction with the transfer of an undertaking, the length of service with the former employer must be taken into account.

In the case at hand, several employees had been transferred from one employer to another in conjunction with the transfer of an undertaking. The former employer and current employer were bound by different CBAs, but both CBAs stipulated that employees over the age of 55 who had completed more than 10 years of service were entitled to be given 12 months’ notice in the event of their dismissal due to redundancy. The employees, all of whom were over the age of 55 and had worked fewer than 10 years with the current employer, were dismissed due to redundancy on six months´ notice. The employees, through their trade union, claimed that the notice period should have been 12 months, since the employees in question had completed over 10 years of service, if the length of service with the former employer were taken into account, and that it would be contrary to the EU Transfers of Undertakings Directive not to take into account the length of service with the former employer. The court concluded that the provision as such could not be interpreted in such a way as to require that the period of employment with the former employer be taken into account, but held that it was necessary to request a preliminary ruling from the ECJ to determine whether it is contrary to the Directive not to take into account the length of service with the former employer where the employees have been transferred in conjunction with the transfer of an undertaking and both the current employer and the former employer are bound by CBAs containing the provision in question.

The case is interesting as the provision in the CBA that is subject to the ECJ´s interpretation is common in CBAs for white-collar employees applicable across large areas of the Swedish labour market. Accordingly, the situation arising in this case is likely to be a fairly common one and, depending on the answer provided by the ECJ, these provisions may have to be interpreted in accordance with the trade union’s view. This would result in an obligation to give 12 months’ notice when terminating employees due to redundancy, provided the employees are over the age of 55 and have completed more than 10 years of service with the current employer and former employer.