In-depth advice on the Letting Act
Background information
As a starting point, TechSverige's view is that the member companies in TechSverige conduct activities that should not be covered by the Rental Act. However, many companies have asked questions about the regulations and we have therefore developed this support material for our members.
The material consists of two parts. The first part aims to highlight the differences between traditional consulting activities in our industry that are not covered by the Temporary Agency Work Act and regular staffing agencies that are covered by the Temporary Agency Work Act.
The second part of the material also contains suggestions for measures that a company can take in terms of information to employees, customers and other stakeholders to make it clear that the company is engaged in traditional consulting activities and the provision of a service and is not covered by the law on temporary agency work.
A question of the scope of the Letting Act may be subject to judicial review. In such a case, the relevant conditions in the individual case will be decisive. As the Letting Act is also an implementation of an EU directive, it is ultimately the European Court of Justice that decides which situations are to be considered as letting under the Act. Not all situations have yet been tested, and we cannot guarantee the outcome of any dispute in court.
Information on when the new rules in the Letting Act apply
On October 1, 2022, new rules in the Temporary Agency Work Act entered into force. The Act covers employees of temporary employment agencies for the purpose of being hired out to client companies for work under the control and management of the client company. The new rules in the Temporary Agency Work Act were part of the agreement on a new Main Agreement and amendments to the Employment Protection Act that the Confederation of Swedish Enterprise, LO and PTK entered into in 2020.
The rule means that anyone hired from a temporary work agency for more than 24 months must be offered employment in the client company or receive 2 months' salary in compensation from the company that hired the worker. The rule can therefore only apply from 1 October 2024 at the earliest. More information on the new rule is provided below in the section on advice to companies using temporary work agencies.
When does the Letting Act apply?
The introduction of the new rules raises the question of the scope of the Letting Act.
The Agency Workers Act only applies to workers employed by temporary work agencies for the purpose of being hired out to client companies for work under the control and direction of the client company.
The following conditions must be met for the law to apply.
- The company hired is engaged in the business of hiring out staff under the control and direction of the client, i.e. a staffing agency under the law.
- The purpose of the employment of the worker concerned is, at the outset of the employment, to be hired out to the customer under its "control and direction".
- The purpose of the individual assignment shall be staffing under the control and direction of the client company.
- The mission is not permanent.
- The business contract is intended for staffing assignments, which are typically characterized by the fact that the supplier is not responsible for delivery and/or work results and the customer thus has only limited - if any - possibilities to make claims due to incorrectly performed service delivery or lack of professionalism.
A specific obligation to negotiate arises for the client company when using a staffing agency; this is regulated in section 38 of the MBL and is common in some collective agreements with LO unions. How this has been handled historically at the client company can be indicative.
As the Letting Act is an implementation of an EU Directive, it is ultimately up to the European Court of Justice to decide which situations are to be considered as letting under the Act. Not all situations have yet been tested and we cannot guarantee the outcome of any dispute in court.
As a general rule, consultancies are not covered by the Letting Act
TechSverige's assessment is that traditional consultancy firms, many of which are our member companies, are not, as a starting point, covered by the rules in the Leasing Act. The reasons for this are as follows.
A consultancy firm delivers a service and its employees are employed to be part of that delivery. The fact that an employee may from time to time be on the premises of a client company does not mean that they are hired out within the meaning of the law.
For temporary work agencies, the purpose of the employment is precisely to be hired out to the client under its control and direction. A staffing assignment is characterized by the fact that a person fills a vacancy with the client. A 2
consultancies normally have a different way of working, several delivery models and the purpose of employment in a consultancy is to be part of the company's service delivery. The consultancies bring certain specialist/expert skills that the client does not normally have. It is also often the case that the client's core business is something other than what the consultancy delivers services around.
In a staffing assignment, the right of supervision is fully transferred to the customer. In a consultancy assignment, the management of the work, follow-up of the delivery, career planning, own sharing of skills, etc. remains with the supplier in a different way than in regular staffing. In business contracts, consultancies also typically have greater legal responsibility for the results and performance of the service, often associated with penalties. In a staffing assignment, there is normally no such liability or penalties in the business contracts.
TechSverige recommends that the purpose of the employment is clarified in the employment contract and that the purpose of each assignment is clarified in the business agreement.
The contract of employment with the consultancy firm should state that the purpose of the employment is for the employee to carry out work for client companies through the provision of services carried out under the control and direction of the employer.
In the business contract, the parties need to regulate whether the purpose of the assignment is hiring under the control and direction of the client company or whether it is the provision of a service under the control and direction of the employer.
A business contract where the parties agree that it is a service to be provided where the customer company is not ultimately responsible for the control and management is not covered by the Rental Act. In this case, the customer company does not need to calculate the placement time.
If the client company or the consultant claims that the assignment is a hiring-out contrary to the terms of the business contract, the employee or the client company should have the burden of proof in the event of a dispute, i.e. they need to prove that it is a hiring-out. It is also important that the employer informs the employee that the assignment under the business contract is to carry out a consultancy service - and not hiring out - and that this means that the rights under the Hiring Out Act do not apply.
Other activities not covered by the Letting Act
- Self-employed/contractor
- Entrepreneurs (outsourcing, call center etc)
- Secondment of staff (e.g. lack of work, rehab reasons etc)
Consequences of non-compliance with the new rules
Client companies that do not comply with the new provision risk damages under the Agency Workers Act in relation to the worker.
On the other hand, client companies that apply the provision even though the law does not apply risk, for example, committing a breach of contract under an existing commercial agreement.
Employees who transfer to a client company when the law does not apply, on the other hand, risk suffering damages for, for example, failing to observe the notice period or, for breaching the duty of loyalty, or even for unauthorized disclosure of trade secrets.
New rules in the government sector
The Swedish Employers' Confederation has negotiated another rule for all public authorities that use temporary employment agencies. This means that the client is obliged to regard anyone hired for more than 24 months at the same operating unit as a job applicant and can only be offered employment based on merit and skill. Compensation of 2 months' salary does not have to be paid unless the hirer is considered the most suitable candidate based on the government's criteria for hiring. 3
Advice for companies using temporary work agencies If your company has hired a worker from a temporary work agency for more than 24 months during a period of 36 months at the same operating unit under your control and management, you are obliged to either employ the worker or compensate him/her with a compensation/allowance of 2 months' salary.
Our recommendation is to ensure the following with the staffing service provider when entering into business contracts for temporary agency workers:
- Use business contracts for staffing services
- Develop procedures for how the 24-month rule will be handled
- Communicate how you and the supplier intend to manage the process to relevant employees and other team members who may be affected
As a client company, you must take the initiative to negotiate with an employee organization that is bound by a collective agreement when it comes to temporary agency work. This follows from Section 38 of the Co-determination Act. The exceptional situations (short-term, temporary nature or requiring special expertise) set out in this provision do not apply in the case of temporary agency work.
What should a client company offer if a temporary worker from a staffing agency exceeds the 24-month period?
If the client company so wishes, it will offer the temporary worker a job with the same average level of employment as the assignment with the client. The employment must be for an indefinite period. There is no rule specifying the level of pay to be taken into account other than the company's own collective agreement rules and that the pay must be reasonable. The period of employment and time spent as a temporary worker are not counted together when the job is offered. The offer must be made within one month of the end of the 24-month period.
The hirer must be given a reasonable period of time to consider the offer, but the user undertaking can decide within which time a response must be given. If the worker accepts the employment, regardless of the level of employment, the ongoing employment with the temporary agency ends immediately when the employment takes place.
If the employee refuses the offer, the hiring out can continue as before without a time limit.
Paying compensation instead of offering employment
The client company may, instead of offering employment, pay a remuneration equivalent to two fixed current monthly salaries. Any variable salary elements such as overtime, bonuses, etc. do not need to be taken into account.
If the client company has paid compensation, the temporary agency assignment can continue and the worker can remain with the client company and a new offer never needs to be made. This applies irrespective of the assignment or the company from which the worker is hired.
What happens if a customer fails to apply the rule in the Rental Act?
If a temporary work agency is used under an arrangement covered by the Agency Workers Act but does not comply with the rule of offering employment or paying 2 months' salary in compensation, an employee who feels overlooked can claim compensation from the client company.
In a court of law, damages could be awarded for breach of the rules, but it is not currently possible to say exactly how much.
Client companies that do not comply with the new provision risk damages under the Rental Act in relation to the employee.
On the other hand, client companies that apply the provision even though the law does not apply risk, for example, committing a breach of contract under an existing commercial agreement.