Report in which the committee requests to be kept informed of development - Report No 330, March 2003

Case No 2171 (Sweden) - Complaint date: 20-NOV-01 - Closed

Allegations: The complainants allege that the adoption of a statutory amendment enabling workers to remain employed until age 67 and prohibiting negotiated clauses on compulsory early retirement, will nullify collective agreements previously concluded and will prevent social partners from acting independently and autonomously in regulating their dealings through collective agreements.

1. 1010. In a joint communication dated 20 November 2001, the Swedish Confederation of Professional Employees (TCO) and the Swedish Trade Union Confederation (LO) filed a complaint of violations of freedom of association against the Government of Sweden.
2. 1011. The Government provided its observations in a communication dated 9 September 2002.
3. 1012. Sweden has ratified the Freedom of Association and Protection of the Right to Organise Convention, 1948 (No. 87), the Right to Organise and Collective Bargaining Convention, 1949 (No. 98), and the Collective Bargaining Convention, 1981 (No. 154).

A. The complainants’ allegations

1. 1013. The complainants LO and TCO which, through their member federations, together represent 3.3 million manual workers and professional employees in the private and public sectors, allege in their complaint of 20 November 2001 that an amendment to the Security of Employment Act (LAS), passed by Parliament on 16 May 2001, violates Conventions Nos. 98 and 154, both ratified by Sweden.
2. 1014. This amendment entitles workers to remain employed until age 67 and prohibits, with effect from 1 September 2001, collective and individual agreements obliging employees to terminate employment before age 67. In addition, provisions on compulsory retirement before age 67 contained in collective agreements concluded before 1 September 2001 will apply only for the duration of the collective agreement in force, but at most until the end of 2002.
3. 1015. The complainants allege that the amendment: (i) violates fundamental ILO principles on the right of social partners to act as independent, autonomous organizations with the power of regulating their dealings through collective agreements; (ii) limits the social partners’ freedom of negotiation and forbids them to conclude agreements on compulsory retirement before age 67; (iii) invalidates existing rules on obligatory retirement contained in collective agreements expiring after the end of 2002.
4. 1016. Prior to the amendment, the point in time at which an employee was obliged to retire on old-age pension was in the great majority of cases regulated by collective or individual agreements, not by law. The great majority of employees were obliged by agreement to retire before they were 67; in the absence of such agreement, section 33 of the LAS provided that an employer could notify employees that their employment would terminate at age 67, in which case they were obliged to leave. The legislation being then non-mandatory, this left the parties free to agree among themselves, through collective or other agreements on compulsory retirement, which made it possible to take into account the characteristics of different occupations in collective agreements. For instance, the compulsory age of retirement has been set at 60 for heavy work below ground, and also for safety reasons as in the case of air traffic controllers. The new statutory rule has been prompted by a new pension system, agreed upon by five political parties. Basically, the reform has the effect of basing the pension payable on earnings during the whole working career and on the abolition of an upper age limit for earning pension credits.
5. 1017. A 1999 departmental report had suggested a number of alternatives whereby both collective and individual agreements making retirement compulsory between the ages of 65 and 67 would be declared void and retirement would be made compulsory at age 67. This proposal was widely criticized by all labour market parties, and the Swedish tripartite ILO Committee commented that all these alternatives “… involve interference of one kind or another with the freedom of labour market parties to engage in collective bargaining and... Accordingly, all the alternatives entail problems in relation to Conventions Nos. 98 and 154”. Another departmental memorandum presented new proposals in November 2000, i.e. a mandatory provision (and alternative transitional rules) in the LAS whereby employees would be entitled to continue working until age 67; this meant that it would not be possible to conclude agreements making retirement compulsory before age 67. This proposal was again criticized by LO, TCO and the Confederation of Swedish Enterprise, and the Swedish tripartite ILO Committee reiterated its views.
6. 1018. In spite of this criticism, Parliament adopted on 16 May 2001 a Bill incorporating the following mandatory section into the LAS:
   • Section 32 a)
   • An employee is entitled to remain in employment until the end of the month in which he or she is 67 years old, unless indicated otherwise by this Act.
7. 1. This Act enters into force on 1 September 2001.
8. 2. Collective agreements concluded prior to the entry into force of this Act will apply in derogation of Section 32 a) until the agreement has expired, but on no account after the end of 2002.
9. 1019. The complainant organizations object to the new mandatory rule, for the following reasons. Existing collective agreements embodying compulsory retirement provisions normally entail financial advantages in the form of a supplementary collective pension, which is generally regarded as a benefit by individual employees. The new legislation is based on the contrary assumption that agreements making retirement compulsory before age 67 are disadvantageous to employees. There has been large unanimity for a long time in Sweden that these matters should be regulated through collective agreements. The amendment reduces incentives to conclude collective agreements on pensions and, in practice, threatens to result at a later stage in rising the retirement age for whole categories of employees. Because of the uncertainty it entails, the amendment could also result in a growing number of disputes arising out of collective agreements, notably as regards the rates of pay and benefits to apply after the agreed compulsory retirement age, i.e. up to and including age 67: for instance, the employer’s obligation to pay a supplementary pension ends when employees reach 65, even if they choose to continue working until 67.
10. 1020. The question of compulsory retirement on pension has traditionally been settled in Sweden according to the requirements and conditions of specific occupations. Many collective agreements currently contain provisions on early compulsory retirement age because of the demands of the activity in question in terms of safety and health, or working conditions (e.g. traffic controllers, firefighters, dancers, railway motormen, etc.). Should these workers decide to continue working after the pensionable age laid down in their collective agreement, they would now risk being given notice by their employer for personal reasons, in which case they will probably lose the pension benefit associated with their collective pension agreement. In any event, they will probably face a heavy burden of litigation, or else will be subjected to other kinds of “ejection mechanism”, which is unlikely to bring them a greater security of employment.
11. 1021. In Sweden, as in most other Western European countries, the basic problem is that many employees lack the strength or ability to go on working beyond the regular retiring age. The actual average retirement age in Sweden today is 62; less than half the population between 60 and 64 years old is gainfully employed, and this figure drops to only a third of 64 year olds. Therefore, the statutory amendment does not solve this problem.
12. 1022. Collective agreements concluded before 1 September 2001 containing rules on compulsory retirement before age 67 will become invalid as from 1 January 2003; on the other hand, the Bill explicitly provides that individual compulsory agreements made before 1 September 2001 will remain in force even after the new Act takes effect. This amounts to discrimination between collective and individual agreements concluded before the entry into force of the amendment, which violates the principle of promoting collective bargaining, contrary to Article 4 of Convention No. 98 and Convention No. 154.
13. 1023. In addition, the restrictions on the parties’ freedom to conclude collective agreements is unaccompanied by any agreement with the labour market parties, although it had always been a matter they would settle through collective bargaining. The complainants contend that Government and Parliament should make great efforts to reach an agreement but, if they fail, they should respect collective agreements already concluded.
14. 1024. The restriction on the parties’ freedom to conclude collective agreements is all the more remarkable in view of the fact that Sweden has already been the subject of an ILO complaint in 1994 for infringements of the right of free collective bargaining (Case No. 1760) which resulted in the Governing Body recommending Sweden to refrain in future from adopting provisions setting aside collective agreements concluded previously.
15. 1025. The complainant organizations are in favour of a flexible retirement age, enabling workers who are willing and able to do so to choose between retiring or continuing to work between the ages of 61 and 67. This freedom of choice, however, is circumscribed by the amendment and by the fact that the new pension system affords certain employees a far smaller pension than under the old system. As a result, individual workers may feel compelled to continue working so as to accumulate a reasonable pension, which further reduces freedom of choice.
16. 1026. The Swedish Council on Legislation, which consists of judges from the Supreme Court and the Supreme Administrative Court, and whose tasks include examining the compatibility of legislative proposals with Sweden’s international commitments has expressed its doubts concerning the compatibility of the statutory proposals with ILO Conventions Nos. 98 and 154.
17. 1027. The complainants conclude that the new statutory rule infringes fundamental principles regarding the right of social partners to act independently and autonomously and to regulate their dealings through collective agreements because: of the restrictions imposed on free collective bargaining from 1 September 2001; and of the setting aside of some of the collective agreements as of 1 January 2003. The principle of the labour market parties’ independence is so fundamental as to allow Government and Parliament very little scope for this kind of interference. There were no exceptional considerations involved (e.g. manifest danger to the national economy, national security or democracy) which could permit the Government to impose such restrictions, thereby breaching ratified Conventions and its commitment to promote the regulation of terms and conditions of employment by means of collective agreements.

B. The Government’s reply

1. 1028. In its communication of 9 September 2002, the Government states by way of background that the legislative amendment has been prompted by the new system of old-age pensions, fundamental to which is the “life income principle” whereby pension is influenced by a full lifetime’s income. One of the underlying purposes of this principle is to encourage work and to enable people to influence their pension benefits by working longer than had been the case previously. The Government considers that it must still be possible to improve one’s pension by working, even after starting to receive a pension. This depends to a large extent on a reduction of impediments to employment, in order to enable a larger group of people to improve their pension status. It was therefore essential to raise the compulsory retirement age. The situation is further aggravated by demographic trends, with large numbers of people retiring within the next few years; this is likely to lead to a period of general manpower shortage which will inhibit growth and impact on welfare in the long term. Measures were therefore urgently needed to counteract the shortage of manpower, one such measure being to reduce impediments for those who are willing and able to work beyond the age of 65, by raising the obligatory retirement age.
2. 1029. The Government has made clear on several occasions that the question of allowing individuals to remain in employment until age 67 is best resolved by means of collective agreements; however, since no attempt was made by social partners to regulate this issue in spite of many discussions since the early 1990s, the change had to be effected through legislation. The Government contends that a mandatory rule with no exceptions makes it clear that this is a matter of employee’s rights. All workers are treated equally and are thus able to decide for themselves whether or not to utilize their job security and earn pension credits for a longer period. It will now be possible for those workers who were previously obliged to retire at a relatively early age by collective agreement or statutory instrument, to remain in employment according to their own preference, albeit employers will be able to give employees a notice of dismissal if objective grounds can be proved for doing so. Previously, these employees were only able to retain their job by agreement with the employer.
3. 1030. As regards the chronology of events, the Government states that a Pensions Working Party, including representatives of all political parties, was set up at the end of 1991. The Working Party concluded that, in a pension system with a flexible retirement age, there were strong reasons for enabling insured persons to continue working to an advanced age. In this connection, the question arose as to whether the social partners should continue to control the timing of obligatory retirement and whether the more or less universal age limit for obligatory retirement, which was 65, could be raised. The Working Party, noting that no adjustment had been made into collective agreements and not being prepared to limit itself to making an appeal to the social partners, recommended mandatory legislation to raise the obligatory retirement age to 67. The Bill then submitted to Parliament (Prop. 1993/94:250) provided that the age limit should primarily be raised by agreement between social partners, and if they failed to agree by the beginning of 1996, mandatory legislation should be considered.
4. 1031. An Implementation Group was also set up, comprising representatives of the five political parties endorsing the agreement on a new pension system. On 14 November 1994, the Implementation Group invited representatives of the social partners to a consultation, where one of the subjects discussed was the age limit for obligatory retirement. The social partners were several times reminded of the importance of negotiating a settlement enabling employees to continue working until 67 years old. Following the conclusions of the Implementation Group, the Government proposed in the 1997 Budget Bill to defer any mandatory legislation until the end of November 1997, one of the reasons advanced being that those questions could be dealt with more smoothly by means of collective agreement than through mandatory legislation. The question was discussed at a further meeting of the Implementation Group and labour market representatives at the beginning of 1998.
5. 1032. Based on an agreement between five of the political parties, the Swedish Parliament decided in June 1998 to reform the old-age pension system in order to create a more flexible system reflecting economic and demographic developments. Individual pension coverage continues to be based on a compulsory public system comprising both standard protection under the loss-of-earnings principle (“income-related old-age pension”) financed by contributions, and a basic coverage (“guaranteed pension”) financed by ordinary taxation revenue, for those who have had little earned income or none at all. The computation of income-related old-age pension is based on the lifetime income principle, which means that all pension-carrying income in a person’s lifetime has an effect on the level of pension awarded. There is no limit to the earning of pension rights, and it can be drawn from age 61 at the earliest. As for the “guaranteed pension”, it is a supplement to income-based pension and it can be drawn, at the earliest, from the month in which the beneficiary attains the age of 65.
6. 1033. The Ministry for Industry, Employment and Communications drew up a memorandum setting out five alternative proposals on raising the obligatory retirement age to 67, noting once again that this question would be best resolved by means of collective agreements but remarking that legislation appeared the only possible recourse, as no amendment had been made to collective agreements. The memorandum was circulated for comments between July and September 1999 to the social partners, who were thus given another opportunity to comment. A further memorandum (Entitlement to work until age 67, Prop. 2001/01:78) was drafted in November 2000 by the Ministry, in response to criticism levelled at the earlier proposal, and containing the draft version of a mandatory provision on the right to retain employment until age 67; it was circulated for comment and discussion at a consultation meeting in December 2000, at which the social partners were again given the opportunity to make a statement. The Government Bill, proposing the inclusion in the LAS of a mandatory rule concerning the right of remaining employed until age 67, was passed by Parliament on 16 May 2001, with effect from 1 September 2001.
7. 1034. The new mandatory rule entitles workers to remain employed until the end of the month where they reach 67, but does not oblige them to do so. After 1 September 2001, it is still possible to conclude agreements specifying an age at which the employee is entitled to retire on a pension, but such agreements cannot make retirement obligatory before age 67. A transitional clause provides that collective agreements’ provisions on compulsory retirement before 67 years of age remain in force until the expiry of the agreement, but at most up to the end of 2002.
8. 1035. As regards the specific allegation that the amendment reduces incentives for concluding collective agreements on pensions, the Government states that it regards freedom of collective bargaining as a highly important principle and is conscious that intervention can inhibit the status of collective agreements, but affirms that it has done its utmost to convince social partners to introduce themselves, by means of collective agreements, opportunities for the great majority of employees to go on working until age 67. Regretting that they did not attempt to settle the issue among themselves, even though it had been under discussion for more than ten years, the Government had to introduce the changes through mandatory legislation. In the Government’s opinion, it should be a matter of course for employees’ organizations to promote greater opportunities of choice for workers.
9. 1036. Regarding the alleged risk of the amendment leading to a higher retirement age for whole groups of employees, the Government explains that the purpose of the amendment is not to oblige individual workers to go on working until age 67, but to be able to retire voluntarily with a pension before that age. The point at issue is not a general rise in retirement age, but rather the introduction of a more flexible retirement age. Accordingly, no changes have been made concerning pension entitlement or computation. Entitlement to guaranteed pensions from age 65 will continue to exist, and the new income-based pension can already be drawn from age 61. As a result, the age qualification for old-age pension has been made more flexible, and employees now have an opportunity of increasing their pensions.
10. 1037. As regards the complainants’ apprehensions on a possible growth in the number of disputes, the Government points out that Swedish law, in accordance with Article 5 of Convention No. 154, provides a statutory procedure for the resolution of such disputes.
11. 1038. Concerning the allegation that the new system may result in an “ejection mechanism” for workers whose jobs involve safety requirements or special safety and health conditions, the Government considers that the new system will impede such mechanisms, since employers will not be entitled to give workers a notice of dismissal unless they have objective grounds for doing so. If a worker is no longer able to practice his occupation, the employer can give him notice of dismissal, but since it is legally bound to endeavour to transfer the employee to other duties instead of being dismissed, the employee could be transferred to other suitable duties. The Government therefore considers that under the new system, workers’ experience and skills will be utilized for longer periods, although possibly not in the same way.
12. 1039. The Government shares the complainants’ opinion that many people do not have the strength or the ability to continue working up to, or beyond, the age of 65, but considers that this is a separate problem which demands other kinds of measures. Vigorous action is needed in this respect and for this reason, measures aimed at the improvement of working conditions and health in the workplace have been presented in the 2002 Budget Bill. For the Government, although many people today lack the strength and ability to go on working beyond 65, it is important that those who are willing and able to do so should be entitled to continue working for a few years longer.
13. 1040. As regards the alleged discriminatory treatment of collective and individual agreements (whereby the effects of the latter would still continue after the entry into force of the amendment), the Government states that no such provision has been enacted concerning individual contracts of service.
14. 1041. Regarding the retroactive effect of the legislation, the Government states that in Sweden, rules are normally applicable only to legal relations arising after the law has entered into force. While considering that interference with existing collective agreements and individual contracts should be avoided, the Government admits that mandatory rules have sometimes been allowed to impact on pre-existing legal relations, but only with the utmost restrictiveness. The Government points out that collective agreements can be worded in many different ways and with various renewal clauses which make it hard to tell when agreements expire; several collective agreements are automatically renewed unless specifically cancelled; in addition, from the beginning of 2003, the question of being able to go on working until the age of 67 would be of direct consequence to persons included in the new pension system. It was important that the new provisions achieve a rapid impact. Since collective agreements in Sweden cover a dominant portion of the labour market and the unionization rate is high, it was necessary to eliminate uncertainties regarding the duration of agreements: hence the necessity for the mandatory provisions to override collective agreements from 1 January 2003. The Government considers that this timing is reasonable, given that the social partners have known the issue for a long time. Individual contract services do not have the same coverage and interference with them is therefore less urgent in a social perspective.
15. 1042. As to the allegation relating to a previous complaint against Sweden, the Government points out that the legislative issue which had prompted ILO criticism in 1994 differed from the matter now under consideration, as it concerned a provision which remained optional to the parties. The provisions on that occasion were concerned with altering collective agreements in force, whereas the present issue concerns the introduction of a mandatory provision on stronger job security.
16. 1043. The Government concludes that, while authorities should refrain from interfering with previously concluded collective agreements, in judging whether a statutory provision can be deemed to be a violation of Article 4 of Convention No. 98, account must be taken of the reasons for the provision. The statutory provision in this case has been prompted by the new pension system introduced in Sweden, and the important principle of this new system is that it must be possible to influence the size of one’s pension by working for a longer period than previously. This is a question of urgency and of great public interest, and a very important part of the entire pension reform. To make this a reality for a larger group of persons, certain obstacles had to be removed, one of them being the existing compulsory age limits in collective agreements. The purpose of the legislation is to enable workers to augment their pensions in keeping with the new pension system. The fact that the social partners have not attempted to resolve the matter by means of collective agreements, in spite of the long time elapsed and the numerous opportunities for dialogue, should also be taken into account.
17. 1044. The Government further states, from a more general point of view, that the intention of international conventions cannot be for a member State, by ratifying them, to renounce for all times the possibility of legislating in a field which has previously been left to regulation by social partners themselves. If so, this would mean that States are deprived of the possibility of introducing legislation on matters of very great interest. The Government considers that a mandatory provision on wider employment security cannot be deemed at variance with Sweden’s international commitments and, having regard to the circumstances, does not consider itself to be in breach of ILO Conventions.

C. The Committee’s conclusions

1. 1045. The Committee notes that this complaint concerns the adoption of a legislative amendment which, as part of a reform of the pension system:
   • – entitles workers to remain employed until age 67;
   • – provides that clauses on compulsory retirement before age 67 contained in collective agreements concluded before 1 September 2001 will apply only for the duration of agreements in force, but at most until the end of 2002; and
   • – prohibits, from 1 September 2001, collective agreements obliging employees to leave employment before age 67.
2. 1046. The Committee first notes that, while it is not competent to comment upon the Government’s decision to raise the compulsory retirement age as part of the pension reform, it may examine whether, in so doing, the Government respected freedom of association principles. The Committee points out that the issue here is twofold, as the legislative amendment produces both past and future effects.
3. 1047. As regards collective agreements concluded before 1 September 2001, the Committee observes that the amendment nullifies, as of 31 December 2002, the legal validity and application of clauses stipulating a compulsory age of retirement before the age of 67. The Committee notes that the Government does not deny the retroactive effect of the challenged provision but justifies it on several grounds, including: the exceptional and restricted nature of the amendment; the uncertainties about the expiry dates of the numerous existing collective agreements, which cover a large part of the workforce; the importance of ensuring a rapid impact for the new legal regime, including the consequences for employees concerned by the new pension system. While taking note of these reasons, the Committee recalls that a legal provision which empowers the employer to modify unilaterally the content of signed collective agreements, or to require that they be renegotiated, is contrary to principles of collective bargaining [see Digest of decisions and principles of the Freedom of Association Committee, 4th edition, 1996, para. 848]. The same principle applies, mutatis mutandis, to a government acting as employer or as the authority establishing the rules applicable in such matters.
4. 1048. The primary reason for such a conclusion is that the voluntary negotiation of collective agreements, and therefore the autonomy of the bargaining partners, is a fundamental aspect of freedom of association principles [see Digest, op. cit., para. 844]. Secondly, one has to take into account the reality of collective bargaining, which implies both a give-and-take process and a reasonable certainty that negotiated commitments will be honoured, at the very least for the duration of the agreement, such agreement being the result of compromises made by both parties on certain issues, and of certain bargaining demands dropped in order to secure other rights which were given more priority by trade unions and their members. If these rights, for which concessions on other points have been made, can be cancelled unilaterally, there could be neither reasonable expectation of industrial relations stability, nor sufficient reliance on negotiated agreements. Thirdly, the bargaining partners are best equipped to weigh the justification and determine the modalities (and, as far as employers are concerned, the financial practicability) of such negotiated compulsory retirement clauses before the legal retirement age, be it by reason of the difficult nature of the job, or for health and safety reasons.
5. 1049. The Committee therefore concludes that agreements previously negotiated should continue to produce all their effects, including those concerning compulsory retirement before the age set in general legislation, until their expiry date, including after 31 December 2002. It requests the Government to take appropriate remedial measures, and to keep it informed of developments in this respect.
6. 1050. As regards the effects on future collective bargaining, the Committee notes that, under the amended legislation, bargaining partners are still able to conclude agreements specifying an age, lower than the age prescribed in general legislation, at which an employee may retire on a pension; but, from 1 September 2001, such agreements cannot make retirement compulsory, given the wording of section 32 a): “An employee is entitled to remain in employment until the end of the month in which he or she is 67 years old” (emphasis added). While this provision has an enabling character for individual workers, it clearly amounts to circumscribing the scope of collective bargaining on a subject matter where the parties previously had wider room for negotiation.
7. 1051. The Committee further notes that this substantial restriction of the scope of bargaining has apparently been imposed against the will of all social partners since, according to the complainants, in addition to major workers’ confederations, the leading representative employers’ organization also opposed the amendment on two occasions, as did the Swedish tripartite ILO Committee; the Government did not challenge these allegations. In the Committee’s opinion, if the Government deemed it necessary to change the existing system which apparently met with a wide consensus, it would have been much preferable to obtain the parties’ agreement concerned. A legislatively imposed measure such as the amendment challenged in the present case, which amounts to reversing unilaterally a system accepted by social partners and which has led to negotiated agreements adapted to particular job circumstances, would have been justified only in a situation of acute crisis, for instance if the non-adoption of urgent measures had endangered the very existence of the pension system. The Government did not provide evidence that there indeed existed such an emergency situation.
8. 1052. Given the particular circumstances of this case, in order to ensure a sound labour relations atmosphere in the country, the Committee requests the Government to resume thorough consultations on these retirement and pension issues with all parties concerned, with a view to finding a negotiated solution which would be mutually acceptable to all parties concerned and in conformity with the Conventions on freedom of association and collective bargaining ratified by Sweden.

The Committee's recommendations

1. 1053. In the light of its foregoing conclusions, the Committee invites the Governing Body to approve the following recommendations:
   • (a) The Committee requests the Government to take appropriate remedial measures, so that agreements already negotiated on compulsory retirement age continue to produce all their effects until their expiry date, including after 31 December 2002.
   • (b) In the particular circumstances of this case, the Committee requests the Government to resume thorough consultations on retirement and pension issues with all parties concerned, with a view to finding a negotiated solution which would be mutually acceptable to all parties concerned and in conformity with the Conventions on freedom of association and collective bargaining ratified by Sweden.
   • (c) The Committee requests the Government to keep it informed of developments on these issues.