AD 2025 No. 88 – Subsidiary’s duty to consult

The Swedish Labour Court examined whether there was a breach of the duty to consult under Section 11 of the Co‑Determination in the Workplace Act (Co-Determination Act) on the grounds that a subsidiary failed to initiate consultations prior to the parent company’s sale of the shares in the subsidiary. The case also concerned an alleged duty to consult in connection with the subsidiary’s sale of shares in another company and the conclusion of a supply agreement. The Court, however, examined only the first issue on the merits, as the latter issues had not been the subject of a dispute negotiation in accordance with the applicable consultation procedure. The action was therefore dismissed in those parts.

The background to the case was that all shares in a Swedish subsidiary were transferred from the former parent company to a new owner in December 2023. The Swedish subsidiary also held shares in a Polish subsidiary, which were transferred in March 2024. In connection with the transfer of the Polish company, a supply agreement was also concluded between the Swedish subsidiary and the Polish company. None of these measures had been preceded by consultations initiated by the Swedish subsidiary.

The Food Workers’ Union argued that the sale of the parent company’s shares in the Swedish subsidiary constituted a material change to the Swedish subsidiary’s operations with direct effects for the company and its employees, and that the subsidiary should therefore have initiated consultations under Section 11 of the Co-Determination Act. The union also contended that certain consequences of the share transfer – such as uncertainty regarding continued representation on a group‑wide European Works Council, a name change, and changes in production and sales vis‑à‑vis the former parent company – constituted material changes. The union further maintained that the transfer of the Polish company and the conclusion of the supply agreement were measures at the subsidiary level that triggered a duty to consult under Section 11 of the Co-Determination Act. The employer parties countered that the decision to transfer the subsidiary’s shares was made by the parent company, not by the Swedish subsidiary, and that the measure did not entail any material change, whether direct or indirect, within the meaning of Section 11 of the Co-Determination Act. They also argued that the issues concerning the transfer of the Polish company and the conclusion of the supply agreement had not been the subject of a dispute negotiation in accordance with the applicable negotiation procedure and should therefore be dismissed.

The Labour Court first established that the transfer of shares in a subsidiary decided at the parent company level is not, in itself, subject to a duty to consult for the subsidiary, even if changes in ownership structure may in practice affect employees. The reason is that the decision is not made by the subsidiary. At the same time, the Court clarified that a decision taken by a parent company can trigger a duty to consult in the subsidiary if the latter needs to act or make its own decisions to implement the parent company’s decision. In the case at hand, the Court assessed that the consequences arising after the sale did not stem from any decisions made by the Swedish subsidiary. No duty to consult had therefore arisen. Finally, the Court found that the sale of the Polish subsidiary and the conclusion of the supplier agreement were not to be regarded as consequences of the share transfer in the Swedish company and therefore did not result in a duty to consult due to the share transfer as such. In order to assess whether the subsidiary had an independent duty to consult in relation to these measures, a dispute negotiation would have been required, and since this did not occur, the claims in these parts were dismissed.

Setterwalls’ comments: The ruling clarifies the principal boundary between decisions made by a parent company and a subsidiary’s duty to consult under Section 11 of the Co-Determination Act. It has long been established practice that changes of ownership at group level are, as a starting point, not matters subject to consultations in the subsidiary, unless the subsidiary must take its own decisions or implementation measures that affect operations. The Court’s clarification reinforces the established line that the duty to consult is tied to the decision-making body that actually initiates and controls the change affecting the business.

The judgment nevertheless serves as a reminder of the importance of conducting a careful analysis in connection with ownership changes: if such changes result in the subsidiary, for example, taking a decision to implement a decision made by the parent company, this may trigger a duty to consult. If, by contrast, the ownership changes do not result in the subsidiary making any of its own decisions, there is, as a general rule, no duty to consult under Section 11 of the Co-Determination Act. The ruling also highlights the importance of following the order of consultations in disputes; without prior dispute negotiations, substantive issues risk never being examined on the merits.