New EU ruling on the rental law – guidance or still confusion?

After the Temporary Employment Act has been in force for more than two years, discussions continue about its application. A new EU ruling on the law has recently been issued, but the question is whether it contributes to increased clarity or whether the confusion persists.

“To create clarity, it can be stated that the EU ruling is still somewhat unclear,” says Birgitta Hedegård, CEO of Upgraded People AB, one of Sweden’s fastest growing consulting agencies. “Anyone who was hoping for clear guidelines will be disappointed.” However, the ruling addresses the difference between staffing and service delivery. When it comes to IT consulting companies, it is common for them not to conduct an activity where consultants are hired out to work under the direction and control of the client company, which is an important aspect in assessing the applicability of the law. If a consultant is employed for other purposes or works with different types of service deliveries, the criteria of the law are not met.

The judgment particularly emphasizes what is meant by “control and management”. To be considered to be working under the management of the client company, the client company must both direct the work tasks, determine how the work is to be carried out according to the company’s instructions and rules, and supervise the work. In practice, this means that the entire responsibility for work management needs to have been transferred to the client company. The client company must then have both the competence and resources to manage the work, as well as the authority to do so according to the business agreement. In the current EU case, it turned out that the right to manage the work had not been fully transferred, which meant that the law was not applicable. This creates an interesting room for interpretation, especially for IT consultants who often work independently based on the entire competence base of the consulting company, where they follow the client company’s goals but decide themselves how the work is to be carried out. According to this interpretation, IT consultants are not covered by the Temporary Employment Act and client companies therefore do not have to offer the consultant two months’ wages or employment after two years of work during a three-year period.

What can consulting firms do? Birgitta believes that it is important to clearly specify in the business agreement how the services are delivered and who is responsible for management and working methods. However, she believes that further guidance from future legal cases in Swedish courts is needed to create greater clarity and finds it very regrettable that many clients now, fearing being forced to hire or pay two months’ salary, are instead choosing to terminate innovative projects.