Agreement on inferior pension terms challenged in court

Does the Swedish Municipal Workers' Union have the authority to agree with the employers inferior pension terms than hitherto for its members? That is the question to be decided in a forthcoming court case where a pensioner has sued his former employer in order to obtain the benefits he was once promised. The case also deals with another matter of principle: to what extent is a trade union member bound by an arbitration clause in a collective agreement? The procedural issue was decided in favour of the pensioner concerned in September 1997. If the applicant wins the whole case, it will cost local authorities and county councils hundreds of millions of Kroner.

In 1992, the state took drastic measures to stabilise the Swedish economy. One of these was to change the base for calculating the basic state pension (folkpension) and the general earnings-related pension(allmän tjänstepension, ATP). Consequently, these pensions would not increase as much as they would otherwise have done.

This measure would, however, not influence the total pension benefits for those who had worked in the public sector. According to the pensions agreements for workers in municipalities, county councils and the state, their former employers had to pay supplementary benefits that granted workers a total pension of a certain percentage of their final wage or salary, increased concurrently with the basic amount. Thus a decrease of general pensions would only increase the employers' costs. Therefore the Government and Parliament appealed to the parties to the collective agreements in question to modify such terms, so that the changes would have effect for all pensioners. This they did.

For a former sheet-metal worker, Knut Törling, this meant that he received SEK 176 per month less than he had expected in 1993, SEK 181 less per month the following year, and so on. In July 1996, he sued his former employer, the City of Stockholm, claiming in all SEK 7,794 plus interest on overdue payment. Pension rights are the workers' acquired rights and a trade union cannot dispose of them without a special authorisation from each member concerned, and he had never given such an authorisation to the Municipal Workers' Union, Mr Törling argued. Therefore the City could not invoke the collective agreement against him.

Arbitration clause

The City at first objected that the court should disallow his suit, as the collective agreement stipulates that disputes concerning the interpretation and application of its provisions are to be settled by an arbitration board. Many collective agreements contain such clauses, and as a general rule employers and trade union members are bound by them. Mr Törling, however, objected that in this case it could not be binding, since it did not guarantee him a just and impartial hearing. Six of the seven members of the arbitration board were designated by the same organisations which had concluded the collective agreement, and four of them had even taken part in the negotiations.

This procedural question was decided separately, and by a decision of 3 September 1997 the Labour Court ruled in favour of Mr Törling (AD 104/97). Arbitration is often an appropriate and important means of settling disputes on the labour market, but in this case one could argue that the members of the board have a common interest that is contrary to the interests of the plaintiff, the court stated. This means that the factual matter will be tried by the Stockholm District Court and probably also by the Labour Court.

The factual matter

In Swedish collective labour law there are special restrictions on a trade union's authority to dispose of the rights of its members. It cannot conclude agreements concerning an employee's "personal" (enskilda) rights without his or her special authorisation, and in 1984 the Labour Court ruled in a similar case that pension rights were such personal rights (AD1984/128). Therefore the trade unions hesitated in 1992 when they were asked to adapt the pensions agreements to the changes in the general pension system, and consulted an expert. The expert noted that all three agreements contained similar clauses, stating that the employees/beneficiaries were obliged to comply with those modifications of the pension regulations that might result from new or changed agreements, and this meant that these clauses gave the trade unions enough authorisation.

However this turned out to be false, at least as regards the agreement for state employees. In 1995 the Labour Court ruled that the state could not invoke this clause against a former employee, Joel Öhrn (AD 1995/157). As a consequence of this judgment, the state had to pay SEK 1,143,447,990 in retroactive benefits and interest on overdue payment to 225,846 state pensioners, and its pension costs increased by SEK 23 million per month.

If the court in the Törling case arrives at the same decision, it will have equally far-reaching consequences. The City of Stockholm alone would have to pay around SEK 20 million retrospectively to Törling and his former colleagues.

Mr Törling argues that his case is identical with the Öhrn case. The City claims that there are differences. The modification clause in the agreements for the municipalities goes further than that of the agreement for the state sector. A crucial point is therefore how this clause should be interpreted. Did those who drafted it really mean that the pensioners would have to accept inferior benefits than hitherto, or did they merely have "technical" modifications in mind? Another difference is that Mr Törling actually did not have his pension reduced, it just did not increase as much as it would have done, had the contentious clause in the collective agreement not come into existence.


It is quite possible that Knut Törling will win his case. However, the City of Stockholm, dealing with public resources, must be absolutely certain that it is obliged to pay before it concedes. A judgment in favour of Mr Törling would also serve as a base for raising claims for compensation against the state. (Kerstin Ahlberg, NIWL)

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