Collective agreement prohibiting engagement of contractors is not contrary to competition law

A collective agreement which prohibits newspaper enterprises from engaging contractors instead of using their own employees for newspaper distribution is not contrary to Swedish competition law, according to a ruling from the Labour Court in September 1998.

On 16 September 1998, the Labour Court finally settled a dispute in which the Swedish Newspaper Publishers' Association (Tidningsutgivarna, TU) claimed that a clause in its collective agreement with the Transport Workers' Union (Svenska Transportarbetareförbundet, Transport) was contrary to Swedish competition law.

The clause states that employers affiliated to TU must not engage contractors for the distribution of their newspapers. This provision was introduced in 1976, in order to prevent employers from seeking to evade the application of labour law by dismissing employees and subsequently re-engaging them as free contractors for the same tasks that they had previously performed as employees.

The company at the centre of the case in question, Tidningsbärarna KB, wanted to engage a private firm owned by one of its former employees for the distribution of its newspapers in three districts. Transport sued the company and claimed that the Court should declare that this was contrary to the collective agreement. TU, which supported Tidningsbärarna, argued that the clause was inapplicable as it serves to hinder, restrict or distort competition.

The Labour Court ruled in favour of the trade union (AD 1998/112). First, it stated that collective agreements on pay or terms of employment are exempted from application of the Competition Act. The clause in question, however, does not regulate either pay or terms of employment. Consequently the Act is applicable in principle. Secondly, the wording of the clause gives reason to presume that it restricts competition. However, the Competition Act forbids only agreements which aim at hindering, restricting or distorting competition to a marked extent or lead to the same result. As the parties have not furnished any evidence regarding the effects of the clause, the Court was unable to conclude that it is invalid. Consequently, it is a breach of the collective agreement to engage the contractor in question for the distribution of newspapers.

Two employers' representatives in the Court dissented from the judgment. They stated that it was unreasonable to place the onus of proof on one party to show that no contracting-out had actually taken place, when the collective agreement in fact forbade such contracts.