Sweden: Employer’s Late Deduction on Employee’s Salary was an Unauthorised and Unlawful Setoff
An associate of a law firm was entitled to a monthly salary based on commission on the litigation costs the firm was awarded in cases the associate worked on. Throughout the employment, the associate’s salary had been calculated on claimed but not yet awarded litigation costs. When the associate handed in their letter of resignation, the law firm made a deduction on the associate’s salary to account for cases where the claimed litigation costs had not been awarded in full. As such, the law firm corrected what it deemed to be preliminary salary that had been incorrectly calculated up to 21 months prior to the deduction. The associate claimed that the deduction was in violation of the Act on Employer’s Setoff Rights and resigned with immediate effect as well as claimed that the law firm was liable to pay the deducted salary and damages.
The Labour Court declared that deductions that are made to correct an incorrectly calculated preliminary salary should, as a rule, be made in close connection with the employer being able to correctly calculate the salary. Considering that no deductions had previously been made during the employment, despite the law firm having been able to correctly calculate the salary, the Court held that the associate’s salary could not be considered to have been preliminary and that the late deduction constituted an unauthorised and unlawful setoff. Thus, the associate was entitled to resign with immediate effect and the law firm was found liable to pay the deducted salary as well as damages amounting to SEK 10,000.
Key Action Points for Human Resources and In-house Counsel
This decision confirms that deductions to correct incorrectly calculated preliminary salaries shall always be made as soon as possible, otherwise the deductions may risk being regarded as unauthorised and unlawful setoffs.