Swedish Labour Court: Vague plans to start a new business did not justify termination of employment
Author: Mattias Knutson
In a recent judgment, the Swedish Labour Court ruled that vague plans to start a new business, without evidence of preparatory measures or that the business would compete with the employer’s business, were insufficient to constitute a breach of the duty of loyalty and therefore did not amount to objective grounds for terminating the employment.
In AD 2026 no. 45, the Swedish Labour Court considered what is required to terminate an employee’s employment based on allegations that the employee planned to establish a competing business and attempted to recruit colleagues to join it.
The employee, referred to in the court documents as “MT”, had worked since 2020 as a team leader at a company specialising in pipe cleaning and renovation.
In the summer of 2025, the company’s management informed MT that it had learned that he was planning to sell his shares and establish a competing business, and that he had attempted to recruit a colleague to his new company. The company therefore terminated MT’s employment. He subsequently brought proceedings before the District Court, seeking to have the termination declared invalid and claiming damages.
The District Court held that, by planning to establish a competing business and attempting to recruit a colleague, MT had breached his duty of loyalty to his employer, and that his actions had risked causing significant harm to the company. Accordingly, the court held that the employer had objective grounds to terminate his employment.
MT appealed to the Swedish Labour Court, which overturned the District Court’s judgment.
The Labour Court stated that planning to establish a competing business may amount to a breach of the duty of loyalty, but emphasised that the burden of proof in such cases rests with the employer.
In support of its case, the company relied primarily on evidence given by the CEO, who stated during questioning that he had heard a conversation in a car park in which MT allegedly asked another colleague whether he would be interested in working for a company that MT was planning to establish in the same field. MT and the colleague denied that they had discussed a competing business.
The court found that the evidence presented in the case established no more than vague plans to start a new business. There was no evidence that MT had taken any concrete steps to do this, much less that it would be a competing business. Accordingly, the Labour Court concluded that it had not been established that MT had breached his duty of loyalty.
Key Action Points for Human Resources and In-House Counsel
On the facts of this case, loose plans, without evidence of concrete preparatory measures or that the intended business would compete with the employer, were insufficient to establish a breach of the duty of loyalty. When considering whether an employee has breached this duty, employers should carefully assess the available evidence.
