The 'Right to Leave to Conduct a Business Operation' Act

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The 'Right to Leave to Conduct a Business Operation' Act in Sweden, locally known as tjänstledighet, is a unique statutory right that allows employees to take up to six months of unpaid leave to start their own business.
What are the main aims and objectives?

The 'Right to Leave to Conduct a Business Operation' Act in Sweden aims to increase the number of entrepreneurs active in Sweden. The act encourages innovation and economic growth by fostering a supportive environment for new business ventures. It also seeks to protect employers by requiring that the proposed business does not compete with the current employer and by ensuring that the leave does not cause significant operational disruptions. Overall, the act is designed to foster a dynamic and innovative business landscape.

How does the program work?

The legislation grants workers unpaid leave to allow them to launch a new business as entrepreneurs. As such, employees can pursue a startup idea for six months without losing the security of a stable job. Employees are expected to be able to return in the same position as previously.

Eligibility

  • Employment Duration: Employees must have been in full-time employment for at least six months, or a total of twelve months over the past two years, to qualify for this leave.

Application Process

  • Request for Leave: Employees need to formally apply for the leave. Employers can only reject the request if the employee is crucial to the business’s operations or if the new business would directly compete with the employer’s business or cause significant inconvenience.

Conditions and Restrictions

  • Non-Competition Clause: The business venture must not compete with the current employer’s operations.
  • Operational Impact: The new business should not cause substantial inconvenience to the employer’s ongoing operations.

Job Security

  • Right to Return: Employees are guaranteed the right to return to their previous or a similar position once the leave period ends, ensuring job security.
  • Single Use: The leave can only be taken once with the same employer, preventing repeated disruptions.

Impact on Employees and Employers

  • Encourages Entrepreneurship: This act supports employees in pursuing entrepreneurial ventures without the fear of losing their job, contributing to Sweden’s dynamic start-up ecosystem.
  • Employer Protection: Employers are protected from potential competition and significant operational disruptions, maintaining a balanced approach between supporting entrepreneurship and safeguarding business interests
What is the overall cost?

There are no direct costs associated with the legislation. 

How was it implemented?

Introduced in 1997 via Act 1293, the Right to Leave to Conduct a Business Operation Act was established as part of a broader legislative effort to support the rights of employees and promote entrepreneurship. This initiative is part of a series of rights aimed at enhancing work-life balance and fostering innovation, which also includes provisions for educational leave and family care leave.

What impact has been measured?

Exact assessments of how much the right to unpaid leave has contributed to Sweden's entrepreneurial economy have been difficult to conduct due to data limitations.  But what the figures do clearly confirm is that rising demand for leaves of absence (including paid parental leave) coincides with growing numbers of Swedes starting their own companies:

According to Statistics Sweden: in 2017, 175,000 25- to 54-year-olds on leave were registered, compared to 163,000 in 2007.  Likewise, the number of limited companies registered in Sweden rose from 27,994 in 2007 to 48,542 in 2017. Over the same decade, the registration office for Swedish companies, Bolagsverket, reported a 73% increase in the number of registered limited companies.  

What lessons can be learned?

The 'Right to Leave to Conduct a Business Operation' Act in Sweden offers several valuable lessons on fostering entrepreneurship while maintaining job security and balancing the interests of both employees and employers.

1. Encouraging Entrepreneurship with Security

Risk Mitigation: By allowing employees to take up to six months of unpaid leave to start their businesses with the guarantee of job security, the act reduces the financial and career risks associated with entrepreneurship. This approach can inspire other countries to create policies that provide similar safety nets for aspiring entrepreneurs.

2. Balancing Employer and Employee Interests

Non-Compete and Operational Impact: The act includes provisions to ensure that the new business does not compete with the employer's operations or cause significant disruptions. This balance protects employers while also supporting employees' entrepreneurial ambitions. Such balanced policies can be crucial in maintaining a harmonious employer-employee relationship.

3. Supporting Long-term Employee Development

Reinvigorated Workforce: Employees who take leave to pursue their business ideas often return to their jobs more energized and appreciative of their employment. This can result in a more motivated and innovative workforce, highlighting the potential benefits of such policies for employers.

4. Discrimination upon return

Some observers might argue that workers could face discrimination when it comes to future career prospects or salary after taking time off to start a business. However, this risk is contained in Sweden where this kind of prejudice is against the law.

5. Impact on existing businesses

According to Samuel Engblom of the Swedish Confederation for Professional Employees, while many employers share a positive attitude toward unpaid leave, others can struggle with the administrative and financial challenges linked to covering a worker’s responsibilities while they are taking time off.

Notes + Additional Context

According to Claire Ingram Bogusz, a post-doctoral researcher at Stockholm School of Economics, the trend for taking leave to start a business needs to be viewed in the context of the Nordic country’s notoriously strict employment laws, which make firing staff harder for business owners, compared to many countries. This regulatory framework might encourage some works to stay put once they have the security of a substantive role at a firm.

Nonetheless, many academics, such as Ting Xu, an assistant professor at the University of Virginia whose work focuses on entrepreneurial finance, argues that increasing the right to unpaid leave could play a crucial role in fueling entrepreneurship even in countries with more flexible labour markets. In conversation with the BBC, he cited a 2016 study by Failure Aversion Change in Entrepreneurship (FACE), a European project designed to help would-be tech entrepreneurs break the barriers generated by fear of failure, which found that while financial risk was the top concern, career risk came a close second. “Many countries subsidise financing to entrepreneurs. However, reducing career risk can be just as important, and is often ignored by policy makers”, he argued. 

CURATED BY

Cristina Fernandez

Director for Knowledge + Programming
Global Entrepreneurship Network
United States