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07. Termination of Employment Contracts

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07. Termination of Employment Contracts

Grounds for Termination

Employers may dismiss employees either with or without notice. A dismissal with notice must be based on objective reasons. Objective reasons are not defined by statute or case law, but can relate either to redundancy or to the employee personally. Redundancy covers all reasons attributable to the employer, such as reorganisations, shortage of work or the economic situation of the employer, while personal reasons are reasons attributable to the employee, such as the employee’s conduct or performance.

An overall assessment of all the factors involved must be made when determining whether objective reasons for dismissal are at hand. A dismissal with notice will never be considered as based on objective reasons if there were other alternatives available to the employer, such as relocating the employee elsewhere within the business. Thus, before notice of termination is given, the employer must investigate whether there are any vacant positions within the employer’s business that the employee can be offered. Dismissals that are considered discriminating according to the Discrimination Act are prohibited. Furthermore, several other regulations protect employees from unfair dismissals. For instance, an employee may not be dismissed on grounds related to parental leave or leave of absence for educational purposes.

Collective Dismissals

Redundancy

The Co-Determination Act does not recognise the term “collective redundancies”. In contrast to many other European countries where the obligation to consult collectively is triggered only if there are several redundancies, the provisions on obligations to consult according to the Co-Determination Act are applicable even if the redundancy concerns only one employee.

A notification to the Swedish Public Employment Service shall be made if at least five employees are affected by a decision on terminations due to a redundancy situation. This also applies if the total number of notices of termination is expected to be 20 or more during a 90-day period.

When the labour force has to be made redundant, the basic principle to be applied is that the employee with the longest aggregate period of employment with the company should be entitled to stay the longest. The employer must select those to be dismissed on a “last in, first out” basis. A condition for continued employment is that the employee has sufficient qualifications for one of the available positions that may be offered.

The procedure for dismissing employees is laid down in the Employment Protection Act and varies to some extent depending on whether the termination is due to redundancy or personal reasons. Prior to terminating an employment agreement owing to objective reasons, the employer may be obliged to conduct consultations under the Co-Determination Act if the employer is bound by a collective bargaining agreement or if the employee is a member of a trade union.

Individual Dismissals

Personal reasons

Negligent performance, serious misconduct, theft, disloyalty or other aggravating circumstances relating to the employee and his/her individual performance may constitute objective reasons for termination due to personal reasons. The employer has the burden of proof in this regard and it is often very difficult to present sufficient evidence to support the ground of termination of an employee for personal reasons. Further, the employer has an obligation to provide support to the employee to improve through, e.g., education or performance improvement plans. Dismissal without notice is lawful only where the employee has committed a fundamental breach of the employment agreement, such as gross misconduct by disloyalty in working for competitors, and should be implemented only in exceptional cases.

Prior to terminating an employment agreement for personal reasons, the employer must notify the concerned employee in writing and, if the employee is a union member, the trade union, two weeks in advance. If an employer wants to summarily dismiss an employee without notice, the information must be given one week before the dismissal. The employee or the trade union may, within one week from receiving the information, request consultations with the employer concerning the dismissal. According to Swedish law, no prior approval from a government agency is required for dismissing employees.

Is Severance Pay Required?

There are no statutory provisions regarding severance pay. However, an employee may be entitled to severance pay in accordance with an employment agreement, a collective bargaining agreement or a separation agreement.

Separation Agreements

Is a Separation Agreement required or considered best practice?

The employer and the employee are free to enter into a final settlement. Hence, the employment may be terminated disregarding the strict rules of the Employment Protection Act. Normally, but not always, the employee is financially compensated in some way by the settlement. Consequently, an employee may waive his or her contractual rights. As a general rule, an employee cannot waive rights laid down in mandatory law, which are not yet accrued, but an employee is free to waive already accrued rights.

What are the standard provisions of a Separation Agreement?

The standard provisions of a Separation Agreement are termination day, entitlement to salary, potential severance payment, outplacement options, relief from the duty to perform work, etc. Furthermore, it is common practice to agree on a final settlement of claims between the parties and that the agreement shall be confidential.

Does the age of the employee make a difference?

With regard to a Separation Agreement, the age of the employee does not make a difference.

Remedies for Employee Seeking to Challenge Wrongful Termination

In case of wrongful termination of employment, the termination could be challenged by the employee and declared invalid by the court. The employer may be obliged to pay punitive damages (normally not exceeding SEK 100,000), compensation for economic losses (the maximum compensation that follows from the Employment Protection Act is 32 monthly salaries), and the costs for the litigation.

Whistleblower Laws

An employee who reports criminal activity or other gross misconduct, of which the employee has a valid reason to suspect in the employer’s business, shall be protected from reprisals from the employer. On 17 December 2021, a new Whistleblowing Act entered into force. The new act imposes, inter alia, obligations on businesses with 50 or more employees to implement internal procedures and routines for reporting irregularities in the business as well as for following-up on such reports. These internal procedures and routines must be documented and implemented by private employers with 50-249 employees no later than 17 December 2023.

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