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Termination of Employment Contracts in Sweden

1. Grounds for Termination

Employers may dismiss employees either with or without notice. A dismissal with notice must be based on objective grounds. Objective grounds are not defined by statute or case law, but can be either for objective reasons or subjective personal reasons. Objective reasons are dismissals based on redundancy, re-organisation or the economic situation of the employer, while subjective personal reasons are all dismissals that relate to the employee personally, such as the employee’s conduct or performance.

2. Collective Dismissals (objective reasons)

The Co-Determination Act does not recognize 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 shortage of work. 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 owing to objective reasons, 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.

3. Individual Dismissals (subjective personal reasons)

Negligent performance, serious misconduct, theft, disloyalty or other aggravating circumstances relating to the employee and his/her individual performance may constitute objective grounds 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 an employee for personal reasons. Further, the employer has an obligation to provide support to the employee to improve. 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 subjective 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.

a. 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 an exit agreement.

4. Separation Agreements

a. 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.

b. 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.

c. 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.

d. Are there additional provisions to consider?

No.

5. Remedies for employee seeking to challenge wrongful termination

In case of wrongful termination of employment, the employer may be obliged to pay salary and benefits during the court proceeding, 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.

For more information on these articles or any other issues involving labour and employment matters in Sweden, please contact Robert Stromberg, Partner at Cederquist (www.cederquist.se) at robert.stromberg@cederquist.se
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