Dismissals and Termination of Employment in Sweden

The Swedish Employment Protection Act (1982:80) stipulates that any termination of employment is contingent upon the existence of just cause. The grounds for dismissal may be either redundancy or causes attributable to the employee.

In the case of redundancy, the employer is at  the discretion to decide to reduce the size of the workforce due to economic or organisational reasons, which will result in redundancy. Redundancy is considered a just cause for termination. An employer’s decision to reduce operations, regardless of the reasons for it, cannot typically be challenged in court. An exception is if the redundancy is fabricated to circumvent the rules on dismissals for reasons attributable to the employee.

Causes attributable to the employee pertain to instances where the employee has breached obligations or duties under the employment relationship. The determination of just cause for reasons attributable to the employee is made on a case-by-case basis, mainly based on preparatory works and case law of the Labour Court.

It is a statutory requirement that notice of termination shall be given in writing. In the notice of termination, the employer is obliged to inform the employee of the provisions that must be adhered to in the event that the employee wants to challenge the termination, i.e. the claim that the termination is invalid or claims damages as a result of the termination. In case of redundancy, the notice shall also state whether the employee has a right of priority in re-employment.

The notice of termination must be delivered to the employee in person or by registered mail.

Upon the employee's request, the employer shall, in writing, specify the grounds for termination.

It is possible for the employer and the employee to agree on the notice period. However, in the event of the employer's termination, the agreed notice period must be at least as long as the statutory notice period. The statutory notice period is between one to six months, depending on the aggregated term of employment with the employer. There are also deviations from the statutory notice periods in certain collective agreements.

The employer is at liberty to relieve the employee from their obligation to work, i.e. to place the employee on garden leave. If the employer has declared that the employee is not required to be available for work during the notice period, or a portion thereof, the employer is entitled to deduct from the employee's salary any income that the employee has earned during the same period in other employment. The employer is also entitled to deduct income which the employee could clearly have earned during this period in other acceptable employment.

Under Swedish law, there is no special legislation in regard to international employees. Swedish employment laws are only applicable on employees performing their work in Sweden.

It is not possible without the consent of the employee to pay in lieu of notice.

The employees are represented by the trade union(s), see below.

The employer’s obligations to consult with the trade unions must be assessed on a case-by-case basis. 

In case of termination due to redundancy, the employer is obliged to consult primarily with all trade unions with which the employer is bound by collective bargaining agreements. In the event that the employer is not bound by any collective agreement and the absence of a collective bargaining agreement is not merely temporary, the employer is obliged to consult with all trade unions representing members affected by the redundancy.

In the event of dismissal or summary dismissal due to reasons attributable to the employee and in the case of the employee being a member of a trade union, the employer is required to notify the trade union at the same time as the employee is notified. Once the trade union has been duly notified, it is entitled to request consultations. Until such consultations have been concluded, the employer cannot implement the decision to dismiss or otherwise terminate the employment.

It is important to note that trade unions merely have a right to be consulted. Consequently, the decision always vests with the employer, but the employer may be liable for damages to the trade union if the consultation obligation is not complied with.  

The Swedish Public Employment Service (Sw: Arbetsförmedlingen) shall be notified prior to termination due to redundancy if an employer intends to reduce its operation with 5 (five) or more employees. The time at which such notice must be given depends on the number of employees who are concerned about the dismissals. This obligation also applies when the reduction is executed by means of severance agreements. If not complied with, the employer may be held liable for a notice fee. Not complying with the obligation to notify the Swedish Public Employment Service does, however, not affect the validity of the dismissals.

Apart from the above-mentioned obligation to notify the Swedish Public Employment Service in case of collective redundancies, there is no specialised legislation on collective redundancies under Swedish law.

An employee may be summarily dismissed if he or she has grossly neglected his or her obligations towards the employer. The employer must comply with certain procedural rules when summarily dismissing an employee.

In the event that the employer fails to comply with the procedural rules, or if the termination does not meet the legal standard of "just cause”," the court may declare the dismissal or summary dismissal invalid.

Furthermore, the employee may seek compensation for economic and non-economic losses incurred as a result of wrongful dismissal or summary dismissal. Trade unions may also hold the employer liable for damages in instances where procedural rules pertaining to consultations with trade unions have been violated or where there is a breach of the collective bargaining agreement.

There is no statutory severance pay under Swedish law. However, it is common practice for employers and employees to enter into a severance agreement, under which the employee is placed on garden leave, with no salary deductions for income earned during the notice period in alternative employment.

An employee may be subject to a non-competition clause and a non-solicitation clause in relation to customers and other employees of the employer. Nevertheless, a wide range of case law and a central collective bargaining agreement provide detailed rules regarding the employees who may be bound by restrictive covenants and the limitations to the tailoring of the clauses.

It is only those employees who are entrusted with knowledge of the company's trade secrets to a certain degree who may be bound by a non-competition clause. Similarly, only those employees who have direct contact with customers, or have  acquired complex knowledge about the customers’ business operations, may be bound by a non-solicitation of customer clause.

Furthermore, there are restrictions on the tailoring of a non-competition clause and the extent to which the employee is restricted from competing. The assessment of a restrictive covenant is made on a case-by-case basis. However, a court will typically consider the period of prohibition, the scope of the prohibition (including the geographical scope and the industries to which the prohibition applies), and, in some cases, other relevant facts. Furthermore, for a non-competition clause to be valid, the employee must be entitled to economic compensation during the time of the restrictions. In the event that a court determines that a non-competition clause or a non-solicitation clause violates case law and/or the central collective bargaining agreement, the clauses may be rendered null and void. It is ,therefore, imperative that each and every employee be assessed individually with regard to the potential use and design of restrictive covenants. It is, therefore, advisable to seek legal advice when considering including restrictive covenants in an employment agreement.

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Under Swedish law, a managing director is considered an employee. If the managing director has duties and terms and conditions of employment such that the managing director is considered to be in a senior management or comparable position, the managing director is exempted from the vast majority of employment protection legislation. Therefore, there may be a situation where a director is registered and employed as the managing director of a company but does not have the terms and conditions of a senior management position and, therefore, is not to be exempted from the employment protection legislation described above. The following is based on the fact that the managing director is exempted from the employment protection legislation.

A managing director may be dismissed without cause, and thus, there is no legal requirement for just cause to be demonstrated in such cases.

There are no statutory form requirements for the dismissal of a managing director. However, the employment agreement of the managing director may either stipulate the form of the dismissal or how the parties shall communicate under the agreement. Moreover, in the absence of the foregoing, it is advisable that dismissals are made in writing for clarity and for evidential purposes.

There is no statutory notice period for managing directors. Nevertheless, in order for the employment terms and conditions of the managing director to be regarded as equivalent to those of a senior management position, case law stipulates that the managing director typically should have employment protection equivalent to 6 months' salary.  The best practice is, however, today at least 12 months salary, typically allocated between 6 months’ notice period and 6 months’ severance pay

The employer is at liberty to relieve the managing director from its obligation to work, i.e. to place him or her on garden leave.

Under Swedish law, there is no special legislation in regard to international managing directors.

It is uncommon, but a managing director can be member a member of a union and can thus also be represented by a trade union.

Prior to the appointment of a new managing director, an employer needs to consult with the trade union which the employer is bound to a collective agreement with.

No approval from state authorities is required.

The managing director should be included when counting the number of employees concerned by the collective redundancies when determining the time in which notice to the Swedish Public Employment Service shall be made.

In the event of a managing director's gross negligence in fulfilling their obligations under the terms of the employment agreement, the employment agreement can be terminated with immediate effect. The managing director will, in such case, lose any right to salary or severance payment.

The managing director may seek compensation for economic and non-economic losses incurred as a result of a breach of the employment agreement by the employer, such as a wrongful termination of the agreement.

There is no statutory severance payment for managing directors.

A managing director may also be subject to a non-competition clause and a non-solicitation clause in relation to customers and other employees of the employer. Nevertheless, a wide range of case law provides detailed rules regarding the employees who may be bound by restrictive covenants, and the limitations to the tailoring of the clauses also apply in regards to a managing director. The assessment of a restrictive covenant is made on a case-by-case basis, but the restrictive covenants may be more restrictive for a managing director than for a normal employee. Notwithstanding the foregoing, for a non-competition clause to be valid, the managing director must be entitled to compensation from the employer.  

In the event that a court determines that a non-competition clause or a non-solicitation clause violates the case law and/or the collective bargaining agreement, the clauses may be rendered null and void. It is, therefore, imperative that each and every employee be assessed individually with regard to the potential use and design of restrictive covenants. It is therefore advisable to seek legal advice when considering including restrictive covenants in an employment agreement.

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