This article aims to compare the labor law in Sweden and Australia concerning the possibilities of an employer to terminate an employment contract. 

In Sweden, there are two possibilities for an employer to terminate an employment contract; through termination of the contract or through dismissal.

A termination of an employment contract requires that the employer has objective grounds for the termination.   Thus, the employer has no right to arbitrarily terminate an employment. Objective grounds can be shortage of work or personal grounds. What is considered as objective grounds is not defined in the legislation and guidance has to be sought in the preparatory works to the legislation and in the jurisprudence of the Labor Court in Sweden. In the Court’s jurisprudence, refusal of work, repeated late arrivals, harassment, misconduct and breaches of the duty of loyalty towards the employer have constituted objectively based grounds for termination of an employees’ contract.

The term “shortage of work” does not only include cases of concrete shortage of tasks – this expression covers all cases when a termination of an employee’s contract depends on grounds other than those attributable to him personally. Therefore, a situation whereas the employer does not consider it appropriate to carry out certain work or that the employer otherwise, of business, organizational or comparable reasons, finds it necessary to terminate one or more employees’ contracts also falls under the term “shortage of work”. It is stated in the preparatory works to the legislation that it is ultimately the employer’s assessment of the need to implement, for example, a reduction or reorganization of the business which may be decisive in determining whether a “shortage of work” exists or not.

Before the employer decides to terminate an employees’ contract, the employer must decide whether he will base the termination on shortage of work or on personal grounds. It is not allowed to refer both to personal grounds and shortage work at the same time, nor alternatively. An employer may nevertheless refer to more than one personal reason when he intends to terminate an employees’ contract based on personal grounds. 

Objective grounds must exist at the time of the termination of the contract.  Thus, it is not allowed to base a termination of a contract on a possible risk in the future or a planned reorganization. It shall be pointed out that it is the employer who has the burden of proving that the requirement of objective ground is fulfilled.

The legislation in Sweden is mandatory as regards the requirement of objective grounds when terminating an employees’ contract. The parties cannot agree that less serious minor offenses which do not meet the legal requirement constitute objective grounds for termination of an employees’ contract. Neither in collective agreements   it may be agreed on a lower level of protection for the employee than the law allows.

When the employer terminates an employees’ contract, the employer has to observe the employees’ notice period.  This applies regardless of whether the termination is due to shortage of work or personal reasons. 

Except of the burden of prove that relies on the employer when terminating an employees’ contract, the employer has to fulfill his obligation to relocate the employee. This applies both in situations of shortage of work and of personal reasons. The rule imposes an obligation on the employer to relocate the employee to another position. If the employer fails to fulfill this obligation, the requirement of objective grounds is not fulfilled. The obligation to relocate the employee applies if it is reasonable to require that the employer prepares the employee for another job. It shall further be noted that a termination of an employees’ contract is not objectively grounded if a certain business moves from one employer to another. In addition, when it comes to terminate a contract based on personal reasons, the employer has to act quickly. This is because the employer is not allowed to terminate an employees’ contract on personal grounds that he has been aware of more than two months.

The employer also has to observe the priority rules when terminating an employment contract on the ground shortage of work.  In short, these rules basically means that the worker that was employed the latest and has the shortest period of employment, has to leave the workplace first.

Annulment and compensation

If the requirement of objective grounds is not fulfilled, the employee may bring an action in court and argue that the dismissal is invalid. The employee may also claim damages from the employer if the employer violates the law. An employee may be held liable if he or she does not comply with the notice period applicable in the present case. 

Dismissal is possible when the employee has grossly neglected his obligations towards the employer.  In case of dismissal of an employee, the employment is terminated immediately. Only personal reasons may be grounds for dismissal, not shortage of work. It could be said that dismissal is a more severe form of terminating a contract based on personal reasons. In cases of dismissal, the employment is terminated without observation of a notice period and there are no obligations on the employer to relocate the employee. Serious disloyal behavior, repeated unlawful absence and criminal actions, on or near the workplace, e.g. sexual harassment towards the employees or assault, might constitute grounds for dismissal.

In case of dismissal of an employee, the employer has to observe the “two-month-rule”. This rule basically means that it is not allowed to base a dismissal solely on circumstances that the employer has known more than two months from the date of dismissal.

Invalid dismissal and compensation

The employee may bring an action in court if he considers that a dismissal lacks legal basis, and argue that the court shall declare the dismissal invalid. The court shall declare the dismissal null and void provided that the dismissal did not even reach reasonable grounds for dismissal. However, the employee does not have the right to force himself to remain in the employment. Even if the employee is successful in court, the employer is allowed to deny the employee to come back to the workplace. The employer has to pay damages to the employee if the court finds that he violated the law but it is an opportunity for the employer to get rid of the employee.

In Australia an employee can be terminated via a number of avenues as will be illustrated below. 

Breach of contract

The employer may be able to terminate the employment contract according to the provisions of the contract, or upon breach of the contract by the employee, where the breach is sufficiently serious to warrant termination.

As in Sweden, an Australian employer must have grounds to terminate the employment contract. The following conduct by employees may amount to conduct warranting termination of employment:

a) Dishonesty and fraud;

b) Failure to disclose information on application;

c) Rude and abusive behaviour – where such behavior is ongoing at a high level of intensity;

d) Fighting, assault, and sexual harassment;

e) Lateness and absenteeism – particularly if repeated; and

f) Misuse of confidential information – provided the employee knows that the information is confidential.

Repudiation

Repudiation may refer to conduct which shows an unwillingness or an inability to render substantial performance of the employment contract. This is an objective test, and requires asking whether the conduct of one party would convey to a reasonable person, in the situation of the other party, renunciation either of the contract as a whole or of a fundamental obligation under it.  

It is important to note that a repudiation does not automatically terminate the contract. It is necessary for the innocent party to elect to terminate the contract for breach. An employer who asserts repudiation and purports to accept repudiation as grounds to terminate a contract, may find themselves in breach of contract if it is later determined by a court that no repudiation took place. 

It is essential for employers to be certain that an employee has indeed repudiated the contract, and consideration of all the circumstances of each case will need to be carefully examined.  An example of conduct of an employee that may amount to his or her acceptance of an employer’s repudiation of the contract is the employee’s commencement of employment with another employer.

Dismissal for misconduct

The concept of immediate dismissal also exists in Australia as it does in Sweden. At common law an employee may be summarily dismissed if the employee has engaged in serious misconduct. The employer bears the onus of proving that the employee has engaged in conduct that would warrant the termination of the employee’s employment without notice.  For example, conduct that is destructive of the mutual trust between the employer and employee (such as theft or fraud) would be considered serious misconduct. 

Further, the Fair Work Regulations 2009 (Cth) define serious misconduct as including the following:

a) Willful or deliberate behaviour by an employee that is inconsistent with the continuation of the contract of employment;

b) Conduct that causes serious and imminent risk to:

1. the health or safety of a person; and

2. the reputation, viability of or profitability of the employer’s business;

c) The employee, in the course of the employee’s employment, engaging in theft, fraud or assault;

d) The employee being intoxicated at work; and

e) The employee refusing to carry out a lawful and reasonable instruction that is consistent with the employee’s contract of employment.

Contrary to the Swedish position, there exists no similar restriction to the two-month-rule in Australia; rather it is open to an employer to rely on any facts which existed at the time of the dismissal, even where they may have been unknown to the employer at the time of the dismissal. 

Redundancy

Contracts of employment can also be terminated where, at the employer’s initiative, the employer no longer requires the job done by the employee to be done by anyone.   This is similar to the Swedish concept of shortage of work. In Australia an employee who is made redundant is entitled to be paid redundancy pay in accordance with the National Employment Standards under the FWA, unless the employer is exempt from redundancy pay. There are a number of conditions around making an employee redundant, including an obligation on the employer to redeploy the employee to a suitable alternative position if one is available. 

Notice of termination

Employees are entitled to notice of termination in accordance with the FWA, or as prescribed in their contract of employment.  The FWA prescribes notice periods from 1 week up to 5 weeks, depending on the employee’s length of service and age.  Contracts of employment may prescribe longer periods of notice; however, the notice period cannot be any less than what is provided in the FWA.  

Section 117 of the FWA provides that an employer must give written notice in order to terminate an employee’s employment (unless otherwise excluded by law). Depending on the circumstances of the termination, such notice may be actual notice or payment in lieu of notice. 

In some cases, notice of termination may not be required.  For example, if the employee is a casual employee, is engaged on a fixed term or for a specified task (and the contract automatically terminates on an agreed date), or as comparable to the Swedish position, if the employee is terminated for serious misconduct.   

Employee’s response to termination 

Unfair Dismissal

Section 394 of the FWA permits a person who has been dismissed to apply to the Fair Work Commission (FWC) for a remedy for unfair dismissal, providing the employee is under the high income threshold. The application must be made within 21 days from the date the dismissal took effect.  

The FWC may order the reinstatement of the employee and/or financial compensation if the FWC is satisfied that the person was a person protected from unfair dismissal at the time of being dismissed, and the person has been unfairly dismissed.  

A person has been unfairly dismissed if: 

a. the person has been dismissed; and

b. the dismissal was harsh, unjust or unreasonable; and

c. the dismissal was not consistent with the Small Business Fair Dismissal Code; and

d. the dismissal was not a case of genuine redundancy.  

Damages

If an employer terminates an employee’s contact of employment in contravention of its terms, the employee is entitled to seek damages for breach of an employment contract. Generally, this will be payment of salary and other benefits that would have been earned during a proper notice period or the continuation of their employment, depending on the circumstances. 

Other actions

Employees also have other means of recourse under the FWA and the State and Commonwealth anti-discrimination legislation. An employee may make a claim alleging that the employer has taken adverse action against them if the conduct falls within the specifications of the FWA. Common grounds for adverse action are discrimination between the employee and other employees, and alteration of the employee’s employment position to the disadvantage of the employee. This article will not further address these potential employee causes of action, but they are raised to highlight other considerations employers must address in Australia when terminating employees.  

Written by By J Hedström and G. Honey