sou · GYB393 · 2011-01-01 00:00:00 — Where an employee has committed a serious breach of contract, there are special provisions whereby the employer is able to terminate the contract of employment with immediate effect by way of summary dismissal. In accordance with the Act, no just cause for dismissal exists if the employer can reasonably be required to find the employee concerned alternative work within the company. The Act distinguishes between two main categories of reasons for dismissal with notice: redundancy/shortage of work and reasons relating to the individual employee concerned. Shortage of work (arbetsbrist) constitutes just cause for dismissal as a matter of principle. There is shortage of work when there is no work for employees but also when dismissals are occasioned by decisions made by virtue of the employer's right to manage the business, for economic, organizational and other reasons. The courts do not examine business assessments made by employers which lead to decisions to reduce their workforce, unless there is reason to suspect that a dismissal is due not to business considerations in the sense envisaged by the Act but to reasons which in reality relate to the individual employee concerned. In situations constituting redundancy the employer cannot arbitrarily decide who is to be dismissed but must follow a specified order of selection. A separate selection category is normally defined for each production unit and each area of collective agreement coverage, which means that manual workers and white-collar workers normally belong to different selection categories. Within each selection category, the position of individual employees in the order of priority in selection for redundancy is based on seniority, i.e. their personal length of service with that employer. If employees can be provided with continued employment only by being transferred (and thereby supplanting others with a shorter length of service), the criterion for giving them preference is that they must possess adequate skills for the alternative job concerned. A different order of priority may be chosen by collective agreement, but case-law indicates that there are limits to bargaining freedom in this respect: a collectively agreed redundancy list must not be contrary to good practice or otherwise improper. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison amendment to section 22 of the Act introduced in January 2001, in the interests of retaining necessary skills in small businesses employers may exempt from the procedure of selection for redundancy a maximum of two employees who are of particular significance to the company. Those who are made redundant retain, for the following nine months, a preferential right to re-employment in the enterprise in which they were formerly employed. Reasons relating to the individual employee concerned Generally speaking, dismissal for reasons relating to the individual employee is justified only if the employee is guilty of a breach of or failure to fulfill a contractual obligation which is of material interest to the employer and whose existence or importance has been made known to the employee. The Court's assessment is based not merely on the course of events in the situation giving rise to dismissal but, more particularly, on the inferences that can be drawn from what has happened as regards the employee's suitability for continued employment in the future. Accordingly, isolated instances of misconduct, provided they do not involve gross negligence, have in many cases been deemed not to constitute grounds for dismissal, whereas in cases of repeated offences the Court has not infrequently taken a view, especially if the culprit has already been reprimanded by the employer. Theft and other forms of dishonesty are viewed severely by the Court. As a rule, illness does not constitute just cause for dismissal unless it permanently reduces an employee's capacity to work to such a degree that he or she is no longer able to perform any really useful job. Employers are under an extensive obligation to assist in the rehabilitation of employees suffering from ill health. The Court treats chronic alcoholism as an illness. Where an employee's capacity to work is impaired for reasons other than illness, the employer must make efforts to solve the problem by, for example, transferring the individual concerned, but if all reasonable efforts fail the situation may constitute just cause for dismissal, particularly if the costs incurred by the employer are demonstrably greater than the value of the employee's contribution to the business. Serious problems affecting cooperation in the workplace An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 can constitute grounds for dismissal, but only if a less drastic solution such as transfer has been tried first. Normally, an employer who wishes to dismiss an employee for reasons falling within this category may not invoke events dating back more than two months. The Act contains a number of procedural rules on dismissal whose infringement by an employer incurs liability in damages. An employer contemplating dismissal for reasons relating to the individual employee concerned must inform the latter at least two weeks in advance. If the employee is a union member the relevant local union must be informed at the same time. Following this, the employer is obliged to engage in consultation if the union or the individual concerned so requests. In cases where the action contemplated involves redundancy, the employer must enter into negotiations on managerial decisions with the trade union with which he is bound by collective agreement. The implementation of European Union directives in 2001 imposes that an employer not bound by any collective agreement must negotiate with all the trade unions involved, i.e. all unions having at least one member employee affected by the measure under consideration before a decision on collective dismissals or transfer of an undertaking can be made. Dismissal must be effected by giving written notice stating, among other things, the procedure to be followed by the employee if he or she wishes to claim that it is invalid. At the employee's request, the employer is obliged to specify the circumstances being invoked as grounds for dismissal. A dismissal is ruled invalid by the court at the employee's instance if the employer is unable to prove just cause, but this does not apply where a dismissal is merely in breach of the rules on order of selection for redundancy. Short limitation periods are imposed within which an employee must inform the employer of the intention to lodge a claim and initiate legal proceedings. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison dispute has arisen over the validity of a dismissal, the employment relationship continues to exist until it has been finally settled. While negotiations are in progress and then during any legal proceedings the employer may not normally exclude the employee from work. is exclusion permissible after a dismissal has been ruled invalid by the court. The normal outcome here is for the employer to accept the judgment and take back the employee into employment. As a last resort, however, employers are able to extricate themselves from an employment relationship by paying compensation ranging from 6 to 48 months' pay depending on the employee's length of service and age. In cases of unjustified dismissal the employer also incurs liability in damages towards the employee. Damages may be awarded both for financial losses and for the non-material injury suffered. An unlawfully dismissed employee who chooses to let the dismissal stand is entitled to receive, in addition to the normal pay due up to the expiry of the notice period, compensation for financial losses possibly suffered as a result of a reduction in income following dismissal, subject to certain restrictions. In calculating the amount of such compensation, deductions are made to allow for any sum which the employee has since earned from employment elsewhere or could reasonably be expected to earn. Compensation for the non-material injury caused, known as general damages, is assessed on a case-by-case basis but at present normally amounts to around . The Employment Protection Act applies to all employees, except managerial executives, employer's family members, employees who are employed specifically to work in their employer's personal household, and individuals who are given a job under certain government-funded schemes to fight unemployment. The Act also applies to employers of all kinds. However, since 2001 a new rule has been introduced for small businesses in relation to the order of selection for redundancy. The Act likewise applies to public authorities and other employers in the public sector, although there are certain statutory rules for the state sector. Most of the provisions of the 1982 Employment Protection Act constitute mandatory rules in the employee's favor, meaning that An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 any contract or agreement which removes or limits the employee rights they establish is invalid. However, certain provisions listed may be derogated from by collective agreement, some only through sectoral agreements but others also through local agree- ments provided other matters at the workplace concerned are covered by an industry-wide agreement. This brief description of Swedish employment protection legislation shows that permanent contracts benefits from a strong protection. Labor market flexibility relies on the wide possibility of using temporary jobs. 2.2International comparisons: the strong duality of the Swedish labor market Since the seminal paper of Lazear (1990) which highlighted a positive correlation between severance payments3 and un- employment for 22 countries over the period 1956–1984, many studies have been devoted to the international comparison of employment protection legislations.4 The most comprehensive analysis has been provided by the . Its main advantage is to cover various aspects of employment protection legislations.5 The employment protection indicators are compiled from 21 items quantifying the costs and procedures involved in dismissing individuals or groups of workers or hiring workers on fixed-term or temporary work agency contracts. The overall summary indicator takes values from 0 to 6; a higher value indicates a more stringent regulation. It is made up of three sub-indicators quanti- fying different aspects of employment protection: Individual dismissal of workers with regular contracts. This incorporates three aspects of dismissal protection: (i) proce- dural inconveniences that employers face when starting the 3More precisely, severance payments were defined as the number of months of severance pay or notice a blue collar worker with 10 years of service received upon termination without cause. 4See among many contributions, Heckman and Pages (2004), (2008) and the two syntheses of and Texeira (2003) and Venn (2009). 5See Venn (2009) who discusses the most recent updates of the indicators and their relations with other indicators. Venn shows that the indicators provided by various institutions and authors may differ because they are focused on different aspects of legislations (i.e. protection of permanent jobs versus restrictions on temporary jobs). However, these various indicators yield converging measures of employment protection legislations when they deal with the same aspects of employment protection legislations. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison dismissal process, such as notification and consultation require- ments; (ii) notice periods and severance pay, which typically vary by tenure of the employee; and (iii) difficulty of dismissal, as determined by the circumstances in which it is possible to dismiss workers, as well as the repercussions for the employer if a dismissal is found to be unfair (such as compensation and reinstatement). Additional costs for collective dismissals. This focuses on additional delays, costs or notification procedures when an em- ployer dismisses a large number of workers at one time. This measure includes only additional costs which go beyond those applicable for individual dismissal. It does not reflect the overall strictness of regulation of collective dismissals, which is the sum of costs for individual dismissals and any additional cost of collective dismissals. Regulation of temporary contracts. This quantifies regulation of fixed-term and temporary work agency contracts with respect to the types of work for which these contracts are allowed and their duration. This measure also includes regulation governing the and operation of temporary work agencies and requirements for agency workers to receive the same pay and/or conditions as equivalent workers in the user firm, which can increase the cost of using temporary agency workers relative to hiring workers on permanent contracts. Figure 1 shows the stringency of employment protection in all countries as in force on 1 January 2008 evaluated according to the employment protection index. The strictest employment protection is in , and , while the least strict is in the , the , and . is below average. However, the aggregate measure of the stringency of job protection hides strong disparities in regulations of permanent jobs and fixed-term jobs, especially for . An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 Figure 1 employment protection index Figure 1: employment protection index in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. Figure 2 shows that protection of permanent workers against individual dismissal is rather stringent in . Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison fourth position together with the , after , the and . Figure 3 shows that Swedish workers also benefit from many requirements for collective dismissals relative to workers living in most other countries. All in all, it turns out that the protection of permanent jobs, through protection of individuals and collective dismissals, is quite strong in relative to other countries. An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 Figure 2 Protection of workers against individual dismissal Figure 2: Protection of permanent workers against individual dismissal in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison Figure 3 Specific requirements for collective dismissal Figure 3: Specific requirements for collective dismissal in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. When we look at the stringency of regulation of fixed-term jobs, the picture is quite different. As shown by Figure 4, has a relatively weak regulation of temporary forms of employment. An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 this matter, ranks not far from the bottom, far below the average, at the same level as , just above the , the and . The regulation of temporary jobs comprises the regulation of temporary work agency employment and the regulation of fixed-term contracts. Let us look more precisely at these two forms of regulation of temporary jobs. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison Figure 4 Regulation on temporary forms of employment Figure 4: Regulation of temporary forms of employment in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 Figure 5 reports the stringency of regulation of temporary work agency employment in 2008. The indicator covers five aspects of this regulation: i) the types of work for which temporary work agency employment is legal; ii) the restrictions on number of renewals of temporary work agency contracts; iii) the maximum cumulated duration of successive temporary work agency contracts; iv) the authorizations and reporting requirements for temporary work agencies; v) the regulations requiring equal treatment of regular and agency workers at the user firm. For each dimension, there is a sub-index which takes values from 0 (least restrictions) to 6 (most restrictions). The indicator reported in Figure 5 is a weighted average of these sub-indexes. It turns out that the regulation of temporary work agency employment is weak in relative to most countries. is far below the average, at the level of the . In particular, there is no special requirement regarding equal treatment with regular employment. However, there is an authorization system which is administered by the social partners. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison Figure 5 Regulation of temporary work agency employment Figure 5: Regulation of temporary work agency employment in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 Figure 6 displays the stringency of regulation of fixed-term contracts. The indicator presented in Figure accounts for three dimensions of this regulation: i) the valid cases for use of fixed- term contracts; ii) the maximum number of successive fixed-term contracts; iii) the maximum cumulated duration of successive fixed-term contracts. As previously, for each dimension, there is a sub-index which takes values from 0 (least restrictions) to 6 (most restrictions). The indicator reported in Figure 6 is a weighted average of these sub-indexes. It turns out that the regulation of fixed-term contracts is rather weak, relative to other countries in . In particular, the list of valid cases for use of fixed-term contracts is not very restrictive relative to many other countries since fixed-term contracts are permitted for temporary replacement of absent employees, seasonal work, employing persons above 67 years of age, but also for general fixed-term employment, a category which can comprise a large set of situations. Also, contrary to many other countries, there is no limit on the number of renewals of successive fixed-term contracts. For instance, in , where the share of temporary jobs is very high, the regulation of fixed-term contracts is more stringent. The list of valid cases for use of fixed-term contracts is more restrictive, it is not allowed to have more than three successive fixed-term contracts and workers become permanent when they have been under contract for more than 24 months within a period of 30 months (instead of five years in ). Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison Figure 6 Regulation of fixed term contracts Figure 6: Regulation of fixed term contracts in 2008. The indicator goes from 0 for the weakest regulation to 6 for the strongest. Overall, there is a relatively weak regulation of temporary work agency employment and of fixed-term contracts in . An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 weak regulation of temporary jobs contrasts with the stringent regulation of permanent jobs. As shown by Figure 7, is the country which exhibits the highest difference between the stringency of regulation of permanent jobs and the stringency of regulation of temporary jobs. In other words, there is a strong labor market segmentation in . On one hand, firms must comply with many stringent rules to manage permanent jobs. On the other hand, employers have many possibilities to use temporary jobs. Bilaga 6 till LU2011 An overview of the Swedish system and an international comparison Figure 7 Protection permanent jobs – regulation temporary jobs Figure 7: Difference between protection of permanent workers (average of protection against individual dismissal and specific requirements for collective dismissal) and the stringency of regulation of temporary forms of employment in 2008. Each indicator goes from 0 for the weakest regulation to 6 for the strongest. An overview of the Swedish system and an international comparison Bilaga 6 till LU2011 In conclusion, international comparisons show that the duality between flexible rules for temporary contracts and strict protection for open-ended contracts is particularly strong in relative to other countries. 3 The benefits of job protection Employment protection legislation can be justified by the need to protect workers from arbitrary dismissals and have firms internalize at least some of the social costs of labor turnover.6 In an ideal world, every worker should be able to keep his job as long as he wishes and to quit whenever he wants. Nevertheless, by restricting labor turnover, employment protection restricts the ability of employers to select and to manage their and to adapt to changes in technology and changes in the demand for their products. Such restrictions can have a negative impact on employment, productivity and growth. Accordingly, the choice of a good legislation is a matter of trade-off between the benefits and the costs of job protection. In this section, we look at the benefits of job protection. The next Section will be devoted to the costs of job protection. 3.1The protection of workers from arbitrary dismissals The need to protect workers from arbitrary dismissals is covered by the regulation of individual dismissals, according to which dismissal for reasons relating to the individual employee is justified only if the employee is guilty of breaking or failing to fulfill a contractual obligation. This is the just cause doctrine, adopted in European countries, which states that firms cannot dismiss employees without showing just cause. 6 It is sometimes argued that employment protection legislation improves employment and reduces income uncertainty of wage earners because employment protection legislation decreases layoffs. The next section shows that employment protection does not improve employment. Moreover, unemployment insurance is a more efficient instrument to insure wage earners against income fluctuations than employment protection legislation. Actually, section 5 discusses how employment protection legislation and unemployment insurance can be conceived together in a consistent way. The benefits of job protection Bilaga 6 till LU2011 This protection is not granted in such a way in all countries. In the US, the employment at-will doctrine implies that either party can break the employment relationship with no liability, provided there was no express contract for a definite term governing the employment relationship or that the employer does not belong to a collective bargain (i.e., has not recognized a union). Under this legal doctrine, any hiring is presumed to be at-will; that is, the employer is free to discharge individuals for good cause, or bad cause, or no cause at all, and the employee is equally free to quit, strike, or otherwise cease work. There are several exceptions to the doctrine, especially if unlawful discrimination is involved regarding the termination of an employee. generally, the Equal Employment Opportunity laws serve primarily to protect employees against violations of their work contract that do not respect the fundamental rights of the person. The basic argument put forward in favor of employment at-will is that if just cause protection were worth more to employees than it costs firms, it would already have been implemented.