In a recent ruling (AD 2011 92), the Labour Court declared a settlement agreement regarding termination of employment null and void.

The employer and the employee had entered into a settlement agreement whereby the employment contract was terminated in exchange for a severance payment. In the negotiations preceding the settlement, the employer had explained its plans to reorganise the business for financial reasons and that, as a result, there was a risk that the employee would be made redundant.

As an alternative to termination due to redundancy, the employer offered the employee a severance payment. The employee requested time to consider the offer and to seek legal advice, but this was denied by the employer. The offer was valid only if the employee accepted the settlement agreement immediately. It was clear to both parties that the risk of redundancy was crucial for the employee when deciding whether to accept the severance payment and enter into the settlement agreement.

Shortly thereafter, the employer recruited for the employee's former position. The employee, who had previously questioned the redundancy situation, challenged the settlement agreement in court and claimed that it should be declared null and void.

The court concluded that no redundancy situation had existed. Instead, the employer's actions had been targeted towards the employee due to personal reasons. Since the employer had provided the employee with inaccurate information, with the sole purpose of forcing the employee to accept the settlement agreement, the court declared that the employee had been misled. Thus, the settlement agreement was declared null and void.

In Sweden, objective grounds (ie, redundancy or personal reasons) must exist in order for an employer to terminate an employment contract. However, it is common for parties to enter into settlement agreements whereby the strict employment protection rules do not apply. In such cases, the employee is normally granted a severance payment.

In order for an employer to avoid having a settlement agreement declared null and void, it is important that it enters into the settlement on accurate grounds. For example, it is important that the employer provides the employee with correct information on the background and reasons for its proposal, and that the employee is entitled to reasonable time to consider the offer and potentially seek legal advice.

For further information please contact Fredrika Skoog or Jennie Lööw at Hamilton by telephone (+46 8 505 501 00), fax (+46 8 505 501 01) or email ([email protected] or [email protected]).