Staff at the store on Biblioteksgatan in the heart of Stockholm's main shopping district wanted to unionise and thereby gain access to occupational pensions, insurance, and overtime for working evenings and weekends.
But the company elected instead to invite them to submit their resignations and re-apply for their jobs by signing up with a staffing agency, the Aftonbladet newspaper reports.
The company has now decided to go one step further and lay off its entire workforce of 38 staff saying that it intends to run its business completely with sub-contracted staff.
The firm has now found itself in a war of words with union representatives and staff members who argue that they have been unfairly treated.
"They express something that has no base in reality. They continue to work but will be employed by another firm. They will be offered good human resources support which we have not been able to live up to," Marianne Bäärnhielm at the firm explained to the newspaper.
Bäärnhielm claimed that the firm had been looking for a solution to more efficiently manage its staffing needs for some time and the decision to lay off its entire staff has nothing to do with the union move.
In a debate article in the newspaper Josefin Brink of the opposition Left party, argues that companies should be banned from replacing their staff with sub-contracted personnel.
Brink argues that the loophole in Sweden's stringent employment security regulations (LAS) needs to be tightened up.
Tommy Tillgren at retail workers union Handels argues that everybody gains from a collective agreement and disputes whether Urban Oufitters have found the more "effective and rational solution" that they claim.
Marianne Bäärnhielm was unwilling to confirm whether outsourcing staff would end up costing the firm money and argued only that the information was party to a contract between Urban Outfitters and staffing agency Academic Work.
Academic Work has however signed a collective agreement with the retail workers union and any staff that choose to move over to the staffing firm will be subject to it.