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Section 15-7 of the Norwegian Working Environment Act provides that an employee may not be dismissed unless the dismissal is objectively justified by circumstances relating to the undertaking, the employer, or the employee. The relevant alternative here is “circumstances relating to the undertaking.” The question is whether the need for rationalisation, in itself, constitutes a valid ground for dismissal.
The company does not necessarily have to be performing poorly
A company does not necessarily have to be experiencing financial difficulties for a dismissal to be considered objectively justified. Workforce reductions implemented to increase the company’s profitability may also provide valid grounds for dismissing employees. However, the reason for the downsizing will be relevant when assessing whether the dismissal is objectively justified. An employer has the right to take necessary measures in a timely manner to ensure the efficient operation of the business and to manage the undertaking in a way that avoids insolvency and maximises returns.
The provisions of the Norwegian Private Limited Liability Companies Act also require company management to safeguard the interests of shareholders by generating profits. It is therefore legitimate to implement rationalisation measures that are necessary to achieve that objective. The company does not need to be on the brink of bankruptcy. Forecasts regarding market conditions and similar factors may justify the implementation of dismissals.
Suitable alternative employment
Where a dismissal is caused by operational downsizing or rationalisation measures, it will not be objectively justified if the employer has other suitable work available within the undertaking that can be offered to the employee. This follows from Section 15-7, second paragraph, of the Working Environment Act. When determining whether a dismissal based on downsizing or rationalisation measures is objectively justified, a balancing exercise must be carried out between the needs of the undertaking and the disadvantages the dismissal imposes on the individual employee.
There are, however, certain limitations. In practice, distinctions are made between different categories of positions. If the rationalisation measures also affect employees in senior management positions, such employees cannot, under the Working Environment Act, require appointment to another vacant managerial position. Case law demonstrates that employers enjoy considerable discretion in recruiting for such positions. Further down the organisational hierarchy, however, the employer’s freedom to determine whether another vacant position is “suitable” becomes more restricted.
The provision does not impose any obligation on the employer to create a new position. Nor is the employer required to provide the employee with a new education or extensive training in order to qualify for a vacant position. However, the employer must provide ordinary introductory training in the job duties, just as would be done for a newly hired employee. The employee must be offered the position if he or she is capable of performing the work satisfactorily. Case law shows that employees rarely succeed in having a dismissal declared invalid where they have been offered suitable alternative employment and declined the offer.
The act requires a balancing of interests
Section 15-7 of the Working Environment Act is also based on the premise that downsizing or rationalisation measures do not, in themselves, automatically provide sufficient grounds for dismissal. The Act requires a balancing of interests between, on the one hand, the burden imposed on the employee by the dismissal and, on the other hand, the undertaking’s need for workforce reductions.
As a general rule, the greater the hardship imposed on the individual employee, the stronger the employer’s need for dismissal must be. In other words, less is required for a dismissal to be considered objectively justified where the company’s situation is critical than where the downsizing is primarily motivated by a desire to increase profitability.
The most obvious disadvantage for the employee is, naturally, the loss of income. In addition, the employee may often face difficulties in securing alternative employment.
The assessment is always discretionary. For example, it may weigh in the employer’s favour if the employee has realistic opportunities to obtain alternative employment within the same industry at a reasonable distance from his or her residence. Conversely, if alternative employment would require entering an entirely different industry, or would involve significantly longer commuting distances, this should be taken into account in the employee’s favour.
The preparatory works to the Working Environment Act make it clear that the company’s needs must also be weighed against the difficulties that the employee and his or her family would face. Social considerations, such as sole responsibility for supporting dependants, may therefore be relevant factors.
Duty to inform and consult
If at least ten employees are dismissed within a period of 30 days, Section 15-2 of the Working Environment Act imposes a duty on the employer to inform and consult with the employees’ representatives. The purpose is for the parties to attempt to find alternatives to dismissal. If dismissals cannot be avoided, efforts should be made to minimise their adverse consequences.
Procedural rules under the Basic Agreement
Additional procedural rules are found in the Basic Agreement between the Norwegian Confederation of Trade Unions (LO) and the Confederation of Norwegian Enterprise (NHO). The Basic Agreement is often referred to as the “constitution of working life.” It is generally advisable for all companies facing a rationalisation process to follow the procedural rules set out in the Basic Agreement. Courts often expect compliance with these standards of procedure regardless of whether the employer is formally bound by the agreement.
The procedure may be decisive
The employer bears the burden of proving that the dismissal is objectively justified. The manner in which the process is conducted can therefore be decisive. The fact that consultations with employees have taken place before a decision is made may indicate that the employer has carried out the assessments required by law. Where such consultations have not been held, the employer bears the burden of proving that the absence of consultations did not affect the validity of the grounds for dismissal or the selection process.
Selection
Section 8-2 of the Basic Agreement states:
“In cases of dismissal due to downsizing or rationalisation, seniority may be departed from where there are objective grounds for doing so.”
This provision applies only where the collective agreement is applicable.
According to the wording of the provision, the starting point is that when employees are otherwise equal with regard to qualifications that may legitimately be considered, the employee with the longest seniority takes precedence. However, this is only a starting point.
Not every difference between employees is sufficient to justify departing from the seniority principle. Differences in general education, for example, will not automatically justify such a departure. On the other hand, differences in language skills may justify departing from seniority if such skills are relevant to the position. As a general rule, seniority should be followed where employees are substantially equal in terms of qualifications.
In a downsizing situation, the employer may have a clear interest in retaining certain employees rather than others in order to ensure the continued operation of the business. The reasons for preferring one employee over another may vary and can include competence, willingness to cooperate, reliability in relation to attendance and sick leave, and similar considerations. A company is entitled to retain skilled and versatile employees, provided that the selection is based on objective considerations and a sound exercise of discretion. The employer must be able to document that such an assessment has been carried out in an objective and reasonable manner. Personal preferences or favouritism are clearly impermissible considerations. However, the employer may legitimately attach significant weight to factors such as the employee’s work performance, willingness to step in when needed, readiness to undertake additional duties, willingness to work overtime, and similar considerations. Social factors may also constitute legitimate selection criteria and may justify retaining employees with shorter seniority in certain circumstances.
