Downsizing: know your rights
By Benjamin Törnroos – Lawyer
Last updated: 27.02.2019
With the recent developments in Norway’s oil and gas industry, downsizing has become an important strategic decision for many businesses. Typically, the aim is to cut costs and increase profitability and competitiveness in this changing and difficult market. While in many ways a clear-cut business management decision, the consequences for the individual employee cannot be understated.
The Norwegian Working Environment Act (“WEA”) and collective agreements provides the legal framework for a business that is going to reduce its workforce. A collective agreement is an agreement between a trade union and a business or employer association. Collective agreements regulate working conditions, salary conditions and other matters relating to work. The most important collective agreement in Norway is the Basic Agreement (“Hovedavtalen”): “The Basic Agreement is an agreement between the Confederation of Norwegian Enterprise (NHO) including all its national and local associations and individual enterprises, and the Norwegian Confederation of Trade Unions (LO) including all its unions and associations (divisions).” (Basic Agreement 2014 § 1-1)
In this short article, I will attempt to guide you, as an employee, through the key steps of a typical downsizing process. The aim is to provide you with a set of tools you will be able to utilize should you experience the downsizing process first hand.
2 The basics: a dismissal must be objectively justified
According to WEA Section 15-7, an employee may not be dismissed unless it is “objectively justified” due to circumstances relating to the employer. The requirement of objective justification is absolute and must be fulfilled in order to terminate an employment contract.
This raises the question: when is a dismissal considered objectively justified?
A business experiencing a decline of sales, loss of contracts and other business slow-down will often need to cut costs and improve efficiency. Downsizing the workforce is one way of improving organizational performance. What many businesses in Stavanger, Rogaland and the rest of Norway are experiencing does, often without doubt, give these companies an objectively justified need to downsize.
Norwegian courts are traditionally quite reluctant to overrule a company’s decision to downsize, as it is considered a business decision, and not a matter for legal intervention. However, the courts will look closely at the reality of the financial situation leading to the decision and how the process has been planned and executed. The statutory requirement of objective justification applies not only to the individual dismissal, but also to the downsizing process in its entirety.
Section 15-7 (2) stipulates that dismissals due to curtailed operations or rationalization measures is not objectively justified if the employer has other suitable work to offer. If there are vacancies in the company, these positions shall first be offered to the employee being considered for dismissal. A vacant position will generally be considered suitable if the employee only needs a few weeks to a couple of months of training to effectively function in the role.
In addition, WEA stipulates that the business shall, when deciding whether a dismissal is objectively justified, weigh the needs of the business against the disadvantage caused by the dismissal for the individual employee.
Once the business decides to initiate downsizing, it needs to go through a number of steps and make important decisions along the way. The first step that you, as an employee, should be aware of is your employer’s obligation to involve the employees’ elected representatives in the development of the process.
3 Consultations with the elected representatives
If the redundancies amount to 10 or more employees within a period of 30 days, the employer is legally obligated to consult the employees’ elected representatives as early as possible. This obligation is stated in Section 15-2 of the WEA.
Even if the downsizing leads to less than 10 redundancies, the employer will generally consult with the elected representatives anyway. Section 8-1 of the WEA contains an obligation for companies that regularly employ at least 50 employees to provide information concerning issues of importance relating to employees’ working conditions and discuss such issues with the employees’ elected representatives. Section 8-1 thus states an obligation to involve the elected representatives in a downsizing process. The Basic Agreement contains an equivalent obligation.
According to Section 15-2, the purpose of consultation is to avoid collective redundancies. If redundancies cannot be avoided, efforts shall be made to mitigate their adverse effects.
Consultations with elected representatives are an important part of involving the employees in the downsizing process. Norwegian courts often frown upon employers that fail to involve and consult elected representatives in decisions that affect the workforce.
In these meetings, the parties may discuss creative efforts to avoid downsizing. Such efforts may be salary reductions, restrictions on overtime hours, temporary layoffs, and so forth.
WEA 15-2 states that the employer is obliged to give the elected representatives “all relevant information”, including written information concerning:
a) the grounds for any redundancies,
b) the number of employees who may be made redundant,
c) the categories of workers to which these employees belong,
d) the number of employees normally employed,
e) the groups of employees normally employed,
f) the period during which such redundancies may be effected,
g) proposed criteria for selection of those who may be made redundant,
h) proposed criteria for calculation of extraordinary severance pay, if applicable.
As an employee, you may want to talk to the elected representatives to receive firsthand information about the contents and outcome of these consultations. The employer normally keeps minutes from the meetings, which you may request to see. However, you should note that your employer is not legally obligated to give you the minutes or other documentation.
Involving the elected representatives and taking their comments into consideration will be indications of a legitimate and strong process, while failing to do so will be an indication of the opposite.
4 How does your employer determine who is considered redundant?
The selection of whom to dismiss and the criteria that the employer uses to make this decision must be objectively justified in accordance with WEA 15-7.
In order to determine which employees to dismiss in a downsizing process, an employer must establish a selection pool and a number of selection criteria. The selection criteria are measurable factors that are used to compare one or more employees within the selection pool to determine who will remain in the organization. The selection pool forms the group of employees that should be compared using these selection criteria.
Legal disputes of the legality of a dismissal often concern whether or not the established selection criteria have been applied fairly and led to the correct result. In other words, if the selection has been objectively justified.
4.1 The selection pool
The primary rule in Norwegian labor law is that the selection pool should consist of the entire legal entity. In practice this means the employer, when considering who may be redundant, should compare all employees in the organization. Needless to say, this is often impractical and sometimes even impossible. Large organizations may consist of different locations, branches and departments, all of which may have vastly different responsibilities within the greater organization and therefore are made up of employees with incomparable functions. These diverse divisions may also be performing better or worse due to these differences.
In certain circumstances, Norwegian courts have allowed companies to downsize using more narrowly defined selection pools. Such selection pools may be based on location, department or function. For example, it may be difficult to compare engineering department A and B if the necessary background to function in each department is fundamentally different.
It is outside the scope of this article to look too closely at this topic. However, I would generally advise any employee to look closely at the selection pool. This is an example of something your employer should discuss with your elected representatives.
4.2 The selection criteria
In order to determine who may be considered redundant within the selection pool, the employer must establish a set of more narrowly defined selection criteria. Using these criteria, the employer makes a preliminary selection of employees that may be considered redundant.
The law does not regulate which criteria an employer should use in this selection process. However, a dismissal must always be objectively justified. Without doubt, this requirement includes an element of objective fairness, which also applies to the selection criteria. You must be selected for redundancy in a fair way. A selection based on gender, ethnicity, age or other unfair criteria will never be lawful.
The selection criteria shall be part of the consultations with elected representatives. Normally, the employer informs the entire workforce of the criteria in an informational email or a town hall meeting. If you are unaware of the criteria when you have been invited to an individual consultation meeting, you should state this clearly in the meeting.
Seniority is stipulated as the main criteria in the majority of collective agreements, including the Basic Agreement. Exemptions may be made if there are reasonable grounds for doing so. Such exemption should be discussed with the elected representatives.
Seniority is commonly defined as the length of service in the company and has traditionally been considered the most important selection criteria. As length of service is easily established, it is a precise and practical criterion.
Today, more companies decide to use competence or skills as the main criteria. This should come as no surprise, as the aim of the process is to improve the efficiency and effectiveness of the organization. Little can be said about this criterion on general basis as it must be defined based on the needs of the organization. The criteria typically include elements such as formal education background, work experience, experience within the company and feedback from superiors and colleagues, to mention only a few.
Competence often proves difficult to prove in practice, and leaves plenty of room for error in the selection process. It often contains subjective elements that can lead to controversy. Due to the ambiguity and potential inaccuracy of the criteria, it is often a central part of disputes.
In addition to seniority and competence, social factors will always be relevant. This is a direct consequence of an employer’s obligation to weigh the needs of the business against the disadvantage caused by the dismissal for the individual employee. If you are a sole provider or have serious illness, or if other significant factors would make a dismissal particularly difficult for you, your employer should take this into consideration when making a final decision.
Although one or more criteria are considered particularly important, the final selection will normally be based on a combination of the chosen selection criteria.
Due to the difficulties in accurately comparing two or more employees, the selection has become one of the most common grounds to challenge a dismissal.
After the employer has made a preliminary selection of whom to dismiss using the selection criteria, each of the employees are invited to individual consultation meetings.
5 The Consultation Meeting
As stated in Section 15-1 of WEA, the employer shall, before making a decision regarding dismissal with notice, discuss the matter with the employee. The “15-1 meeting” is an individual consultation with each employee held prior to making a final decision in regards to a dismissal.
There are no legal requirements regarding the meeting invitation letter, but it is common that you receive an invitation at least 2-3 days prior to the meeting. You have the right to bring an advisor, and the invitation should inform you of this right. The advisor may be a union representative, a colleague, or an attorney. Inform your employer in advance if you intend to bring an advisor.
As stated in the law, the consultation meeting is held prior to any decision regarding dismissal. You have a chance to affect the outcome at this point and the importance of preparing sufficiently cannot be understated. Not only is the consultation meeting your chance to affect your employers decision; the minutes of meeting serve as one of the most important pieces of evidence in any subsequent court proceedings regarding the lawfulness of the dismissal.
The employer usually explains the background for the downsizing and the process to this point. As an employee, you should listen carefully and feel free to ask questions. You may inquire about the financial situation of the company, if alternatives such as layoffs or other cost reduction measures have been considered, and if there are other available positions for you within the company. If the employer does not account for the selection process, you should inquire about both the selection pool and the selection criteria. You are also entitled to know how you were considered in relation to the selection criteria and how you were assessed in comparison to your colleagues. If you feel you have been unfairly selected, you may challenge your employer about this. Do not be afraid to object if the process seems inadequate or erroneous.
When the employer has finished accounting for the process, you should talk about anything that may be relevant to the employer’s decision. Present your formal background, experience and inform your employer of any relevant social factors. You may want to bring an updated resume to the meeting. My advice is to ask your employer to attach the resume to the minutes of meeting.
Should you receive any indication that a decision regarding your dismissal has been made prior to the consultation meeting, you should state this objection in the meeting. While not an absolute requirement for the validity of a dismissal, Norwegian courts have generally been very reluctant to accept dismissals given without prior consultations.
There may be benefits to bringing a legal advisor to the meeting. First, an attorney will be used to attending such meetings and will know which questions to ask. Second, your legal counsel will also be better equipped to assess the information provided by your employer. Last, most employees have never attended a consultation meeting and it may be uncomfortable or even frightening. A trained attorney will act as general support during the meeting and will make sure you present all relevant information. Most employers are reluctant to reverse a dismissal once the decision has been made, and having an attorney present during the consultations may contribute to such decision never being made.
An employer will often ask that the minutes be signed upon the completion of the meeting. As an employee, you should not feel obligated to do so. Ask that the draft be sent to you by email, and take your time reviewing the document. Ensure that the document fully and accurately reflects the contents of the meeting, prior to signing.
As already mentioned, the records from the meeting will serve as important evidence in later proceedings. If you decide to seek legal counsel after the meeting, it will be easier for your counsel to assess your case if the account is detailed and thorough.
Your employer will often inform you when you can expect a final decision regarding dismissal. If this is not the case, you can generally expect a final decision within a week of the meeting.
6 Notice of Dismissal – requirements
If your employer decides to dismiss you, you are entitled to be informed in a notice of dismissal. There are strict formal requirements for the notice, which are stated in Section 15-4 of the WEA.
A notice of dismissal shall be given in writing. A verbal dismissal will never be valid. The same applies to a notice of dismissal sent by SMS, as it does not satisfy the legal in writing-standard.
The written notice shall be delivered in person or be sent by registered mail. The notice is deemed to have been given when the employee receives it. The notice is either received when it is given to you in person, or when you have had the opportunity to pick up the notice. It is worth mentioning that there is an ongoing debate regarding when a notice of dismissal has been received when it has been sent by email in addition to registered mail. The question will likely be resolved by Norwegian courts within the next few years.
The notice also needs to contain a minimum of information to be considered valid. The notice shall inform of:
a) the employee’s right to demand negotiations and to institute legal proceedings,
b) the employee’s right to remain in his post pursuant to the provisions of sections 17-3, 17-4 and 15-11,
c) the time limits applicable for requesting negotiations, instituting legal proceedings and remaining in a post, and
d) the name of the employer and the appropriate defendant in the event of legal proceedings.
If the employee has been dismissed owing to circumstances relating to the undertaking, the notice shall also contain information concerning preferential rights pursuant to section 14-2.
(WEA Section 15-4)
If the notice contains formal errors, the consequences are stipulated in WEA 15-5.
6.1 Notice of Dismissal - Consequences of errors
If the notice does not meet the statutory requirements, the employee may institute legal proceedings within 4 months of receiving the notice. The notice and dismissal shall be ruled invalid by the court unless special circumstances make it clearly unreasonable.
In practice, you would be best advised to notify your employer prior to instituting legal proceedings. Taking legal action with no prior communication will likely be a waste of resources, as the employer will typically send a new, formally correct, notice of dismissal. The notice period, as well as time limits for negotiations and legal proceedings will not start until you have received a correct notice.
If the notice itself is correct, but not delivered in person or sent by registered mail, the dismissal is valid from the date you received the notice. It may, however, be more difficult for the employer to prove when the employee received the dismissal.
7 Your choices after receiving a dismissal notice
If you have not sought counsel to this point, this is the time to do so. A labor law attorney will be able to make a preliminary assessment of your case and advise you on whether, and how, to proceed.
If you want to challenge the dismissal, the first step will be to request negotiations with your employer.
The right to negotiations is stated in Section 17-3 of WEA.
As an employee, you must request negotiations within two weeks of receiving the dismissal notice. Such request should be done in writing. The legal in-writing standard applies, meaning an email will not suffice. It is common to send the request as a letter and in a scanned copy by email.
After receiving such request, the employer is obligated to hold a negotiation meeting as soon as possible, and no later than two weeks of having received the request. The parties can agree to a later date if everyone is amenable. Each of the parties is entitled to bring advisors to the meeting and it is very common that both parties decide to do so.
The negotiations are quite different from the consultations, as the decision of dismissal has already been made. As the employee initiates the negotiations, he or she must clarify why the dismissal is being challenged. The employer will have to clarify the process, the selection criteria, and defend the decision.
Negotiations are an essential part of establishing whether there is sufficient reason to proceed with legal action. As an employee, it is important to get as much information as possible from the employer in the meeting. In the letter requesting negotiations, you can also request that documentation of the process be sent to you prior to the meeting.
It is not uncommon that the parties reach an amicable settlement in the negotiation meeting. A settlement will typically be a financial compensation and/or relief of duties. The parties are free to make other arrangements if they so desire. However, it is less common that the employer decides to reverse its dismissal decision at this point.
If the parties are unable to reach a solution, a written record serves as evidence that the parties have negotiated. Unlike the minutes from the consultation meeting however, this record will normally not contain information about what the parties actually discussed during the meeting.
If the negotiations fail, you will need to decide if you wish to institute legal proceedings.
9 Legal action
The objective of legal proceedings is to have the dismissal deemed invalid. The direct consequence of a court decision is that the employment continues as if the dismissal never occurred.
For wrongful dismissals, it is only possible to claim for lost earnings and tort damages. Note, however, that the tort compensation is traditionally very modest in Norway.
9.1 Legal action – time limits
The time limits for instituting legal proceedings is 8 weeks, as stated in WEA 17-4.
The time limit runs from the conclusion of the negotiations, or from the date you received the dismissal, if negotiations have not been conducted.
If an employee claims compensation only, the time limit for legal proceedings shall be 6 months.
If the dismissal does not fulfill the formal requirements laid down in Section 15-4, there in no time limit for instituting legal proceedings.
It is outside the scope of this article to look more closely at the legal proceedings. Determining whether there are sufficient grounds to proceed with legal action can only be done on a case-by-case basis.
10 Right to work during negotiations and legal proceedings
Throughout the negotiations and legal proceedings, you are entitled to remain in post. This right stated in WEA 15-11 and is of great importance, as it entitles you to keep working and to receive regular salary. You should notify your employer of your intention to make use of this right when requesting negotiations.
11 Final comments
Through this article, I hope you have gained a better understanding of the main elements of a downsizing and your rights throughout the process. Note that this article only contains some of the many and complex aspects of a downsizing, so if you face a consultation meeting and a potential dismissal, my advice is that you seek legal advice through your union or by contacting an attorney directly. Each downsizing is different and labor law specialists will be able to advise you on your individual situation. Many employers will cover the employees’ legal costs, although they are not obligated to do so. You should not be afraid to ask your employer if they are willing to pay for such costs.
Projure law firm has a number of lawyers specialising in employment and labour law.