Planning to downsize?
In Norway, an employer that can show a legitimate need for downsizing generally has a right to do so. However, strict job protection rules necessitate a thorough redundancy process as well as the consideration of a multiple of employment law issues. An inadequate process or a wrong evaluation may imply that a termination is deemed invalid. This can turn out to be very costly for the employer.
Norwegian courts generally accept an employer’s need to downsize. However, unlike for instance US legislation, Norwegian employment law requires that any termination shall be for cause. The threshold for what constitutes a “for cause” termination is strict, and there are generally three issues that may lead the courts to rule that a termination is unfair: First, that the process leading up to the termination did not fulfill the legal requirements. Second, that the assessments of different issues that the employer made during the process were inadequate or incorrect. And third, that the employer has had but not offered the employee other suitable work in the organization.
A disgruntled employee that sues for unfair termination is automatically allowed to remain in his job with full salary until the courts decide on the case. This may take 2-3 years if the case is appealed, which means that the employer is faced with a cost scenario of 2-3 years’ salary, legal costs and the internal costs that accrue when the company is focusing on the case. On top of this, if the termination is eventually deemed invalid by the courts, the employee is granted the right to continue working in the company.
Investing time and resources to plan a step by step redundancy process that fulfils all legal requirements will significantly reduce the risk of ending up with a costly bill in court. In this respect it is important to note that Norwegian employment law requires a high degree of employee participation in a redundancy process, even in companies that actually does not have employee representatives. Further, we generally advise our clients to consult us to make sure that they have made the necessary and proper assessments. For instance, when deciding who to let go, the employer needs to determine the selection criteria and how to weigh these against each other. Shall we terminate according to seniority only, or do we want to keep the most competent employees, regardless of how long they have worked in the company? It is the assessment of who to let go the courts most often tend to overrule, and especially if old employees with long seniority have been terminated. Consequently, extra caution should be taken when evaluating whether this category of employees should be let go, and whether there are other suitable jobs in the organization.
A thorough redundancy process and adequate and proper assessments are necessary even if the plan is to offer the employees termination packages instead of terminating them. There are two main reasons why these measures should still be taken: First of all, a poor process and poor assessments will give the employee (and his lawyer) a materially better bargaining position, which again will increase the termination costs with at least 1-2 months per employee. Secondly, the employer should have the option to terminate the employee if the parties do not agree on a termination package that is acceptable for the employer. If the employer has failed to build his case in advance, however, such termination can end up with becoming very costly and thus not very desirable, which again will increase the settlement costs.
