Workforce Reduction and Reorganization

In brief:

• Downsizing occurs when the employer reduces the number of employees due to economic, organizational, or operational circumstances on the business's part.
• A dismissal due to downsizing must always have objective grounds, cf. Section 15-7 of the Working Environment Act, and the employer must document a genuine need.
• Both the selection pool and the selection criteria (for example, seniority, competence, and social factors) must be objective and applied consistently.
• The employer must discuss the grounds and the selection with employee representatives and hold individual consultation meetings before a decision to dismiss is made.
• Employees affected by downsizing are entitled to, among other things, consultation and information, a written notice of dismissal, and preferential rights to re-employment.

1. What redundancy is
2. When the employer is entitled to make redundancies
3. Which employees can be dismissed: more on the selection pool and selection criteria
4. Redundancy step by step
5. Employee rights in a redundancy process

What is redundancy?

Redundancy means that the employer reduces the number of employees in the business due to economic, organisational or operational circumstances.

It is often referred to as both rationalisation processes and reorganisations, but is characterised by the fact that it is circumstances on the part of the business, and not circumstances relating to the employee, that justify the need for dismissals. This may typically be due to declining earnings or changes in demand in the market in which the business operates, which mean that the employer must adapt and/or streamline operations, necessitating the dismissal of employees.

The legislation imposes strict requirements on both the procedure and the basis for the redundancy.
 

When are you, as an employer, entitled to make redundancies?

A dismissal must always have a valid reason, including when the dismissal is based on circumstances relating to the business or the employer. This follows from section 15-7 of the Working Environment Act.
 

The employer must have a genuine need to reduce the number of employees and must be able to document that a well-considered business-economic assessment has been carried out. If there are other cost-saving measures that could be sufficient and would avoid dismissals, these should be implemented before dismissals are decided upon.
 

The courts are generally cautious about reviewing the business-economic need for redundancy, but have full competence to review whether the dismissal is based on a correct and adequate factual basis, whether the reasoning is relevant, and whether the assessment has been sufficiently broad. For this reason, it is particularly important that the need for the redundancy, and the internal decisions behind it, can be documented.
 

The duty to offer other suitable work

If the employer has other suitable work to offer, a dismissal based on the circumstances of the business will not be valid. For employers that are part of a group of companies, it must also be assessed whether there is other suitable work to offer within the other companies in the group.

Selection: who has to go, and on what criteria?

Selection: who has to go, and on what criteria?

The requirement of a valid reason under section 15-7 of the Working Environment Act means that the selection of which employees are to be dismissed must also be objective and reasonable. This applies to both the selection pool and the selection criteria.

First, the employer must define the selection pool. As a starting point, the business as a whole should be assessed together, but the pool may be narrowed if there is a valid reason for doing so. The employer must then establish selection criteria. Common criteria are seniority, competence and social circumstances. If the employer is bound by a collective bargaining agreement, seniority should, as a rule, be the decisive factor in the selection, and can normally only be departed from where there is valid reason.

It is the overall assessment that is decisive, and the criteria must be objective, verifiable and applied consistently. Section 15-7 of the Working Environment Act also requires a final balancing of interests between the business's need for redundancy and the disadvantages the dismissal causes the individual employee. If the overall assessment does not come out in the employer's favour, a dismissal will not be valid.
 

Important procedural rules

The Working Environment Act contains its own procedural rules for how dismissals are to be carried out. If the employer is bound by a collective bargaining agreement, it is normally required to discuss possible redundancies or reorganisations with employee representatives before the decision is made. The Working Environment Act also sets separate requirements for consultations with employee representatives, safety representatives or the working environment committee (AMU) ahead of such decisions, depending on the number of employees in the business.
 

The employer must also hold individual consultation meetings with the employees being considered for dismissal, before a decision on dismissal is made. This follows from section 15-1 of the Working Environment Act. If such a consultation meeting has not been held, this constitutes a procedural error, which may result in the dismissal being declared invalid.
 

If a decision is made to proceed with dismissal, a notice of dismissal must be drawn up, and the Working Environment Act sets clear requirements for both delivery and the content of the letter. As a starting point, the notice of dismissal must be delivered in person or by registered mail. The notice of dismissal must further contain specific information as set out in section 15-4 of the Working Environment Act. If the formal requirements of this provision are not complied with, the dismissal must, as a general rule, be declared invalid.
 

Once the notice of dismissal has been delivered, the employee's notice period will begin to run from the following month. During the notice period, the employee in principle has both the right and the obligation to perform work in accordance with the employment contract. The length of the employee's notice period depends on what the parties have agreed, and follows either from the employment contract or from the Working Environment Act.

Redundancy step by step: how to do it correctly

In brief, and as a general starting point, a redundancy process should follow these steps:
 

1. Assess and document the need for redundancy. Ensure that the economic or operational basis for the redundancy has been assessed and documented, and that the decisions can be reviewed afterwards.
2. Consider less intrusive and cost-saving alternatives.
3. Establish a preliminary selection pool and selection criteria.
4. Consult with the employees and employee representatives. Note that any collective redundancies (mass dismissals) impose special requirements for consultations and notification to the Labour and Welfare Administration (NAV), among others.
5. Decide on the final selection pool, selection criteria and implementation plan following consultations.
6. Hold individual consultation meetings.
7. Issue a written notice of dismissal that satisfies the formal requirements of the law.

Are you being made redundant? Here is what you are entitled to as an employee

As an employee, you have a number of rights in a redundancy process:
 

• The right to consultation and information. The employer must discuss both the basis for the dismissal and the selection with you before the decision is made, unless you yourself do not wish this.
• The right to a written notice of dismissal with information about your rights. The notice of dismissal must, among other things, inform you of the right to demand negotiations and bring legal proceedings, the relevant deadlines for doing so, and of any preferential right to re-employment.
• The notice period set out in your contract applies as normal in the event of redundancy.
• Preferential right to re-employment. You have a preferential right to re-employment in the business – and in the group of companies if your employer is part of a group – for one year from the expiry of the notice period, provided you have been employed for at least 12 of the last 24 months and are qualified for the position.
• The right to challenge the dismissal and demand negotiations. You can demand negotiations with the employer within two weeks of receiving the notice of dismissal. If the negotiations do not lead to a resolution, the deadline for bringing legal proceedings is, as a general rule, eight weeks if you are claiming to keep your position, and six months if you are only claiming damages.
• The right to remain in your position while the case is being processed, for as long as negotiations are ongoing, and thereafter if legal proceedings are brought within the deadline, unless the court decides otherwise.

Legal advice for a good redundancy process

Cases that end up in disputes before the courts often have a common denominator: the procedure has been inadequate, and the employer has difficulty documenting that there is a valid reason. There may be a lack of verifiable documentation of the redundancy process, the selection may have been too narrow, the criteria may have been vague or not applied consistently, or the notice of dismissal may contain formal errors.
 

Document the need thoroughly, involve employee representatives early, apply verifiable criteria consistently to everyone within the selection pool, and ensure that each employee receives an individual and fair assessment. Make sure that decisions, joint meetings and individual consultation meetings are properly minuted, so that the procedure can be documented.
 

Get assistance from our lawyers with redundancy matters

Whether you are an employer planning a redundancy process or already in the middle of one, or an employee who has received a notice of dismissal, it pays to seek advice early. Our employment law team can assist throughout the entire process, and will ensure that the process can be carried out fairly and efficiently, tailored to your business. If you are an employee going through a redundancy process, we will ensure that your rights are safeguarded and will advise you both legally and strategically on your case.
 

Our experience is that good advice is cheapest before things have had a chance to go wrong, so please feel free to contact us for a no-obligation conversation.

See also our overview of employment law, or contact us for a no-obligation conversation.