Workforce Reduction and Reorganization

The objective-grounds assessment under Section 15-7 of the Working Environment Act means that the selection of which employees are to be dismissed must also be objectively justified.
 

The Act does not directly specify how this selection should be carried out. It is nevertheless clear that the selection must be objective and defensible, and 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. The employer can only narrow the pool to, for example, a department or a geographic area if there is an objective reason for doing so.
 

Once the employer has decided on the selection pool, selection criteria must be established. This means determining which criteria the employees within the selection pool are to be assessed against. The most common selection criteria are seniority, competence, and social circumstances.
 

If the employer is bound by a collective bargaining agreement, seniority will generally be the governing factor in the selection, and can normally only be departed from where there is an objective reason. Nevertheless, it is the overall assessment that is decisive: are objectively justified and verifiable criteria being used, and are they applied consistently?
 

Section 15-7 of the Working Environment Act also requires that a final balancing of interests be carried out between the business's need for the downsizing and the disadvantages the dismissal imposes on the individual employee. If this overall assessment does not weigh in the employer's favor, a dismissal will not be objectively justified.
 

The objective-grounds assessment 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 defensible. 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 can be narrowed if there is an objective 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 will generally be the governing factor in the selection, and can normally only be departed from where there is an objective 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 downsizing and the disadvantages the dismissal imposes on the individual employee. If the overall assessment does not weigh in the employer's favor, a dismissal will not be objectively justified.

A dismissal must always have objective grounds, even 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 carefully 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 tend to be cautious about reviewing the business-economic need for downsizing, but have full competence to review whether the dismissal is based on a correct and adequate factual basis, whether the grounds are relevant, and whether the assessment has had sufficient breadth. For this reason, it is particularly important that the need for the downsizing 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 business's circumstances will not be objectively justified. 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 that are part of the group.

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

It is often referred to as both rationalization processes and reorganizations, but is characterized by the fact that it is circumstances on the business's side that justify the need for dismissals, and not circumstances on the part of the employee. 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, thereby necessitating the dismissal of employees.
 

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

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

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 downsizing or reorganizations with the employee representatives before the decision is made. The Working Environment Act also imposes separate requirements for consultations with employee representatives, safety representatives, or the working environment committee (AMU) prior to 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 to dismiss 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 out clear requirements for both its delivery and its content. As a starting point, the notice of dismissal must be delivered in person or by registered mail. The notice must further contain specific information as set out in Section 15-4 of the Working Environment Act. If the formal requirements in this provision are not complied with, the dismissal shall, 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 start of 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.

The cases that end up in disputes before the courts often share a common denominator: the procedure was deficient, and the employer has difficulty documenting that there were objective grounds. There may be a lack of verifiable documentation of the downsizing process, the selection pool may have been too narrow, the criteria may have been vague or not applied consistently, or the notice of dismissal may contain formal defects.
 

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 objective assessment. Make sure that decisions, joint meetings, and individual consultation meetings are recorded in minutes, so that the procedure can be documented.

Get assistance from our lawyers with downsizing

Whether you are an employer planning a downsizing or already in the process, 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, ensuring that it can be carried out objectively and efficiently, tailored to your business. If you are an employee in a downsizing 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.

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

• 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.
• Right to a written notice of dismissal with information about your rights. The notice must, among other things, state your right to demand negotiations and bring legal proceedings, the relevant deadlines for doing so, and your preferential right to re-employment.
• The notice period under your contract applies as normal in the event of downsizing.
• Preferential right to re-employment. You have a preferential right to re-employment in the business, and in the group of companies if the employer belongs to a group, for one year from the expiry of the notice period, provided that you have been employed for at least 12 of the last 24 months and are qualified for the position.
• 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 compensation.
• Right to remain in the position while the case is pending, for as long as negotiations are ongoing, and thereafter if legal proceedings are brought within the deadline, unless the court decides otherwise.