Norway: Industry Group Publishes Downsizing Guidance

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By Marcus Hoy

Feb. 11—The Confederation of Norwegian Industry (NHO) has published new guidance for companies wishing to implement redundancies (mass layoffs). The Feb. 2 document, which is only available in Norwegian, lays out the correct legal procedures and justifications companies must adhere to before layoffs can take place. Failure to adhere to correct procedures could result in the dismissals being ruled invalid, the NHO said.

Given the sluggish economy and declining revenues, the NHO has received numerous inquiries from companies looking to downsize. While most companies follow the correct legal procedures, those breaching them could be the subject of costly legal action. The guidance includes a standard checklist employers can consult before issuing redundancy notifications.

‘Clear and Concrete'

A guiding legal principle, the NHO said, is that all companies are obliged to manage their economic situation responsibly. When carrying out assessments of whether layoffs are necessary, management is not obliged to limit its appraisal to the current situation and may also take forward-looking measures to ensure the business's future viability. In any case, layoffs must be justified on rational business grounds such as a lack of orders, a declining customer base or reduced revenues.

The guidance stresses the importance of employers discussing redundancy plans with trade union representatives before layoffs actually take place and formulating a “clear and concrete timetable” related to when they will occur. A good consultation process can help create understanding among employees, the NHO said, and reduce unrest.

In accordance with Norway's Working Environment Act (2005/62), all layoffs must be discussed beforehand with the affected individuals. For larger rounds of redundancies, trade union representatives should also be consulted.

“It is our clear recommendation that employees and their representatives are consulted in all stages of the downsizing process,” the NHO guidance said, adding that companies bound by collective agreements will likely be held to a requirement to involve union representatives in discussions before any final decision is made.

Alternative Position

According to the Working Environment Act, a dismissal cannot be said to be objectively justified if the employer has other suitable work that can be offered to the employee. This is to be read as a requirement that an employer consider whether any other suitable position may be appropriate for those who would otherwise be made redundant.

Not only must the employer demonstrate legitimate business grounds to reduce the workforce, the NHO said, it must also demonstrate a reasonable basis for the choice of employees who are to be laid off. In many cases, a relevant question would be whether the size of the redundancy pool can be limited to a geographical area, an area of function, a department or another specific group of employees.

As a starting point, the NHO said, the redundancy pool should extend to the entire workforce, but can be narrowed down if objective and reasonable grounds exist. Factors can include the economic situation, the company's size and location, and more practical matters such as the tasks performed by employees. The question of whether the company has previously limited a redundancy pool will also have relevance.

When assessing which employees within the redundancy pool should be dismissed, criteria should include competence, seniority, fitness for work and the employees' social situation outside the workplace, the NHO said. Unions often demand that seniority be deemed the primary factor and a legally binding accord between the NHO and the Confederation of Norwegian Trade Unions (LO) states that seniority should be the defining factor if no other objective criteria exist. A typical reason to depart from the seniority criteria would be if the company deems it necessary to establish new workforce competencies for future operations, the NHO said.

Mass Layoffs

Special rules on layoffs of 10 or more employees are laid out in the Working Environment Act. In such cases, the law mandates stricter procedures related to consultations with employee representatives, including the provision of written information laying out the reasons for the layoffs and the number of workers who may be made redundant. Employees who agree to take on early retirement or are offered a final settlement should be counted in the redundancy pool if at least five employees are given notice. Documentation must be provided to the Norwegian Labor and Welfare Administration (NAV) and the layoffs cannot take effect until 30 days after NAV is notified. If a mass dismissal is due to the closure or relocation of a business with over 30 employees, the Norwegian Restructuring Act (2008/38) contains specific requirements including an obligation to notify regional administrations.

If subsequent legal action is taken by employees or their representatives, the NHO said, the employer should ensure that it can document that an orderly and objective procedure was undertaken and that input from employees and their representatives was taken into account.

‘Objectively Justified'

“More companies are downsizing these days,” Marianne Gjerstad, an attorney at the legal firm SBDL, told Bloomberg BNA Feb. 4. “We have seen a considerable increase in the number of companies looking to reduce staff in order to save costs. Both small and large enterprises are going through with workforce reductions. In our experience, most companies want to follow procedure and manage to do so with the proper assistance.”

“A dismissal must be objectively justified in order to be valid,” Gjerstad said. “This condition refers both to the reason behind the dismissal and the process leading up to it. If a company is downsizing, the most important thing to remember is to follow the procedures accurately. Norwegian courts are generally reluctant to overrule a decision to downsize, as it is considered a business decision. However, the courts will look closely at how the process has been planned and executed. Even though a company needs to reduce staff, a dismissal may be found to be invalid if the process has not been executed properly.”

Mandatory Consultation

“The employer should consult with the employees' elected representatives as early as possible, and in some cases this is mandatory,” Gjerstad said. “Furthermore, the employer must establish a selection pool and a number of selection criteria in order to determine which employees to dismiss. It is important that the selection criteria are applied fairly. Finally, the employer must enter into individual consultations with all the relevant employees, before making a final decision to dismiss them.”

Gjerstad referred to a Dec. 8, 2015, Supreme Court ruling (015/828) allowing an employer to restrict a redundancy pool to a single employee as evidence that courts could be taking a more favorable attitude to narrower pools.

“It is a primary rule that the selection pool should consist of the entire legal entity,” she said. “However, more narrowly defined selection pools have been approved by Norwegian courts if it is highly impractical or impossible to compare all the employees in the organization. In its recent decision, the Supreme Court found that a more narrowly defined selection pool could be used in a downsizing process if assessing the entire legal entity was disproportionately burdensome to the process. The decision might indicate a more relaxed attitude towards the use of more narrow selection pools in the downsizing process.”

To contact the reporter on this story: Marcus Hoy in Copenhagen at

To contact the editor responsible for this story: Rick Vollmar at

For More Information

The NHO's guidance is available in Norwegian at

For more information on Norwegian HR law and regulation, see the Norway primer.

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