Introduction

The High Court recently ruled in a case regarding a workforce reduction following the closure of a department store. The key question in the case was whether the employer was justified in limiting the selection of employees to be made redundant to those at the affected store.

According to the Working Environment Act, an employer can terminate an employment contract if the termination is objectively justified on the basis of circumstances relating to the undertaking (Section 15-7). According to case law, in this event the employer must document that it had sufficient grounds for workforce reductions and that the selection of employees who were made redundant was justifiable.

The selection of employees who can be made redundant must be carried out in accordance with the non-statutory guidelines arising from case law and applicable collective agreements. It is not always the employee whose position will be eliminated who must be dismissed. When making the selection, the employer must – as a general rule – consider all of its employees. This means that employees are entitled to be considered for all of the positions in the company that they are qualified for.

Facts

A company selling sports equipment through three different chains, and with stores throughout Norway, closed a local store due to poor revenues. As a result, the head of sales – and the only employee working in the local store – was made redundant.

The employee sued the employer, claiming that the termination was unjustifiable. The parties agreed that the employer had had an actual need for workforce reductions. However, the question was whether the employer had had a justifiable reason to limit the selection of employees to be made redundant to the local store, or whether – in accordance with the general rule – it should have considered all of its employees in the selection process.

The employer admitted that it had not assessed the plaintiff and compared him to other employees holding positions that he was qualified for.

Decision

The High Court pointed out that the general rule that an employer must consider all of its employees in the workforce reduction selection process may be deviated from if such decision is justified. This is subject to an evaluation of each individual case. Relevant factors in the evaluation are:

  • the undertaking's size;
  • the practical issues of considering all employees in the selection process;
  • the employer's need to maintain necessary expertise;
  • securing the employer's further operations; and
  • whether the workforce reduction is a one-time measure or part of a larger reorganisation strategy.

The employer's financial status and operational challenges are also of importance.

The High Court stated that the employer must have weighty arguments for limiting the selection of employees to be made redundant. Conversely, the Working Environment Act cannot be interpreted to impose disproportionate processes on the employer, undermining the security of the remaining employees.

The High Court concluded that in this instance it was justifiable to limit the selection of employees to be made redundant to the relevant store, even though the store had only one employee. The court pointed to the fact that the employer had a long and consistent practice of considering employees at its individual stores separately in workforce reductions. Further, the employer's size and organisation were of importance; the employer had approximately 2,000 employees at approximately 100 different stores across a significant geographic area. The stores were not divided into different divisions and there was, in the court's view, no other natural selection limitations other than the individual stores. The employees worked at the specific store which employed them, and the store was their main connection to the employer.

The court also considered that the employer had not conducted only one workforce reduction. Rather, the process was part of consecutive efforts to adapt to the market situation and competition. Such reoccurring processes involving a great number of employees require significant resources and time, which can be critical for the employer's ongoing business. At the time, the employer had been in a critical economic situation.

The plaintiff argued that the purpose of maintaining a selection process was undermined if the selection could be limited to a store employing only one employee. However, the High Court stated that there was no fundamental reason to rule out the selection of employees within one store because the store had only one employee. The company's practice of limiting the selection to the individual store did not mean that the employee in question had fewer rights than the employees in bigger stores when it comes to liquidations – when the selection is limited to a store in relation to a liquidation, there is no selection process.

Further, the High Court pointed out that there had been no discrimination. The employer's established practice of limiting the selection to the individual store meant that the plaintiff had not been considered in previous workforce reductions in other stores.

The High Court concluded that the employer had reasonable grounds for limiting the selection to the store in question, and that there had been justifiable grounds for terminating the plaintiff's employment contract.

Comment

The High Court's ruling confirms the general rule that an employer must consider all of its employees when reducing its workforce. However, the general rule may be deviated from if such a decision is based on justifiable grounds, including if the selection of employees to be made redundant is limited to a store consisting of only one employee. The judgment does not deviate from former practice, but clarifies the legal requirements of workforce reductions. It provides information on relevant factors to be considered when limiting the selection. These clarifications are particularly useful in situations where extensive workforce reductions occur, as is the case for many big companies.

Whether an employer has justifiable grounds to limit the selection depends on a case-by-case evaluation. In practice, an employer will often fulfil the requirements, but it must carefully evaluate the situation and relevant factors before limiting the selection. It is also recommended that any deviations from the general rule are discussed with the employees' representatives.

For further information on this topic please contact Ole Kristian Olsby at Homble Olsby Advokatfirma AS by telephone (+47 23 89 75 70) or email (olsby@homble-olsby.no). The Homble Olsby Advokatfirma website can be accessed at www.homble-olsby.no.

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