Facts
General manager in real terms?
Unjustifiable termination and offer of new employment on new terms?
Comment


On 18 March 2021 the Gulating Court of Appeal issued a decision which considered whether an employer had issued an unjustifiable termination and offer of new employment on new terms. As opposed to the district court, the majority of the Gulating Court of Appeal accepted the employee's claim and awarded her compensation.

Facts

In 1978 the employee was employed in an accounting role in the parent company of a family-run group. Over time, she was given more tasks and responsibilities. In 2004 she became a deputy member of the company's board and in 2007 she became a permanent board member. In 2007 she was also registered with the Brønnøysund Register Centre as the company's general manager. The employee was authorised as an accountant, and the general manager was required to have such authorisation because the company kept accounts for companies outside the group.

In connection with a reorganisation of the group in 2017, the employee's registration as general manager with the Brønnøysund Register Centre was cancelled without prior notice and changes were made to her responsibilities and tasks. In 2019 she filed a lawsuit, the crux of which was whether:

  • these changes were significant enough to qualify as an unjustified termination and offer of new employment on new terms; and
  • the employee was entitled to compensation.

General manager in real terms?

The Gulating Court of Appeal first ruled on whether the employee had actually and formally functioned as the company's general manager before the 2017 reorganisation or whether she had performed only some of the tasks that normally belong to a general manager.

There was no employment contract, collective agreement or job description that clarified the framework for the employment relationship. Thus, the Gulating Court of Appeal took as its starting point the Companies Act's definition of a general manager's area of responsibility and made a specific assessment of the employee's responsibilities and tasks. The court was divided in this respect.

Majority opinion
The majority, comprising four judges, concluded that the employee had been the company's general manager before the 2017 reorganisation in both real and formal terms. The majority assumed that the employee's registration as general manager in the public register, without any restriction as to her responsibilities, gave a strong presumption that the registration reflected reality.

Further, the majority assessed the employee's responsibilities and tasks, While a key part of her tasks concerned accounting and payroll, the majority also found it probable that the employee had had independent responsibility for other functions and activities.

In this context, the majority stated that the time spent on accounting and payroll compared with other tasks was not a decisive factor; rather, the key point was that the employee had been responsible for the day-to-day management of the parent company.

Minority opinion
The minority, comprising one judge, found it improbable that the employee had had significant tasks in addition to her accounting, budget, salary and annual settlement responsibilities and stated that, in any case, these other tasks had formed a smaller part of her overall tasks. Further, the minority assumed that the employee had been registered as a general manager with the Brønnøysund Register Centre in 2007 so that the company could take on accounting assignments for companies outside the group.

Unjustifiable termination and offer of new employment on new terms?

The Gulating Court of Appeal also assessed the employee's work situation after the 2017 reorganisation. The majority concluded that the changes in the employee's responsibilities and tasks had been significant and a clear downgrade compared with the position that she had held before the organisational changes. Among other things, the court pointed out that:

  • the employee had been organisationally placed in line with employees for whom she had previously had personnel responsibilities;
  • the responsibilities relating to wages had been transferred to another employee, who had also taken over personnel responsibilities for two employees who had previously reported to the employee in question;
  • the functions for which the employee had previously been responsible had been moved to other departments in the group;
  • the company's 2018 management meeting had been conducted without the employee being present, which indicated that the new management did not consider her to be part of the company's management; and
  • after the reorganisation, the employee had reported directly to the person who had registered her as the general manager in 2017.

Majority opinion
The majority stated that these changes meant that the employee had actually been demoted and deprived of tasks that appeared to have been essential to the employment relationship. Further, the Working Environment Act's procedural rules for termination had not been followed, and no claim that there were grounds for termination had been made. Therefore, the majority concluded that there had been an unjustified termination and offer of new employment on new terms.

The majority also concluded that the employee was entitled to compensation for financial and non-financial loss for the unjustified termination and offer of new employment on new terms.

Minority opinion
The minority concluded that the changes had been necessary, objectively justified and within the employer's right to manage. Therefore, it held that there was no unjustified termination and offer of new employment on new terms.

Comment

This judgment is interesting because it shows that the courts, in assessing the facts of such a case, will take as their starting point the tasks that the employee has actually performed and their actual responsibilities. This is especially true in employment relationships where the nature of the position has changed over time, without the employer having provided an updated employment contract, job description or role instructions.

Further, the judgment illustrates the importance of who is formally registered as performing a role in a public register. If an employee is registered as a general manager, there is a (strong) presumption that they are a general manager with the normal responsibilities of such position. If the employer thinks otherwise, this should be clearly stated in writing (eg, in the employment contract, job description, role instructions or organisational chart).

The judgment is also interesting because it illustrates that gradual changes over time may be considered in context. Whether this applies in all cases is unclear – it is not a given that changes that occur over a longer period and have no internal causal connection must be assessed in the same way.

The judgment is also relevant with respect to the duty to mitigate loss. The employer had not made any changes to the employee's pay conditions and the employment relationship had been terminated by the employee herself on her resignation (presumably due to the changes) long after the changes had been implemented. However, the employee still received compensation which was calculated as if the employment relationship had been terminated by the employer. Notably, the parties do not seem to have questioned this.

For further information on this topic please contact Ole Kristian Olsby or Nina Elisabeth Thjømøe at Homble Olsby | Littler by telephone (+47 23 89 75 70) or email ([email protected] or [email protected]). The Homble Olsby | Littler website can be accessed at www.homble-olsby.no.