Downsizing: A Guide for Employers

Downsizing is a process that involves a reduction in the number of employees in a company. This is often a result of financial challenges, and it is important that employers follow the correct procedure to ensure that the process is legal and fair.

What is downsizing?

Downsizing involves a reduction in the number of employees in a company. This is often a result of financial challenges. Unlike individual dismissals, which often are based on employee behavior, downsizing is always a result of the company's conditions. There are several requirements that must be met for a downsizing process to be legal, including that there must be a justifiable reason for the layoffs.

How to start a downsizing process?

Companies facing a possible downsizing should make a comprehensive assessment of the company's situation and the need for downsizing as early as possible. Before starting a downsizing process, the company should consider several factors, including whether the economic downturn is permanent or temporary, the consequences for employees and the work environment, the risk of unwanted turnover as a result of the process, and whether there are alternative ways to reduce costs or increase profitability.

The requirement of justification in downsizing processes

A company that is operating at a loss and is at risk of having to cease operations will normally have a justifiable reason to carry out a downsizing process. But there is also a requirement regarding the selection itself: Which employees should be dismissed? The selection criteria must be justified and cannot be discriminatory.

Consultations with employee representatives

To ensure an orderly downsizing process, the employer must also follow the general dismissal rules in the Working Environment Act, including holding consultation meetings and providing formal dismissal notices. The employees, represented by their union representatives, should be informed about the situation as early as possible and be given the opportunity to provide input.

Severance packages in downsizing

Although employees have no right to receive a severance package in cases of justifiable dismissal, severance packages can be used as a resolution mechanism to avoid legal proceedings. This can be particularly relevant in cases where the employer is uncertain whether the dismissal is justified or where there have been errors in the process.

Conclusion

Downsizing is a complex process that requires careful planning and execution. It is important that employers understand and follow the legal requirements to ensure that the process is fair and legal. By doing this, employers can minimize the risk of legal disputes and maintain a positive working environment, even under difficult economic conditions.

Remember, it is always wise to seek legal advice when facing a potential downsizing process. At Sterk Law Firm ('Advokatfirmaet Sterk'), we can provide guidance throughout the entire process, from assessing the need for downsizing to conducting dismissals and any negotiations with employees.