Case Management for Downsizing - Comprehensive Guidance and Process Guide for Businesses

Proper case handling during downsizing is crucial for the validity of dismissals and can be the difference between successful reorganizations and costly legal disputes. Disorganized downsizing can severely damage mutual trust and loyalty between management and employees, while systematic and prudent case handling reduces the risk of disputes and legitimizes the process. This comprehensive guide covers all aspects of the case handling process from initial assessment to final implementation.

Overall Case Handling Process

Systematic Approach

The downsizing process involves the following main phases: documentation of why staffing must be reduced, discussions with union representatives, decision on the way forward with the selection circuit and criteria, board processing, selection of surplus employees, discussions with each employee, final decision on surplus status, and delivery of termination letters or offer of severance packages.

Organizations bound by a collective agreement will usually have detailed provisions on case handling during downsizing, such as the Main Agreement LO-NHO chapter 9. A common error is lack of discussions with union representatives or the individual employee identified as surplus, or that the organization takes objections raised in meetings too lightly.

Time Perspective and Planning

It is advisable to allocate sufficient time for the downsizing process. Some processes can be completed in a few weeks, others require several months, depending on the scale of the cuts. While it is important to allow enough time for deliberations, one should not take too long. Prolonged processes create uncertainty that can harm the business by causing key personnel to leave or creating doubts with suppliers, customers, and financial partners about the company's future.

Documentation of the Need for Change

Basic Analysis

The first step in considering downsizing is to analyze the company's current organization, identify necessary changes to solve its problems or achieve its goals, determine the new organization structure, and assess the implications of the reorganization for employees.

Consider whether desired effects can be achieved through less intrusive measures, so that other actions than downsizing might address the company's challenges or reduce the need for downsizing. In many cases, it may be appropriate for management to document preliminary thoughts about the selection of surplusemployees at this stage, including selection criteria and circuit.

Written Documentation and Burden of Proof

The analysis should be documented in writing and include references to financial performance figures, forecasts, auditor statements, consultant evaluations, or similar supporting management's assessments. The company is free to decide how to obtain necessary documentation, but will bear the burden of proof that its evaluations are correct in case of a dispute over the fairness of dismissals.

Contemporaneous evidence will be particularly important in such disputes. It is recommended to always have a documented assessment of the need for downsizing and its consequences before initiating the downsizing process, even if it only affects one position.

Discussions with Union Representatives

Collective Agreement-bound Companies

According to the Main Agreement § 9-4, management must discuss with union representatives "as early as possible" employment issues, including plans for expansions and reductions." Already at the first meeting with union representatives, the company may have collected financial statements, budgets, calculations, analyses, market reports, and the like.

The requirement for the discussion to happen "as early as possible" means giving union representatives sufficient time to familiarize themselves with the issue and present views before decisions are made. The point is that the company's management should not make final decisions before union representatives have shared their views.

Confidential Information and Duty of Confidentiality

What might persuade not to inform union representatives is the concern for leaks of confidential information, such as stock-sensitive information, or the spreading of rumors harmful to the company. The Working Environment Act § 8-3 allows imposing confidentiality obligations on union representatives in certain situations.

The Working Environment Act § 8-3 second and third paragraphs state that if the company's needs indicate that specific information should not be shared, the employer can impose confidentiality on union representatives and any advisors. The employer can exceptionally refrain from providing information or conducting discussions if doing so at the time would clearly cause significant harm to the company.

Case Law on Discussions

The Exact-OBOS case illustrates the importance of following discussion rules. Exact-OBOS Real Estate Brokers AS decided to discontinue the Exact chain due to difficult economic conditions, and all real estate agents were dismissed. The majority of the Court of Appeal found the case handling had been negligent, and the terminations had to be considered invalid.

The handling failed in several ways, and the Court of Appeal particularly emphasized that the duty of information and discussionin the Working Environment Act chapter 8 and § 15-2 had not been observed. The Court of Appeal stated that "the negligent case handling rendered the dismissals invalid," underscoring the danger errors posed to the effective functioning of the duty of discussion and information.

Companies Without Collective Agreements

When a company has no union representatives, it generally has no one to discuss potential downsizing with at a collective level. Still, it is good practice to consult employees and follow a case handling process similar to the Main Agreement's framework. Such discussions usually support the claim that the termination process has been fair.

Companies with at least 50 employees still have a specific obligation to provide information and engage in discussions according to the Working Environment Act § 8-1. This provision also applies to companies without a collective agreement. Information must be given so that union representatives can familiarize themselves with the issues, conduct appropriate investigations, consider the issues, and prepare any discussions.

Collective Dismissals and NAV Notification

Definition and Requirements

Collective dismissals are defined in the Working Environment Act § 15-2 first paragraph as "dismissals involving at least 10 employees within a 30-day period." In these cases, the company has a particular obligation to inform and discuss with union representatives to limit damaging effects, as well as a separate duty to notify NAV.

Planning for collective dismissals must be reported to NAV as early as possible. The Labor Market Act § 8 states that an employer considering collective dismissals must notify NAV as early as possible and no later than when the employer calls for discussions, as specified in the Working Environment Act § 15-2 third paragraph.

Consequences of Failure to Notify

The notification to NAV must contain information about the reason for dismissals, the number of employees potentially affected, and the groups they belong to. Failure to notify results in the postponement of notice periods accordingly. The Working Environment Act § 15-2 fifth paragraph states: "Planned collective dismissals will not take effect until 30 days after the Labor and Welfare Service has been notified."

Board Processing

Requirements for Board Approval

Downsizing of some magnitude should be anchored by a board decision. Whether downsizing can be decided by the CEO, or must be anchored in a board decision, depends on whether it is considered unusual or of significant importance according to the company's affairs, cf. the Companies Act § 6-14.

This must be assessed specifically based on the extent of the downsizing relative to the company's size and its significance. Decisions affecting the entire company's organization will often be of such importance that they should be addressed by the board. Smaller staff reductions may be seen as part of everyday management.

It is nevertheless customary to keep the board informed of staff reductions. Such actions can create unrest and disputes, thus requiring board awareness. The board has both a management responsibility and a supervisory duty and should therefore be informed of downsizings.

Selection of Surplus Employees

Documentation of Selection

Once the company has decided on the circuit and criteria for selecting surplus employees, employees within the circuit must be assessed against the criteria. It is very important that the reasoning for this selection is documented in a verifiable way.

Some companies have employees complete forms with their skills and preferences, which serve as the basis for the company's later assessments. Additionally, immediate managers may complete assessment forms for employees they are responsible for. If seniority and expertise are relevant criteria, forms showing employees' age, seniority, formal qualifications, and the employer's assessment of competence should be prepared.

Processing Errors

Lack of a real and verifiable assessment against the selection criteria can result in dismissals being set aside as unfair. The Supreme Court has stated that the more discretionary and subjective the criteria used, the more documentation is required.

In practice, employers sometimes decide on the dismissal of employees holding positions directly affected by the downsizing before holding individual discussion meetings. This is a procedural error that can affect the validity of the dismissals. Position and individual must be fundamentally distinguished.

Individual Discussion Meeting

Legal Requirements and Implementation

According to the Working Environment Act § 15-1, there is a requirement for an individual meeting with each employee considered for dismissal "as far as practically possible." This requirement is interpreted stringently. It takes a lot for an organization to argue that such a discussion meeting was not feasible.

The employee may bring a union representative to the meeting. If the employee wishes to bring another advisor instead, they should normally be permitted to do so. The purpose of the meeting is for the employee to provide the employer with information and express their views on the potential dismissal.

Content and Documentation

The content of the meeting per the Working Environment Act § 15-1 will typically include an explanation from the company's side for the downsizing and why the employee is called in for discussions, including a review of the selection criteria. The employee then gets to express their views and provide information about themselves that they wish to be considered.

A protocol should be prepared from the meeting. The employer typically takes responsibility for ensuring this is done and should send it to the employee for input before finalizing it. Although there is no statutory requirement for a protocol under the Working Environment Act, it is beneficial to document that the meeting took place and to summarize its content.

Termination Letter and Formal Requirements

Statutory Requirements

A termination by the employer must be in writing and contain content as specified in the Working Environment Act § 15-4. In essence, the letter must include information about the employee's right to sue, deadlines for doing so, who the lawsuit should be directed against, the right to negotiations with the employer, and information about preferential rights in re-employments.

If the termination letter does not contain the statutory information, the termination will generally be set aside if contested within four months from the termination date. In the event of an invalid termination, the employee is also entitled to claim compensation.

Delivery

The termination should be delivered personally or sent by registered mail and is considered to have occurred when it reaches the employee. The wording of the law does not allow for termination from the employer's side by email or text message, although some Court of Appeal rulings have permitted this under special circumstances.

Notice Periods

Main Rules

The law establishes minimum requirements for how short notice periods can be agreed upon. The main rules according to the Working Environment Act are:

• If not otherwise agreed in writing or established in a collective agreement, a mutual notice period of one month applies

• For employees employed for at least five consecutive years, a mutual notice period of at least two months applies

• With at least ten years of continuous employment, the mutual notice period is at least three months

• For employees terminated after at least ten years of continuous employment, the notice period must be at least four months after reaching the age of 50, at least five months after reaching the age of 55, and at least six months after reaching the age of 60

Calculation of Notice Time

The notice period runs from the first day of the month after the termination took place, except for terminations during the probation period where the period runs from date to date. It is important to remember that the termination is not considered to have taken place until it has "reached" the employee.

Employee's Right to Justification

Obligation to Provide Reasons for Termination

The employer is not obliged to provide a written justification for the termination unprompted, even if this may sometimes be appropriate. The rationale is that the employee is presumed to already know the justification, as it should have been discussed in the consultation meeting. However, if the employee requests it, the employer must state the circumstances cited as grounds for the termination.

Significance of Lack of Justification

The preparatory works to the Working Environment Act state that although the law does not specify legal consequences if the employer refuses to provide subsequent justification for the termination, this "is normally to be perceived as a strong indication that the employer lacked sufficient valid grounds."

Sanctions and Consequences of Errors

Invalidity Sanctions

Case handling errors can have serious consequences for companies. Case law shows that courts do not hesitate to invalidate dismissals when case handling rules are not followed. In the Exact-OBOS case, all dismissals were found invalid due to negligent case handling.

The Sanctions Board, established under the Main Agreement LO-NHO § 9-14, can impose fines for gross violations of information and discussion provisions. The board comprises the parties alongside a neutral leader with a judicial background.

Liability for Damages

In the event of invalid dismissal, the employee is entitled to compensation. Damage claims can legitimately be raised even if the employee does not seek judgment on the invalidity of the dismissal. The manner in which the dismissal was conducted will typically be a factor considered both in the fairness assessment and particularly in the awarding of any damages.

Strategic Recommendations

Importance of Agreements with Union Representatives

One advantage of reaching an agreement with union representatives is that such an agreement will be significant in any legal process. Courts will be reluctant to override such consensus. The Supreme Court has stated that "courts should exercise considerable restraint in overriding agreements reached through negotiations between employer and union representatives."

Proactive Approach

Companies should establish systematic procedures for downsizing processes and ensure all involved managers are familiar with case handling requirements. Early involvement of an employer organization or a law firm experienced in employment law can prevent costly mistakes.

Comprehensive Case Handling Checklist

Documentation and Preparation

• Is there documentation of the need for downsizing, such as financial statements, forecasts, or similar?

• Is there documentation of management's assessment of the need for downsizing, including necessary changes?

• Has it been considered if the desired effects can be achieved through less intrusive measures?

Discussions and Participation

• Have discussions with union representatives occurred that address why downsizing is necessary?

• Has a protocol from the discussions been written and accepted by union representatives?

• Have union representatives been informed "as early as possible" in the process?

Special Rules

• Has it been assessed whether the reorganization involves collective dismissals, and if so, are special rules followed?

• Has notification of collective dismissals been sent to NAV as early as possible?

• Has it been considered if downsizing needs to be addressed by the board?

Selection and Individual Treatment

• Has a fair and verifiable assessment of employees been conducted and documented in writing?

• Have individual meetings been conducted with all employees considered for termination?

• Are there protocols from individual discussion meetings?

• Has a final decision been made after individual discussion meetings are concluded?

Formal Requirements

• Are the termination letters properly formatted in accordance with the Working Environment Act § 15-4?

• Have termination letters been delivered personally or sent by registered mail?

• Have correct notice periods been calculated and adhered to?

By following this systematic approach, companies can minimize the risk of case handling errors and ensure downsizing processes are carried out in a legally compliant and socially responsible manner. Thorough preparation and strict adherence to case handling rules are not only a legal requirement but also a basis for maintaining trust and legitimacy in the organization.