Selection Criteria for Downsizing - Objective Criteria and Legal Frameworks

Selection criteria for downsizing must meet strict requirements for objectivity and non-discrimination. Companies undergoing downsizing face complex evaluations when deciding which employees to terminate and which to retain. This presentation highlights the legal framework for selection and provides guidance on the practical application of objective criteria.

Basic principles for selection

During downsizing, the company must select which employees to be terminated and which can remain. The criteria for this selection must be objective and assessed against the company's future needs - which employees are needed for the company to achieve the goals justifying the downsizing.

Objective versus subjective criteria

Selection criteria can be categorized as objective or subjective. Objective criteria include measurable factors such as seniority, age, sales results, absenteeism, and formal qualifications. Subjective criteria depend on the employer's judgment and include applicability, skill, and real qualifications.

For many companies, competence constitutes a central criterion. Typically, the company will retain employees with the right competence in light of what the company delivers or plans to deliver in the future - for example, data knowledge in data companies, accounting competence in accounting offices, or trade certificates in workshops.

Assessment of objectivity

Case law shows that several different selection criteria can be objective under given circumstances. The main point is that the criteria lead to a defensible selection without irrelevant considerations or unfair discrimination. Within these frameworks, the employer has relatively free discretion.

Recognized criteria

It is common to emphasize combinations of seniority, competence (both formal qualifications and real competence), applicability/suitability, and social conditions. Cooperation skills can be characterized as part of applicability and constitute a relevant assessment aspect.

The Supreme Court in the Skanska case emphasized that seniority is undoubtedly an objective criterion, but the employer may also base the decision on other criteria such as qualifications, competence, and professional skill. Such criteria can contribute to the company's survival or strengthen future prospects.

Social considerations

Social considerations must always be part of the individual employee's evaluation. Age is typically a relevant factor, as it is often more difficult for older employees to find new employment, so that termination may effectively result in exit from the workforce. This consideration is less significant if the employee has the opportunity for retirement.

Considering social conditions does not exclude that there can be an objective reason to retain younger employees while older are terminated if only the younger has the necessary competence or is better suited.

Suitability and cooperation skills

A judgment from the Frostating Court of Appeal illustrates suitability as a criterion. During downsizing at the research and development institution Marintek AS, a 56-year-old Dr. Eng. with 12 years of seniority and good competence was terminated due to lack of cooperation skills and loyalty. The Court of Appeal found that suitability is substantially relevant in reorganization during difficult market conditions.

With reference to the The Working Environment Act's requirements for a good working environment, the employee's potential negative influence on the environment will be important. If the employer can demonstrate poor cooperation skills affecting the business and other employees, it may be objectively reasonable to select the person for termination. This must be balanced against the need for openness where employees can express opinions and disagree with the employer.

Further relevant criteria

Other relevant criteria may include customer relations, customer contact, and customer knowledge. Customers' wishes for a specific person to be attached to projects can be important. Sales skills will also be relevant in many contexts.

The Supreme Court's statements in the Hillesland case show that moderate differences in seniority are not necessarily decisive. The Supreme Court found that employees with six to eight years of seniority had not been employed "particularly long," showing caution should be exercised before attributing too much weight to seniority differences.

Prohibition of discrimination

Selecting groups for termination solely based on group affiliation - such as nationality, gender, age, or similar categories - will regularly be unreasonable. Selection must be based on broader evaluation grounded in the downsizing rationale and must not contravene existing anti-discrimination prohibitions.

Anti-discrimination prohibitions are regulated in chapter 13 of the Working Environment Act and the Equality and Anti-Discrimination Act. With a reasonable plan for downsizing, significant impact on discrimination grounds is required.

Agreement with union representatives

In evaluating selection criteria, agreement with union representatives on the criteria will be relevant. The Supreme Court has stated that agreements with the union apparatus carry heavy weight in objectivity assessments.

Documentation requirements

It is extremely important for the employer to document a thorough evaluation of employees against the selection criteria. The more discretionary the criteria used, the better documentation is required.

Seniority in tariff-bound companies

Seniority as a selection criterion holds a special position for tariff-bound companies with a seniority clause. The Main Agreement LO-NHO § 8-2 stipulates: "Upon termination due to downsizing/restructuring, seniority can be deviated from when there is an objective reason."

Settlement between LO and NHO

In a settlement between LO and NHO of October 2018 regarding the understanding of the Main Agreement § 8-2, it was established that seniority forms the basis for selection. Service time must be taken into account, but the weight given to seniority depends on a comprehensive assessment of all relevant circumstances. The order of seniority should not be followed unconditionally - seniority can be deviated from with an objective reason.

Skanska ruling

The understanding of the settlement was at issue in the Skanska ruling from the Supreme Court. The case concerned the validity of six terminations during a downsizing of about 50 employees, where Skanska emphasized competence and professional skill. The terminated employees had seniority between five and a half and eleven years, whereas employees with shorter seniority were not terminated.

The Supreme Court emphasized that tariff-bound companies are bound by the limitations of the collective agreement in addition to the general rules of the Working Environment Act. The selection evaluation must be based on the seniority principle, but the weight of seniority must be assessed concretely through comprehensive evaluation.

Practical emphasis

The Supreme Court summarized that the selection must rely on a comprehensive evaluation where the length of seniority and differences in seniority are weighed against the strength of other criteria invoked by the employer. The weight of the latter criteria may vary according to the company's situation and needs. In larger companies and with larger downsizing, special considerations are relevant, related to the need to group employees according to objective criteria.

Practical recommendations

In practice, it can be difficult to know how much weight should be given to seniority for tariff-bound companies. A practical approach should be to compile a list of employees' seniority and then justify exceptions specifically based on established criteria.

The justification for exceptions must be verifiable. Agreement with union representatives on criteria and weighting is advantageous. In the Bravida case from 2018, the parties agreed on criteria including formal competence, special competence, applicability, and disciplinary conditions, in addition to specific regulation of seniority.