The factual requirement in downsizing processes - which of the employees should be dismissed?
When does the employer have factual grounds for initiating a downsizing process and which of the employees should be dismissed?
Authors: Lawyer Malin Stenseth and lawyer and partner Maria Elena Kvalen
Downsizing = Reduction of the number of man-years in a company, which is carried out by the employee(s) receiving dismissals from the employer. The dismissal is always due to the company’s circumstances, in contrast to traditional individual dismissals, which can also be due to circumstances on the employee’s side.
Requirement of factual reason
The Working Environment Act Section 15-7 (1) regulates the employer’s right to dismiss an employee, including when the employer can legally carry out a downsizing:
“Employees cannot be dismissed without a factual justification in the circumstances of the business, the employer or the employee.”
For a downsizing to be legal, it must be "factually justified". The requirement for factual justification is linked to two different aspects of downsizing:
- Factual justification for downsizing
- Fair selection of employees
Factual justification for downsizing
There must be a factual justification for why the company needs to reduce the number of man-years.
The need must be due to conditions linked to the business. It is important that the business’s situation and the need for downsizing come into view in the justification given to the employees.
Examples of reasons for downsizing that are often considered to be factual:
- Streamlining and reorganisation
- Failing workload and redundancy
- Prolonged operation interruptions
The need for downsizing cannot be due to circumstances linked to the individual employee’s circumstances. In such cases, you must carry out traditional individual dismissals. Read more about dismissals from employers here.
Fair selection of employees
The requirement for factual justification is also linked to the selection of which employees are to be dismissed.
Firstly, the limitation of the "selection circle" must be factual, and secondly, the "selection criteria" must be factual.
Factual reason for limiting the selection circle
Selection circle = The group of employees who are to be assessed against each other in a downsizing.
In order to decide who is to be dismissed in a downsizing, the employer must assess the individual employees against each other. In this connection, a decision must be made as to which group of employees will make up the selection circle, and thus be included in the assessments.
The starting point is that the entire business constitutes the selection circle, but the selection circle can be limited to a smaller part of the company, if there is a factual reason for the limitation.
A concrete assessment must always be made as to whether there is a basis for limiting the selection circle, and we recommend seeking assistance from a lawyer in this assessment. The following conditions may justify a factual limitation of the selection circle:
- Geographical or organisational reasons: e.g. that only one of several departments should be closed down
- The need to retain the necessary expertise and ensure continued operation
- Agreement with representatives on the limitation of the selection circle
- Previous practice in the business to limit the selection circle
Factual selection criteria
Once the selection circle has been clarified, the employees within this circle must be assessed against each other. The assessments must be based on factually justified selection criteria. The business cannot, for example, emphasise age, gender, race, religious affiliation, etc.
It is recommended that emphasis is placed on several different selection criteria. The traditional selection criteria for downsizing are:
- Seniority
- Competence (formal / real)
- Suitability
- Social conditions
For businesses that are bound by a tariff agreement, the tariff agreement will set certain restrictions on the choice of and the weight of the selection criteria. In these cases, the principle of seniority will prevail. In some tariff agreements, seniority is imposed as the only criterion, while in others, such as the Main Agreement between LO and NHO, it is imposed as a starting point for the assessment, but where other selection criteria can also be emphasised.
Read more about the weighting of seniority during selection in downsizing processes here.
It is important to be aware that the more discretionary the criteria, the more important it is to ensure documentation of the assessments that are made. This is to avoid subsequent discussions, disagreements and disputes.
Other suitable work
Dismissal based on the need to downsize will not be valid if the employer has other suitable work in the business to offer.
What is suitable work?
- The employee must be qualified for the position
- The position must be vacant - the employer is not obliged to create a new position
It is the employee himself who decides whether he or she wants the offered position. The position offered therefore does not have to entail the same salary and responsibility as in the previous position. If there are several suitable positions, the one that is closest in terms of salary and work tasks will still be offered.
REMEMBER!
A well-planned downsizing process can be the decisive difference between a successful process and a lawsuit.
Did you know:
It is not a condition for downsizing that the business is doing badly. It is sufficient that the management has a factual justification for why they consider it appropriate to make changes. This may be the case if the management of a business that is already doing well wants the business to do even better, for example by means of a reorganisation.
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Factual and sound case management is a decisive factor for successful downsizing. Feel free to contact us at SANDS to ensure the quality of the process and the necessary documentation.
