Downsizing – selection among employees

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When an enterprise has made a decision to reduce the staff, the question of which employees are to be considered for dismissal arises. A selection based on more specific criteria must be made.

The basic criterion for any dismissal is that it must be objective. This is laid down in the Working Environment Act Section 15-7, where it is stated that dismissals must be «objectively justified on the basis of circumstances relating to the undertaking», which is an absolute requirement when dismissal of an employee is considered. In order to make an objective selection in connection with downsizing, the group within which the staff reductions shall take place must be defined, as well as the criteria by which the employees are going to be considered.

Objectively limited selection group

The basic assumption is that the selection group consist of the whole enterprise/company in which the downsizing will take place. The question of whether the selection group may be limited to part of the enterprise, must be decided on the basis of the requirement for objectivity laid down in the Working Environment Act. Any limitation of the selection group must also be objective. It will be an advantage if agreement with the employees’ elected representatives as to who will constitute the selection group can be obtained. The question of whether the selection group is objectively limited, will depend on a specific assessment in which the relevant factors, among other things, will be whether agreement has been obtained with the employees’ elected representative, whether any established practice regarding limitation of the selection group in connection with previous staff reductions exists, the financial position of the company and the need to keep necessary competence in the enterprise, the size of the company and its geographical extension, as well as practical problems in connection with using the whole enterprise as selection group. Please contact your NHO Regional Association for guidance if you are in doubt.


Objective selection criteria

When the enterprise has defined in which group the staff reductions will take place, the criteria by which the employees are to be assessed must also be defined. The Act does not specifically define what an "objective justification" is and thus does not provide much guidance. A great deal of practice, however, is to be found in court decisions, which provide a framework for what should be considered objective criteria. Competence, seniority and social considerations are typical selection criteria that have been considered as objective in court practice. However, other elements may also be included in the assessment.

Typically, competence will include formal education, specialist competencies, practical experience, multi-specialization and personal suitability.


Calculation of seniority

No statutory rules for calculating seniority exist. It follows from court practice, however, that seniority is usually calculated on the basis of an employee’s consecutive period of employment in the enterprise. In other words, seniority is not interrupted by change of position internally in the company. In the course of many years of employment the enterprise may have been split up, merged or reorganized so that it is not obvious when an employee was hired in the enterprise where he/she is now working. In some cases, questions like this are referred to in the collective agreement, in practice in the individual enterprise, or they may be regulated in the contract of employment of the individual employee. If in doubt, it may be useful to contact your NHO Regional Association for guidance.

Social matters typically include age, health and other special family matters or other special matters making it particularly burdensome for the employee to lose his/her job.

The emphasis on each individual criterion in a downsizing process may vary on the basis of the situation the enterprise is in, as well as reason for the staff reductions. It will almost always be an advantage if agreement with the employees’ elected representatives can be reached concerning the selection criteria in connection with staff reductions.


Competence should be documented

Pursuant to the Basic Agreement between LO and NHO Section 8-2, the principle of seniority may be departed from when there is due reason for this. The provision does not mean that one has an obligation to make seniority the most important factor, but that period of service is one of the factors that shall be considered when the assessment is made. This means that if two employees are assessed as equal after other objective criteria have been considered, it would be just to attach importance to the fact that the seniority of one of the employees is longer than that of the other. Competence may also be a criterion justifying departure from the principle of seniority.

It is not only employees in key positions that may be retained rather than employees with a longer period of service. A central factor, however, is that the enterprise is able to prove that differences regarding competence exist, and why it is important to keep the competence of a specific employee. One should notice that in certain cases, one must be prepared to provide training to employees with a longer period of service to fill a competence need. Whether the enterprise has a duty to do this, however, will depend on an assessment of how long this will take, how precarious the situation for the enterprise is, etc.


Other suitable work

Pursuant to the Working Environment Act Section 15-7, the employee shall be offered any other vacancies in the enterprise that he/she is qualified for. Dismissal of an employee is not objectively justified if such other work is available in the enterprise. Notice that there is no duty to establish a position for which the enterprise believes there is no need.