Anne Cathrine Hunstad
Anne Cathrine Hunstad, Director of Tekna’s legal department

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Reorganization and downsizing

Written by Tekna’s Legal Department Feb. 26 2021

There are clear rules about when an employer can reorganize and downsize a company.

When changes are made to a workplace that affect employees, there are several requirements that employers must meet in order to ensure this process is fair and runs smoothly. 

The company’s union representatives have an important function in these processes for both you as an employee and the company itself. Among other things they have to attend meetings with the employer in order to provide quality assurance to the process and help ensure that each employee’s case is thoroughly and professionally processed. 

When a company reorganizes, this can lead to an employer being forced to reduce staff in order to save money, in other words through downsizing and letting individual employees go. But companies might also be affected by a change in market forces, need to restructure internal work tasks, new areas of investment, reassigning employees to new work tasks or relocating the company. In our experience terminations are a last resort companies take when all other options have been explored. If this happens, our Tekna representatives can offer you useful advice after having thoroughly discussed all options with your employer.  

To start, an employer must have a legitimate reason for being able to terminate an employee. This law appears in the Working Environment Act § 15-7 and applies when the company’s financial situation if the reason for termination.  

Working Environment Act § 15-7

When evaluating the legitimacy of terminating employees, there are four main points to consider: 

  • the company’s financial situation  
  • the process forming the basis for this conclusion  
  • the selection of employees to be terminated, including the possibility of their relocation 
  • the consideration of different interests 

Termination based on the company’s financial situation

An employer can’t downsize without having a legitimate reason for doing so.  

The background for a company’s wish to reduce staff is often connected with reducing their costs as well as operating more efficiently. There might also be a desire to separate or shut down a section of the company in order to invest more specifically in certain key areas.   

A company may regard downsizing as a legitimate step to take even if they’re operating profitably. The decisive factor must be the reason for downsizing. It’s important to find out among other things what goals the company intends to pursue in the future and how many employees are needed to reach these goals.  

Process is important

In the event of reorganization and possible downsizing, it’s very important that a satisfactory process is followed to implement these changes (this process is also required by law and collective bargaining agreements) in order to ensure a solid decision-making process.  

It’s only a thorough process – where union representatives are involved – that ensures that all relevant aspects of the situation emerge.  

Meetings

Meetings with union representatives:

In companies that are planning to reorganize/downsize, this action must be discussed in advance with their union representatives. These so-called ‘collective meetings’ are required by both the Working Environment Act and collective bargaining agreements.  

Meetings with individuals:

The Working Environment Act § 15-1 states that an employer is to enter into discussions with the individual employee before taking any further step and terminating this employee. When called into a meeting, an employee is to be informed of their right to bring a union representative along to it.  

Meeting - § 15-1

During this meeting the employer explains the background for the meeting and their evaluation of the current situation. The employee is then given the opportunity to explain their situation, including any “social” factors that their employer doesn’t know about. For instance, they might be a single parent, be ill or dealing with other issues so that losing their job would place them in a very difficult situation.  

If you’re called into a meeting (also called a § 15-1 meeting), you can contact your company union representative or Tekna’s legal department to get information about important points you should remember and/or bring up while in this meeting. 

Offer of severance package

You might also be offered a severance package, a so-called ‘termination agreement’, without having had any meeting. You’re not entitled to receive this package if your termination is legitimate, but sometimes an employer will use it in an attempt to get out first any employees who volunteer to quit. Contact our legal department for advice about what you should do if you’re offered a severance package.  

Valid selection process

During a downsizing process, there must be predefined criteria for selecting employees for termination. These criteria must be discussed with the company union representatives. The employer has the ultimate responsibility for ensuring that this selection fulfills all requirements for valid termination.  

Basis for selection

During assessments of who will continue with the new organization and who won’t, information must be given about what the new organization will look like. So the  following information and documentation must be made available:   

  • organizational chart 
  • task descriptions  
  • job descriptions  

Selection criteria

Criteria that are normally used are:  

  • competency 
  • seniority 
  • social factors  

Selection takes place after a comprehensive assessment of where employees’ competency will be located. Competency in this context is comprised of both formal competency and real-life competency (otherwise called ‘work experience’ from both current and past jobs). Personal suitability for the job might also be a relevant factor.  

Selection group

Employees in the entire organization make up the selection group; in other words, all employees are initially considered for termination. The term ‘organization’ here means the company where you’re employed, which is usually a corporation. This means that even if the need for downsizing concerns only a certain section of the organization, the main rule is that the entire staff is included in the selection group. An employer may have a wish to limit the selection group, which leads to job protection for the individual employee being weakened. So we advise against having our company representatives approve of this limitation, even though this decision lies within the boundaries of what the employer can decide.  

Relocation

During the downsizing process, the idea of relocation must be considered for employees whose current function isn’t needed in the new organization. Relocation might include positions at a different or lower level with different salary levels and working environments. If there are such opportunities, an employer must offer them to an employee before any termination is given. 

Balance of interests

In accordance with the Working Environment Act and before making any final decision about termination, an employer must consider balancing the interests between the company’s needs and the disadvantages inflicted on the individual employee if they are terminated. 

In this context factors like single parenthood, illness, age, the possibility of finding new employment and pension accrual may be important arguments for the employee in question.  

Termination procedures

If you receive a termination notice, we advise you to contact Tekna’s legal department as soon as possible as being terminated will activate several rights for you in accordance with the Working Environment Act.

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