Legislative change to the concept of employee from the New Year

From 1 January 2024, the Working Environment Act's concept of employee will be amended to clarify what establishes an employment. For businesses, the proposed changes may mean that people who perform work for them will more easily be classified as employees.

Misclassifying employees as contractors can have major financial consequences for the organisation that has hired the person in question. It may then be faced with claims for back pay and holiday pay, subsequent enrolment in a pension scheme and compensation for damages. If you use independent contractors, you must therefore clarify at an early stage whether the contract indicates an employment or contractor relationship and ensure that what has been agreed is observed in practice. If a worker is in fact an employee within the meaning of the law, he or she will enjoy the same protection as other employees.

Clarification of the concept of employee

The law has so far stated that anyone who "performs work in the service of another" is an employee. From 2024, this has been replaced with "anyone who performs work for and subordinate to another". The change is made to emphasise that what particularly distinguishes an employee from a contractor is that the person in question is subject to direction, control, and management in the performance of the work. In addition, it is emphasised that if the person in question continuously makes his or her personal labour available, this indicates an employment. This means that the employee cannot in principle pay others to perform the work tasks, and that the relationship must be of a fairly stable nature.

However, these are only some of several factors in a larger discretionary assessment of whether the individual contractual relationship is in fact an employment. The concept of employee must be interpreted broadly so that the individual who needs protection also receives it.

The organisation will have the burden of proving whether the relationship is an employment or contractual relationship

From 1 January 2024, companies that use independent contractors will have the burden of proof that the contractual relationship is a contractor relationship. The starting point will be that an employment exists unless the organisation makes it "overwhelmingly likely" that an independent contractor relationship exists.

One purpose of this presumption rule is to give organisations an incentive to clarify the employee status already at the establishment of the relationship. In addition, the government has believed that the rule will give employees who are unsure whether they are an employee an opportunity to clarify their legal position before a court.

What businesses should consider

For businesses, the proposed changes will mean that people who perform work for them can more easily be classified as employees. Businesses that use independent contractors must therefore review both the formal and actual conditions for these workers to clarify whether they are correctly classified as contractors or not. If the business wishes to continue contracts with contractors, it must ensure that the relationship is actually a contractual relationship.  Among other things, the organisation must refrain from exercising actual work management.

In addition to matters relating to direction, control, and management, the following factors may typically speak in favour of an employment rather than a contractor relationship:

• the business makes available workrooms, machinery, tools, work materials or other aids necessary for the performance of the work
• the relationship is of a fairly stable nature and can be cancelled with specific deadlines
• the person in question mainly works for one client and receives remuneration in some form of salary

At Littler, we have extensive experience in assisting businesses in matters concerning the boundaries between employment and contractual relationships. We closely monitor legal developments both in Norway and internationally, especially in the EU, where rules and practices are constantly emerging that also affect the content of the concept of employee in Norwegian law.