New ruling from the Supreme Court on the employer's right to manage

In the Supreme Court’s judgment of 13th November 2020, the question was if agreements on severance packages in the event of voluntary resignation, which was entered into in a downsizing process, could partly be set aside because they were contrary to good business practices or unreasonableness, cf. Norway’s Contract Act of 1918 section 36. To decide this question, the Supreme Court had to take a stand on whether the employees were entitled to an early retirement pension in such a process based on the previous employer's promise.

In the Court of Appeal, the employees won with their views, and the employer was considered bound by the previous owner's promise of early retirement. The Court of Appeal further concluded that this provided a basis for revising the agreements entered on the severance package so that the employees were entitled to early retirement in line with previous practice. The Supreme Court came to the opposite result of the Court of Appeal and acquitted the employer on the claim from the employees.

Key factual matters in the case

The case concerned a company that was demerged and taken over by new owners. Shortly afterwards, a downsizing process was initiated. At the time of the transfer, the new owners had committed themselves to comply with the established scheme for downsizing with the previous employer for a protection period of two years. The employees were offered severance packages on the same terms as before, but the new employer had changed its practice to be granted early retirement.

The previous owners had introduced a practice that employees over the age of 57 could, if redundant, apply for early retirement, and in practice this was granted every time. The employees therefore claimed that the new owners did not follow the established scheme, and that they acted in breach of the obligations by which the company was bound.

In fear of receiving pure redundancies without compensation, the employees nevertheless signed the submitted offer of a severance package without the right to early retirement, but subsequently claimed that the agreements entered into should be revised in accordance with section 36 of the Contracts Act.

The legal starting points

The clear main rule in business transfers is that the new owners are obliged to continue the rights and obligations that follow from an employment contract or employment relationship at the time the transfer takes place. Rights and obligations that do not follow from an employment contract or employment relationship may in principle freely be changed by the employer under the provisions of the employer’s right to manage. Changes must nevertheless be made on a justifiable basis and do not involve abuse of the employer’s right to manage.

In line with previous decisions by the Supreme Court on changes to pension entitlements, the Supreme Court also pointed out that because this case concerns unilaterally determined pension benefits of great economic value, there is basically "a certain presumption" that the employer has not waived the right to change the scheme. To deviate from this, there must be "evidence of a certain weight" which indicates that the employees have rights that limit the right to manage.

If an oral or written promise is given by the employer, this can bind the company and restrict the right to manage. Such a promise is to be regarded as a right for the employee and will accompany the business as a contractual obligation in the event of a business transfer. If there is any doubt as to whether such a promise has been made, an assessment of evidence must be made, in the same way as the question of whether an agreement has been entered into or not. In this connection, the Supreme Court points out that evidence timely close to the event has the greatest weight in a situation where parties and witnesses subsequently express themselves very differently.

The Supreme Court's specific assessments

The Supreme Court assessed whether the employees had received a promise that the practice of granting early retirement would be continued based on the written and oral documentation. Central to the assessment was a policy document that dealt with "selective early retirement in the event of redundancy".

The document was thoroughly discussed in the meetings with the employee representatives. It was stated here that «[e]arly retirement pension (gift pension) can in special cases be granted from the age of 57» and was described as one of the «voluntary benefits the company may provide».

The Supreme Court held that it was clear that this did not indicate that the employees had acquired a right to be granted an early retirement pension. When there was no written and timely close material showing that the employer made a promise to continue the practice of early retirement, there had to be clear indications that there would be oral binding promises. The Supreme Court found no such clear indications in its specific assessment.

Conclusion

After a thorough review of the communication between the management and the employee representatives, the Supreme Court concluded that there was no evidence that the new owners had made any binding written or oral promise to continue the practice of early retirement. The new owners had carried out a thorough case handling in connection with the change of ownership, and it was clear in the policy document that the early retirement scheme was optional for the employer.

The fact that the employee representatives did not protest the wording of the policy document meant that there was no basis for placing the risk of misunderstandings on the part of the company. There was thus no basis for contract revision pursuant to the Contracts Act section 36.

This ruling from the Supreme Court fits into the series of decisions where the employer is upheld in that the right to change is retained in connection with changes in pension schemes that apply to a group of employees. The judgment also shows that specific assessment must be made of whether there are "clear indications of a certain weight" in order for the right to change to be limited, and that in that case the greatest emphasis is placed on evidence close in time to the incident where the parties subsequently disagree.