New ruling on termination and offer of new employment on new terms

On 18 March 2021, the Gulating Court of Appeal ruled in a case with the question of whether there was an unjustifiable termination and offer of new employment on new terms. As opposed to the District Court, the majority of the Court of Appeal sustained the employees claim and awarded her compensation.

1. Background to the case

The case concerned an employee who in 1978 was employed as an accounting employee in the parent company of a family-run group, but who over time was given more tasks and more responsibility. From 2004 she was a deputy member of the company's board, and from 2007 she became a permanent board member. In 2007, she was also registered in the Brønnøysund Register Centre as the general manager of the company. The employee was authorized as an accountant. It was required that the general manager had such authorization because the company kept accounts for companies outside the group.

In connection with a reorganization of the group in 2017, the employee was removed as general manager in the Brønnøysund Register Centre without prior notice, and changes were made to her responsibilities and work tasks. A lawsuit was filed in 2019, and the main question in the case was whether these changes were significant, so that there was an unjustified termination and offer of new employment on new terms, and whether she was further entitled to compensation.

2. General manager in real terms?

The Court of Appeal first ruled on whether the employee before the reorganization in 2017 actually and formally functioned as general manager of the company, or whether she only performed some of the tasks that normally belong to a general manager.

There was no employment contract, collective agreement or job description that clarified the framework for the employment relationship. The Court of Appeal took as its starting point the Norwegian Companies Act's definition of the general manager's area of responsibility and made a specific assessment of her responsibilities and work tasks. The Court of Appeal was divided into a majority and a minority.

The majority, consisting of four judges, concluded that she both in real- and formal terms was general manager of the company before the reorganization in 2017. They assumed that the registration of her as general manager in public registers, without any restriction in her area of responsibility, gave a strong presumption that the registration reflected a reality.

Furthermore, the majority assessed her responsibilities and work tasks. A key part of the tasks was related to accounting and payroll, but the majority also found it probable that she had independent responsibility for other functions and activities.

In this context, the majority stated that it was not decisive how much of her time was spent on accounting and pay compared to other work tasks, but that the key point was that she had been responsible for the day-to-day management of the parent company.

The minority, consisting of one judge, did not find it probable that the employee had had significant tasks in addition to the responsibility for accounting, budget, salary and annual settlement, and stated that these other tasks in any case formed a smaller part of her work tasks. Furthermore, the minority assumed that the employee was registered as general manager in the Brønnøysund Register Centre in 2007 in order for the company to be able to take on accounting assignments for companies outside the group.

3. Significant changes? Unjustifiable termination and offer of new employment on new terms?

Furthermore, the Court of Appeal assessed the employee's work situation after the reorganization in 2017, and the majority concluded that the changes in the employee's responsibilities and work tasks were significant and a clear downgrade in relation to the position she held before the organizational changes. Among other things, it was pointed out that:

• she was organizationally placed in line with employees for whom she previously had personnel responsibilities,
• responsibilities related to wages were transferred to another employee, who also took over personnel responsibilities for two employees who had previously reported to her,
• functions she was previously responsible for were moved to other departments in the group,
• the company's management meeting in 2018 was conducted without the employee being present, which indicated that the new management did not consider her part of the management of the company and
• that after the reorganization she would report directly to the person who was registered as the new general manager in 2017.

The majority stated that the changes meant that she was actually demoted and deprived of work tasks that appeared to be essential to the employment relationship. Furthermore, the Working Environment Act's procedural rules for termination had not been followed, and no claim had been made that there were grounds for termination. The majority's conclusion was therefore that there was an unjustified termination and offer of new employment on new terms.

The majority of the Court of Appeal also concluded that the employee was entitled to compensation for financial and non-financial loss for the unjustified termination and offer of new employment on new terms.

The minority, for its part, concluded that the changes were necessary and objectively justified and that these were within the employer's right to manage, and that there was therefore no unjustified termination and offer of new employment on new terms.

4. Comment

The judgment is interesting because it shows that the court, in assessing the content of the position, will take as its starting point the tasks and areas of responsibility the employee has actually performed and been responsible for. This is especially true in employment relationships where the content of the position has changed over time without the employer having provided an updated employment contract and / or job description/instructions.

Furthermore, the judgment illustrates the importance of who is formally registered with roles / positions in public registers. If an employee is registered as a general manager, there is a (strong) presumption that he / she is also a general manager with the content this position normally entails. If the employer thinks otherwise, this should therefore be clearly stated in the employment contract, job description/instructions, organization chart or in some other way.

The judgment is also interesting because it illustrates that gradual changes over time can be considered in context. Whether this applies in all cases is more unclear. It is not a given that changes that occur over a longer period and that do not have an internal causal connection must be assessed in the same way.

The judgment also has a side to the duty to mitigate loss. The employer had not made any changes to the employee's pay conditions and the employment relationship was terminated by the employee herself resigning (presumably due to the changes) long after the changes had been implemented. She still received compensation measured as if the employment relationship had been terminated (completely) by the employer. However, the parties do not seem to have questioned this.