New ruling on the principle of equal treatment for hired workers

The Supreme Court recently ruled on whether hired personnel pursuant to the equal treatment rule in the Working Environment Act (WEA) section 14-12 a were entitled to a company bonus on an equal footing with permanent employees and apprentices in the company in which they were hired.

For several years, a staffing company had hired two employees to an oil company. The oil company had a performance-based bonus scheme for its employees. The two hired employees claimed that according to the equal treatment rules in the WEA section 14-12 a, they were entitled to a bonus from the staffing company on an equal footing with the employees in the oil company.

More about the legal issue

Pursuant to WEA 14-12 a, the staffing company is obliged to ensure that the hired employee is at least secured the conditions that would apply if the employee had been employed by the hiring company in terms of working hours length and location, overtime work, duration and placement of breaks and rest periods, night work, rights related to holidays, salary and cost coverage.

The provision does not explicitly mention bonus schemes. The question in this case was therefore whether the oil company's bonus scheme was to be covered by the concept of pay in the WEA section 14-12 a.

The two hired employees stated that the bonus was remuneration for work effort and that it did not differ significantly from fixed salary. Furthermore, the hired employees stated that the concept of pay had to be understood broadly, to prevent any circumvention of the principle of equal treatment. The bonus scheme therefore had to, in the opinion of the hired employees, fall under the concept of pay in the WEA section 14-12 a.

The staffing company, for its part, pointed out that the bonus could not be regarded as salary according to the WEA section 14-12 a, as it was not related to the individual employee's work performance or work performance, but to the company's goal achievement and results. The bonus was calculated based on the basic pay, which meant that all employees within the same category and with the same seniority received the same bonus. It was stated that the purpose of the scheme was to promote employee loyalty, and that the bonus scheme was not part of the oil company's pay system.

The Supreme Court’s assessment and delivery of judgement

The Supreme Court unanimously concluded that the bonus was covered by the concept of pay in the WEA section 14-12 a and that the hired employees were entitled to a bonus from the staffing company corresponding to the bonus they would have received if they had been employed by the oil company.

As starting point, the Supreme Court took a linguistic understanding of the concept of pay. The Supreme Court First Voter stated that pay is linguistically linked to "remuneration that an employer pays to an employee for ongoing personal work effort". The term as such does not provide a direct answer as to whether the bonus should be regarded as pay. However, the Supreme Court pointed out that it is natural for a bonus to be covered by the concept of pay if the bonus is "intended to provide compensation for work effort".

Furthermore, the Supreme Court placed considerable emphasis on the purpose behind the equal treatment rule. The provision must be seen in connection with the WEA's main rule in section 14-9 that employees shall be employed permanently. The purpose of the equal treatment rule is to ensure that the working conditions for hiring do not undermine the goal of a labor market with the primary emphasis on permanent and direct employment, and to ensure actual equality between permanent employees and hired employees with regard to pay. The possibility of reduced wage costs should not serve as a motivation for hiring labor.

The Supreme Court then referred to the starting point in the preparatory work stating that "all remuneration for work shall be covered by the concept of pay". This includes both fixed remuneration and irregular supplements, regardless of the form in which the benefit takes place. Following the preparatory work, individual bonus schemes, based on the specific circumstances, may be covered by the equal treatment rule.

In the Supreme Court's assessment, the preparatory work does not exclude that bonus schemes at group or company level may also be covered by the provision if the benefit constitutes remuneration for work. The Supreme Court also pointed out that the need for a clear and controllable concept of pay argues that no distinction should be made between individual and more community-oriented bonus schemes.

The staffing company claimed, among other things, that if the concept of pay were considered to include bonus schemes, this would lead to major practical problems, significant costs and administrative burdens - the same type of circumstances that are the reason why pensions are not covered by the requirement for equal treatment.

The Supreme Court agreed that a concept of pay that includes bonus schemes will entail a certain amount of additional work for the staffing companies, but that this could not be of vital importance.

The Supreme Court summed up by pointing out that the core of the concept of pay is whether the benefit is a consideration for work, possibly for a result or a performance that the employee himself has been responsible for. Bonus schemes will also be covered if it concerns remuneration for work. This applies whether it is individual bonus schemes or schemes at group or company level.

After a specific assessment of the oil company's bonus scheme, the Supreme Court concluded that this scheme was a reward scheme at company level for the employees' total efforts in the previous year, and part of the overall system for remuneration for work in the oil company. The bonus scheme thus had to be characterized as salary according to WEA section 14-12 a.

What can we learn?

The Supreme Court's decision stipulates that hired employees will be entitled to a bonus from the staffing company on an equal footing with the employees also in the case of bonus schemes at group and company level that are not directly linked to the individual employee's work effort.

As the bonus is generally paid in arrears, this could present some practical problems for the staffing company regarding offers and pricing of hired labor. As the Supreme Court points out, the staffing company in its offer to the hiring company should make a reservation that any obligation to pay a bonus in accordance with later information from the company that hires the labor will be taken into account and calculated afterwards.

Companies that hire employees have a duty to provide the staffing company with the information necessary for the staffing company to be able to meet the requirement for equal treatment. This will also include information about the company's bonus schemes. The company that hires the workforce must also be aware that, on specified terms, they will be jointly and severally liable for payment of wages (including any bonus), holiday pay and any other remuneration in accordance with demands for equal treatment from the hired employee, cf. WEA section 14-12 c.