Termination – new judgement from the High Court Civil Division

The High Court Civil Division recently ruled on whether the termination of two graphic designers in Dagbladet was invalid. It was particularly problematised whether the processing of the case had been insufficient. Despite this, the terminations were not considered invalid.

The facts

In September 2017, Dagbladet's board of directors decided to outsource Dagbladet’s page production to the parent company – Aller Media. This was part of a major reorganisation and downsizing process. Two of the dismissed graphic designers sued because they believed the terminations to be invalid. The graphic designers had respectively 32- and 27-years’ seniority in Dagbladet and were both organised labour workers in Fellesforbundet and members of Dagbladet's Graphic Club.

The court assessed whether the terminations were invalid, whether the postponement of the service was to be regarded as a business transfer and whether the graphic designers were entitled to compensation for non-pecuniary damage.

Invalid termination – joint employer responsibility

Pursuant to section 15-7, first subsection of the Working Environment Act, a downsizing process as a result of reduction in production must be objectively justified the company’s situation and -circumstances. The legal requirement is that the entire downsizing process must have justifiable basis, and implies, among other things, that the selection circuit cannot be unjustifiable limited. 

The graphic designers argued that there was a joint employer responsibility between Dagbladet and Aller Media, and that the selection circuit was therefore unjustifiable limited to only include Dagbladet. The High Court Civil Division ruled that it was not contractually unclear that Dagbladet was to be regarded as the employer of the graphic designers, but they did not rule out  that other than the formal employer could also be considered to have an employer responsibility.

Nevertheless, the possibility of establishing a joint employer responsibility under the current rule of law is a "narrow exception rule", which implies that “there must be solid grounds for other than the formal employer to be deemed having a share in the employer's responsibility."

The High Court Civil Division considered whether Aller Media had performed employer functions with the graphic designers and whether they should reasonably be regarded as an employer. The majority found that only Dagbladet was regarded as an employer and that the selection circuit was therefore not considered to be unjustifiable limited.

Invalid termination – other suitable work

The graphic designers further argued that the terminations were invalid since they were not offered "other suitable work", even though there was an unmet labour need at Dagbladet. It was also argued that the proceedings related to the question had such significant deficiencies that the terminations had to be deemed invalid.

Pursuant to section 15-7 second subsection of the Working Environment Act, a downsizing process resulting from operational impairment or rationalisation measures is not justified if the employer can offer the employee other appropriate work in the business. The assessment of whether the employees shall be offered other suitable work shall be made before the decision on termination is made.

The starting point according to case law is that the work offered must be as similar as possible to the original work, both in terms of content and salary. If such work does not exist, the employer is obliged to offer vacant work at a lower job and salary level. The obligation to make an offer does not require that there be any vacancy to offer, and it is sufficient that there is an unmet need for work. However, the duty does not mean that the employer must create a position that is not needed.

In order for it to be "appropriate" work, the employee must be fit to perform the work tasks that come with the position. In this assessment, the question is whether the employee can meet the requirements that can reasonably be set for the qualifications and personal suitability that the position entails. Here, the employer must also assess whether the employee can obtain sufficient qualification after a training period.

In this case, it was clear that there was a need for persons who could perform editorial work in Dagbladet at the time of termination, and the question thus became whether the graphic designers were qualified to carry out such work. The High Court Civil Division assessed the graphic designers' education and work experience and held this up against the requirements for journalistic work.

Although the graphic designers had knowledge of journalistic work after working for a long time in Dagbladet, and journalists in Dagbladet considered them to be qualified, they were considered not to have the necessary qualification. It was emphasised that in-depth knowledge of, among other things, press ethics, interview technique and source management was required.

Furthermore, it was assessed whether the graphic designers could take over the positions of other employees in Dagbladet, but after several concrete assessments, the High Court Civil Division concluded that Dagbladet had provided sufficient evidence that there was no suitable work for the graphic designers at the time of termination.

The High Court Civil Division noted that there were weaknesses in Dagbladet's termination procedure. Dagbladet should have secured notoriety around the assessments, and the assessments should have been carried out in consultation with superiors who worked more closely with the graphic designers.

Despite this, the High Court Civil Division ruled that the qualifications of the graphic designers and Dagbladet's needs were well lit through the presentation of evidence, and they considered it clear that there was no other suitable work to offer at the time of termination. This would also be the result if Dagbladet had carried out a more comprehensive survey of the graphic designers' competence, and in such a situation, the shortcomings in the case processing cannot lead to the terminations becoming invalid.

Unfair termination – balancing of interests

After submissions from the graphic designers, the High Court Civil Division considered whether the terminations were deemed invalid based on balancing of interests.

According to Section 15-7 of the Working Environment Act, a balancing of interests must be struck between the company’s needs and the disadvantages the dismissal inflicts on the individual employee. In this balancing act, the key assessment factors are whether a job offer has been made, the employee's age, length of service, financial situation and prospects in the labour market held up against the company's need to carry out the necessary downsizing.

The assessment of Dagbladet's need to carry out the downsizing was based on the extensive changes the media industry has undergone in recent years. There has been a significant drop in sales of paper newspapers, which has led to negative accounting figures. Dagbladet has had to adapt to customers' new reading habits and has a different need for qualifications than they had before.

The graphic designers argued that Dagbladet had not substantiated any savings by terminating them, but that they were actually better served by letting them keep their positions so that they had needed to buy fewer services from Aller Media.

The High Court Civil Division ruled that a termination may be valid even if it does not involve a financial saving, but the financial effect can have an impact on the balancing of interests. Nevertheless, these two terminations could not be considered in isolation in a major downsizing process. This was justified by the fact that it "would be difficult to carry out major downsizing in companies that are initially in a difficult situation, since employees will be encouraged not to contribute to voluntary solutions in hope of being the last one that the company can live with being allowed to keep the job”. In this case, this would weaken confidence in the individual decision. It was therefore assumed that Dagbladet's financial situation had to be seen in a larger picture, and in this picture, it was clear that Dagbladet had a need to take action to carry out the downsizing.

In cases where there is a need for downsizing and this is objectively justified, it follows from case law that it takes a lot for the employee's individual circumstances to be of decisive importance in a factually justified restructuring and downsizing.

Of the graphic designers' individual circumstances, the High Court Civil Division pointed out that they had a particularly long seniority, but that this alone could not be decisive in the balancing of interests. Nevertheless, the High Court Civil Division was in doubt about the outcome. This was because Dagbladet had not secured notoriety in the specific balancing of interest in each case but pointed out that the general need for restructuring in the company was clearly documented.

The High Court Civil Division concluded that the terminations of the graphic designers were not deemed invalid after a balancing of interests.

Transfer of business

In their alternative allegation, the graphic designers argued that the transfer of the page production to Aller Media was to be regarded as a business transfer.

Rules on business transfers are enshrined in Chapter 16 of the Working Environment Act, and also apply to transfers between companies in the same group. The chapter implements EU Directive 2001/23/EC on employees' rights in the event of a business transfer. This means that the rules in Chapter 16 must be seen in connection with how the European Court of Justice and the EFTA court interpret the Directive.

Article 1 of the Directive defines a business transfer as "a transfer of an economic entity which retains its identity, that is, a collection of resources organized for the purpose of conducting economic activities." This means that the transfer must apply to an independent economic entity – the unit condition. The transfer must also be based on a contract or merger of the company – the transfer condition. In addition, the identity of the independent economic entity must essentially be the same as before the transfer – the identity condition.

In this case, the parties disagreed as to whether the page production in Dagbladet constituted an independent entity (the unit condition) and whether it retained its identity after the transfer (the identity condition).

The decisive consideration of the unitary condition is according to the European Court of Justice's practice of "the activities before the transfer was an organized whole of persons and assets that made it possible to conduct an economic activity with an independent purpose."

In the assessment, the High Court Civil Division emphasised that the page production was not organised as a separate department, it did not have its own budget and no separate accounting was kept, pointing in the direction that the unit condition was not met.

Furthermore, the High Court Civil Division assessed whether the page production was "functionally independent." In order for a unit to be considered functionally independent, they or the person responsible for the unit must have the competence to independently arrange the work, provide instructions and to distribute tasks to the subordinate employees. This must be done without direct interference from the employer's other organisational structures.

The High Court Civil Division considered that the page production did not have a functional independence on the basis that the employees received work tasks from the manager on duty, they could not organize their working day themselves and that the page production was an integral part of business at the paper desk.

The conclusion was that the page production was not to be regarded as an independent economic unit, and it was thus not necessary to assess whether the unit’s identity was retained after the transfer.

What can we learn?

In a downsizing process, it is extremely important that the employer ensures that there is sufficient written documentation. As the High Court Civil Division states, the employer's deficient written documentation in this case led to that "there has been unnecessary evidence uncertainty, among other things, with regard to the balancing of interests and the question of whether there was other suitable work."

In this case, the terminations were considered by the High Court Civil Division to be based on justifiable grounds, but Dagbladet should have documented this in a more thorough manner. The documentation must ensure notoriety around the assessments made by the employer in the downsizing process. Thorough documentation will also be process preventive and create confidence that the downsizing process has been carried out on justifiable grounds.