The High Court Civil Division recently ruled on whether the termination of two graphic designers from Dagbladet newspaper following a major reorganisation and downsizing process had been valid. A particular point of contention was whether the case processing had been sufficient. Despite this, the terminations were considered valid.
In September 2017 Dagbladet's board of directors decided to outsource the newspaper's page production to its parent company – Aller Media. This was part of a major reorganisation and downsizing process. Two of the dismissed graphic designers sued because they believed that the terminations were invalid. The graphic designers had worked at Dagbladet for 32 and 27 years, respectively, and were both organised labour workers in the United Federation of Trade Unions and members of Dagbladet's Graphic Club.
The court assessed whether:
- the terminations were valid;
- the postponement of the service was to be regarded as a business transfer; and
- the graphic designers were entitled to compensation for non-pecuniary damage.
Invalid termination – joint employer responsibility
Pursuant to Section 15-7(1) of the Working Environment Act, a downsizing process as a result of reduction in production must be objectively justified by a company's situation and circumstances. The legal requirement is that the entire downsizing process must have a justifiable basis and implies, among other things, that the selection circuit cannot be unjustifiably limited.
The graphic designers argued that there had been a joint employer responsibility between Dagbladet and Aller Media and that the selection circuit had therefore been unjustifiably limited by including only Dagbladet. The High Court Civil Division ruled that it was contractually clear that Dagbladet was to be regarded as the graphic designers' employer, but it did not rule out that a party other than the formal employer (ie, Aller Media) could also be considered as having employer responsibility.
Nevertheless, the possibility of establishing joint employer responsibility under the current rule of law is a "narrow exception rule", which implies that "there must be solid grounds for [a party] other than the formal employer to be deemed [as] having a share in the employer's responsibility".
The High Court Civil Division considered whether Aller Media had performed employer functions with regard to the graphic designers and whether it should reasonably be regarded as an employer. The majority found that:
- only Dagbladet was regarded as an employer; and
- the selection circuit was therefore not considered to be unjustifiably limited.
Invalid termination – other suitable work
The graphic designers further argued that the terminations had been invalid because they had not been offered "other suitable work", even though Dagbladet had had an unmet labour need. The graphic designers also argued that the proceedings had such significant deficiencies that the terminations had to be deemed invalid.
Pursuant to Section 15-7(2) of the Working Environment Act, a downsizing process resulting from operational impairment or rationalisation measures is not justified if employers can offer employees other appropriate work in the business. The assessment of whether employees will be offered other suitable work must be made before the termination decision 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, employers must 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 employers must create a position that is not needed.
In order for it to be 'appropriate' work, employees must be fit to perform the work tasks that come with the position. In this assessment, the question is whether employees can meet the requirements that can reasonably be set for the qualifications and personal suitability that positions entail. Here, employers must also assess whether employees can obtain sufficient qualification after a training period.
In this case, it was clear that there had been a need for persons who could perform editorial work in Dagbladet at the time of the terminations and the question thus became whether the graphic designers had been qualified to carry out such work. The High Court Civil Division assessed the graphic designers' education and work experience and compared this with the requirements for journalistic work.
Although the graphic designers had knowledge of journalistic work as they had worked at Dagbladet for a long time, and Dagbladet journalists considered them to be qualified, they were considered not to have the necessary qualifications. It was emphasised that in-depth knowledge of, among other things, press ethics, interview techniques and source management was required.
Further, the court assessed whether the graphic designers could take over the positions of other Dagbladet employees, 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 their 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 highlighted through the presentation of evidence; and
- it was clear that there was no other suitable work to offer at the time of the terminations.
This would also have been 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 valid based on the balancing of interests.
Pursuant to Section 15-7 of the Working Environment Act, a balancing of interests must be struck between a company's needs and the disadvantages that a dismissal inflicts on an individual employee. In this balancing act, the key assessment factors are:
- whether a job offer has been made;
- the employee's age;
- the employee's length of service;
- the employee's financial situation; and
- the employee's prospects in the labour market compared with 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 which the media industry has undergone in recent years. There has been a significant drop in print newspaper sales, which has led to negative accounting figures. Dagbladet has had to adapt to customers' new reading habits and required different qualifications than it did before.
The graphic designers argued that Dagbladet had not made any savings by terminating them, but that the company would have been better served by letting them keep their positions in order to buy fewer services from Aller Media.
The High Court Civil Division ruled that a termination may be valid even if it involves no 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 during 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. Therefore, it was assumed that Dagbladet's financial situation had to be seen in a broader context in which it was clear that Dagbladet had needed to carry out the downsizing.
Where there is a need for downsizing and this is objectively justified, it follows from case law that it takes a lot for an employee's individual circumstances to be of decisive importance in a factually justified restructuring and downsizing.
The High Court Civil Division highlighted that the graphic designers had worked at the company for a long time, but that this alone could not be decisive in the balancing of interests. Nevertheless, the High Court Civil Division was doubtful about the outcome. This was because Dagbladet had not secured notoriety in the specific balancing of interests in each case, but rather had highlighted that the general need for restructuring in the company had been clearly documented.
The High Court Civil Division concluded that the graphic designers' terminations were valid after a balancing of interests.
In their alternative allegation, the graphic designers argued that the transfer of the page production team 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. Chapter 16 implements the EU Transfer of Undertakings (Protection of Employment) Directive (2001/23/EC). Thus, the rules in Chapter 16 of the Working Environment Act must be seen in connection with how the European Court of Justice (ECJ) and the Court of Justice of the European Free Trade Association States interpret the EU directive.
Article 1 of the EU Transfer of Undertakings (Protection of Employment) 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". Thus:
- the transfer must apply to an independent economic entity (the unit condition);
- the transfer must be based on a contract or merger of the company (the transfer condition); and
- 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 Dagbladet's page production team constituted an independent entity (the unit condition) and whether it retained its identity after the transfer (the identity condition).
According to the ECJ, the decisive consideration of the unitary condition is the 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".
The High Court Civil Division emphasised that:
- the page production team was not organised as a separate department;
- the page production team did not have its own budget; and
- no separate accounting was kept.
This pointed in the direction that the unit condition was not met.
Further, the High Court Civil Division assessed whether the page production team was "functionally independent". In order for a unit to be considered functionally independent, they or the person responsible for them must have the competence to independently arrange the work, provide instructions and distribute tasks to 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 team had no functional independence on the basis that:
- employees received work tasks from the manager on duty;
- employees could not organise their working day themselves; and
- page production was an integral part of business at the paper desk.
The conclusion was that the page production team was not to be regarded as an independent economic unit and that it was thus unecessary to assess whether the unit's identity had been retained after the transfer.
In a downsizing process, it is extremely important that employers ensure that there is sufficient written documentation. As the High Court Civil Division states, the employer's deficient written documentation in this case led to its conclusion 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 High Court Civil Division considered that the terminations had been based on justifiable grounds, but that Dagbladet should have documented this in a more thorough manner. Documentation must ensure notoriety around the assessments made by employers in a downsizing process. Thorough documentation will also be process preventive and create confidence that the downsizing process has been carried out on justifiable grounds.
For further information on this topic please contact Ole Kristian Olsby or Nina Elisabeth Thjømøe at Homble Olsby | Littler by telephone (+47 23 89 75 70) or email ([email protected]or [email protected]). The Homble Olsby | Littler website can be accessed at www.homble-olsby.no.
