Transfer of Undertakings – Rules on Rights, Obligations, and Process under the Norwegian Working Environment Act

Business transfer implies that the employee's rights and obligations in the employment relationship are transferred from one employer to another. The rules on business transfer in the Working Environment Act, chapter 16, ensure the employees' legal position when changes in the employer's business result in a change of employer. Such changes can occur through purchase and sale, merger, demerger, or outsourcing of parts of the business's functional areas. This article provides an overview of what qualifies as a business transfer, what legal effects this has for employees, and what procedural requirements are required of employers in such transfers.

When does a business transfer exist?

According to the Working Environment Act § 16-1, three cumulative conditions must be met for a business transfer to exist:

The Transfer Requirement

The first condition is that the business or part of the business must be transferred to a new owner based on a contract or through a merger of businesses. The requirement is interpreted broadly and includes more than direct contractual relationships between two employers. There is no requirement for a direct agreement between the transferor and transferee - so-called triangular relationships are also included. Examples of this could be a change of supplier or service provider.

The transfer requirement also includes cases where a client takes back a service previously performed by a supplier and executes it themselves (insourcing). Unilateral dispositions such as gifts or inheritance, as well as administrative decisions, may also fall under the concept.

The Unit Requirement

The second condition is that what is transferred must be an independent economic unit. This is defined as an organized whole of persons and assets that make it possible to conduct economic activity with an independent purpose.

In assessing whether the unit requirement is met, relevant considerations are:

• Whether the unit has an independent purpose

• Whether it has its own premises and/or assets

• Whether employees are mainly associated with the unit

• Whether the unit has its own management

• Whether the unit has its own budget and/or accounts

• To what extent the activity can be performed without the use of other parts of the business

It's not decisive that the unit shares larger functions with other parts of the business, and there is no requirement that the unit is of a certain size. The assessment becomes specific and must be made in each individual case.

The Identity Requirement

The third condition is that the business must retain its identity after the transfer. This means that both the activity and the substance of the unit being transferred must remain intact after the transfer.

In assessing whether the identity requirement is met, a comparison of the business before and after the transfer must be made. The following considerations are relevant:

• Type of business or activity

• Whether physical assets are transferred

• Whether intangible assets are transferred

• Whether the transferee takes over the majority of the workforce

• Whether the customer base is transferred

• To what extent the activity before and after the transfer is the same

• How long the activity may have been suspended

The weight of these factors depends on what elements characterize the business. For labor-intensive businesses (like cleaning or home help), whether a significant part of the workforce is transferred is crucial. For capital-intensive businesses (like bus operations or large kitchens), the transfer of physical assets is central.

Employee Rights in Business Transfer

Rights and Obligations are Automatically Transferred

The main rule is that the previous employer's rights and obligations following from the employment contract or employment relationship are automatically transferred to the new employer. This applies to all rights and obligations on an individual legal basis, including conditional rights.

The employment contract is interpreted and supplemented according to the general principles of employment contract interpretation. When interpreting, there is room for broad assessments, and there is more room for supplementary interpretative factors than in agreements between equals.

If the employment contract includes a reference clause to a collective agreement applicable to the transferor, the question is whether the clause can also be understood dynamically after the business transfer, so the new employer is bound by changes in the collective agreement. The starting point is that the transfer cannot have a greater scope than what follows from the collective agreement at the time of transfer.

Joint and Several Liability for Claims

Both the previous and new employer are jointly and severally liable for obligations incurred before the time of transfer. The employee can thus choose whether they want to make a claim against the previous or new employer.

Pension Schemes

The starting point is that the employee's right to further accrual of old age, survivor, and disability pensions according to collective occupational pension schemes is transferred to the new employer. However, the new employer can choose to apply already existing collective pension schemes to transferred employees, even if these schemes are qualitatively inferior.

If the employee's previous collective occupational pension schemes cannot be continued for various reasons, the new employer must ensure that employees are ensured the right to further accrual under another collective pension scheme. However, the law does not require the new scheme's content.

The Position of Collective Agreements

The starting point is that the collective agreement is transferred to the new employer. However, the new employer has the right to decide whether they wish to take over the previous employer's collective agreement(s). If the new employer wishes to release itself from the collective agreement, this must be declared in writing to the union no later than three weeks after the transfer date.

Even if the new employer reserves against the transfer of the collective agreement as such, the transferred employees still have "the right to retain the individual working conditions that follow from the collective agreement that the previous employer was bound by." This applies until the collective agreement expires or a new collective agreement is made binding for the transferred employees.

Dismissal Protection

A dismissal or termination of an employee solely justified by the business transfer will be invalid. This applies regardless of whether the dismissal is given by the transferor or transferee. The provision does not prevent the employee from being dismissed for other reasons, provided the conditions in the Working Environment Act § 15-7 are met.

The transferor cannot, before the business transfer, dismiss employees whom the transferee does not wish to take over, this would constitute a dismissal solely justified by the business transfer.

Right of Reservation and Choice

An employee has the right to oppose the transfer of the employment relationship to a new employer (right of reservation). This must be done in writing to the previous employer within a deadline that cannot be shorter than 14 days after the employee has been informed about the transfer.

The effect of the right of reservation is normally that the employment relationship terminates. In certain cases, the employee may have a preferential right to reemployment with the previous employer if the conditions for this are met.

In some special cases, the employee also has a right of choice, meaning a right to maintain the employment relationship with the transferor. This applies if the business transfer leads to non-negligible negative changes in the employee's situation. The assessment of whether the right of choice exists must be made concretely. Factors that may give rise to the right of choice are:

• Loss of work fellowship

• New work tasks

• Longer travel distance

• Likelihood of job loss with the transferee

• Loss of significant pension rights (such as AFP)

Procedural Rules in Business Transfer

Information and Consultation with Representatives

Both the previous and new employer must inform about and discuss the transfer with the employees' representatives as early as possible. The representatives must be informed of:

• The reason for the transfer

• The fixed or proposed time for the transfer

• The legal, economic, and social consequences for the employees

• Changes in collective agreement relationships

• Planned measures towards employees

• Right of reservation and preferential right and the deadline to exercise such rights

Discussions must be initiated as early as possible at the planning stage, so that the representatives have a real opportunity to influence the decision.

Information to Employees

The employer is required to inform the affected employees about the business transfer as early as possible. Employees must be given the same type of information as the representatives.

The law does not prescribe specific requirements on how the information should be given, but it is crucial that the information is given in a way suitable to make all affected employees aware of the information.

Conclusion

The rules on business transfer provide employees significant protection in case of change of employer. By ensuring that the employment relationship and essential rights and obligations are transferred, uncertainty for employees is reduced when businesses are reorganized, acquired, or merged. At the same time, the rules balance the employer's need for flexibility by allowing reservation against collective agreements and permitting the new employer to use their existing pension schemes.

Both employers and employees should be well acquainted with these rules to safeguard their rights and obligations in business transfers.