Apr 8, 2025
Employer's Managerial Prerogative – Content, Limitations, and Legal Examination
The employer's management prerogative constitutes a fundamental part of labor law and gives the employer the competence to unilaterally make ongoing decisions with direct or indirect effects on the employee. This right distinguishes the employment relationship from other contractual relationships by granting one party decision-making authority that strongly impacts the counterpart's person. Simultaneously, significant parts of labor law are designed precisely to establish protection against the power that the management prerogative provides.
Legal basis and justification for the management prerogative
The management prerogative is not positively regulated by law but is based on unwritten law and is recognized both in case law and in the practice of collective agreements. In Rt. 1977 p. 902 Hammerverk, the Supreme Court described the management prerogative as a prerequisite for collective agreements, and that the right not only follows from the personal employment contract but has collective agreement anchoring.
Several factors justify the management prerogative:
It is linked to the power and dependency structures in the employment relationship, where the employee enters into a subordinate position
It can be considered necessary for the efficient organization of work
It functions as a mechanism for handling the employment contract's nature as an incomplete and dynamic contract
At the same time, history has shown the consequences an unchecked management prerogative can have, and it is therefore the limitations that give the management prerogative legitimacy - society has only accepted a limited management prerogative.
The content and categorization of the management prerogative
The Supreme Court has formulated that the management prerogative entails a "right to organize, lead, control, and allocate work" (Rt. 2000 p. 1602 Nøkk). In academic literature, employer decisions are often categorized into:
Heteronomous competence (work management)
Decisions about work execution, workplace, working hours, control, etc.
This is competence to norm with binding effect on the employee
This form of competence is peculiar to the employment relationship
Autonomous competence (corporate management)
Decisions based on contractual competence and ownership control
Includes, for example, hiring and decisions about the company's structure
Legally not unique to the employer, but an exercise of private autonomy
In practice, there is no sharp distinction between these forms of competence, and in a labor law context, "management prerogative" encompasses both heteronomous and autonomous competency exercise.
Limitations of the management prerogative
The management prerogative is limited by various legal bases, and these limitations can be of personnel, procedural, and material nature:
Law and collective agreements
The limitations are established through the interpretation of law and collective agreements according to established interpretation norms. In legal interpretation, protective considerations will be a central element, while these considerations have less place in collective agreement interpretation.
The individual employment relationship
This is often the most complex assessment. The Supreme Court has taken a two-step approach:
Has the employer assumed a "special obligation" or "given special waiver" of the management prerogative?
If not, does the change pertain to something that "characterizes, defines, or appears as essential to the employment relationship"?
In the interpretation, emphasis is placed on job title, employment circumstances, industry practices, and "what is considered reasonable in light of societal developments" (Rt. 2000 p. 1602 Nøkk).
The latter element marks a shift in case law, where the need for changes in the employment relationship is given greater weight. In HR-2020-1339-A ISS, it was clarified that in employment contract interpretation, there is "greater room for supplementary interpretative factors... than in the interpretation of agreements between equal parties in commercial relationships".
General norms of reasonableness
The management prerogative is also limited by unwritten norms of reasonableness, as formulated by the Supreme Court in Rt. 2001 p. 418 Kårstø:
"The exercise of the employer's management prerogative sets certain requirements for the decision-making process, there must be a sound basis for the decision, which must not be arbitrary or based on external considerations."
These norms resemble the doctrine of abuse of power in administrative law and are intended to prevent the employer from misusing their competence.
The courts' right of review
The courts have, in principle, full right of review in assessing whether the employer's decision falls within the boundaries defined by law, collective agreement, or employment contract. This means that the courts can review the interpretation of the relevant norm and all aspects of the employer's decision.
However, the intensity of the review will vary. For example, the intensity will be weaker when reviewing economic and strategic considerations and stronger for decisions more intrusive for the employee.
A debated question is whether the courts can review the reasonableness of the employer's decision. This is now clear regarding the determination of the contents of the employment contract, but in the assessment under the unwritten requirement of reasonableness, the Supreme Court has delimited against "a general review of whether the employer’s decisions within the boundaries of the management prerogative are necessary or optimal".
Typical management prerogative situations
Economic benefits
As a starting point, it falls outside the management prerogative to make unilateral changes to obligations of compensation. For collective pension schemes, however, the starting point is the opposite - the employer can make changes unless there are indications that the employees have rights that prevent change.
Working hours
Within the framework of legislation, collective agreements, and the individual employment relationship, it is part of the management prerogative to determine the placement of working hours. However, in Rt. 2009 p. 1465 Senvakt, the employer could not impose day shift on nurses, as the employment contracts stipulated that they were to work evening shifts.
Work tasks
Earlier legal theory was based on a "basic standard", but the Supreme Court has put more weight on "what is found reasonable in light of societal developments", allowing for more extensive change competence for the employer.
Organizational changes
It falls under the employer's corporate management to decide on organizational changes such as sales, outsourcing, or closure. Normally, there are no material limitations for such decisions, but procedural rules in legislation and collective agreements must be followed.
Consequences of unlawful changes
If the employer makes a decision that exceeds the boundaries of the management prerogative, the starting point is that the employment contract is breached, and general contractual remedies can be asserted.
If the change is significant, the employment protection regulations regarding dismissal may apply. The change must then be carried out in accordance with the requirements for just cause, procedure, etc., in the employment protection legislation.
An alternative approach is change dismissal - a dismissal combined with an offer of a new position on changed terms. The Supreme Court has clarified that this must be evaluated according to the ordinary rules of dismissal, but emphasis can be placed on the employee's continuation in the business, depending on the extent of the change.
