Apr 8, 2025
Layoffs in Employment Relationships – Conditions, Process, and Legal Implications
Layoff is an important tool for employers who temporarily cannot employ their workers in an economically viable way. During a layoff, the employee is temporarily exempted from work obligations, while the employer is temporarily exempted from the obligation to pay wages. This distinguishes layoff from termination, where the employment relationship is completely terminated. This article examines the legal basis for layoff, the conditions for layoff, how layoffs are implemented, and the legal effects they have for both employer and employee. It's important to note that the Norwegian law on layoff is being introduced here.
Legal Basis for Layoff
The access to layoff is not legislated but has developed through workplace practice, collective agreements, and legal precedents. Several laws are based on the premise that employers have access to layoffs, and it is today assumed that there exists a customary legal basis for layoffs in the private sector.
In areas regulated by collective agreements, the access to layoffs often follows from the collective agreement. The main agreement between LO (Norwegian Confederation of Trade Unions) and NHO (Confederation of Norwegian Enterprise) contains extensive regulations on the access to layoffs, and it is assumed that the provisions of this agreement express the rules applicable to the general access to layoffs. Even outside areas bound by collective agreements, there is access to layoffs, and the courts have held that the provisions in the LO-NHO Main Agreement apply correspondingly where suitable.
The access to layoffs can be excluded or limited through agreement or collective agreement. Within the municipal sector, the access to layoffs is limited to labor conflicts and unforeseen events. In the state sector, there is no access to layoffs for the state administrative sector (government administration).
Conditions for Layoff
Just Cause
The fundamental condition for layoff is that there is a "just cause" that makes it "necessary for the business". This applies both within and outside collective agreement-regulated areas.
Just cause typically includes operational obstacles in the business, such as:
Lack of orders
Need for inventory taking
Repairs and reorganization of work premises
Unforeseen circumstances (force majeure) such as fire, power outages, or natural disasters
Labor conflict in another business affecting operations
It is crucial that the employer sees that employees cannot be employed in a viable way for the business for a limited period. However, the employer cannot lay off due to circumstances relating to the individual employee, such as illness, lack of formal approvals, or quarantine.
The necessity requirement implies that there must be a predominance of considerations on the business's side speaking for layoff. It is not sufficient that layoff is desirable or convenient based on business economic considerations.
Temporariness
There is also a requirement for temporariness. The reason for the layoff must be temporary, and there must be a realistic possibility that the work can be resumed within a reasonable time. If there are no longer realistic possibilities for work to be resumed, the requirement for temporariness will not be met. In such cases, the employer must proceed with the provisions of the Working Environment Act on termination.
Duration of Layoff
There is originally no clearly defined limit for how long a layoff can last, but there are several limitations:
The requirement for temporariness implies that there must be realistic possibilities for re-entry into work within a reasonable time.
Collective agreements can set limits on the duration of layoffs. The LO-NHO Main Agreement limits the access to lay off beyond six months unless the parties agree that there still exists a just cause.
Under the Layoff Pay Act, the employer's obligation to pay wages will resume when employees have been fully or partially laid off without pay for 26 weeks within the last 18 months (exemption period). For long-term layoffs, the employer must therefore either resume wage payments or proceed with terminating the employees.
Procedures and Methodology
Discussion with Employees
Even though the legislation does not contain procedural rules for layoff, it follows from general norms of reasonableness in management rights that the employer must conduct a proper handling of the process. For businesses bound by collective agreements, the provisions of the Main Agreement apply, but the principles should also be followed by businesses not bound by a collective agreement.
According to the LO-NHO Main Agreement, the employer shall confer with the elected representatives before giving notice of layoff. The discussion shall cover the need for layoff, possible alternatives to layoff, the scope and duration of the layoff, and criteria for selecting employees to be laid off. A protocol must be drawn up from the meeting signed by the parties.
Selection of Employees
In layoffs, any selection of which employees to lay off must be based on a comprehensive assessment of reasonable criteria. According to the LO-NHO Main Agreement, employee seniority should be the starting point, but this can be deviated from when there is just cause.
Just cause to deviate from seniority may include:
Professional qualifications
Social considerations
Economic considerations
Seniority generally carries less weight in layoffs than in terminations, as layoff is a temporary measure that assumes employees will be reinstated in work. For businesses not bound by a collective agreement, there is no absolute requirement to emphasize seniority, but the selection must still be reasonable.
Layoff Notice
The employer is obliged to give employees a written notice of the layoff in advance. The general rule is that the notice period is 14 days. In unforeseen events (force majeure), the period is two days. In the case of a labor conflict in another company or an illegal conflict in one's own company, the layoff can be implemented immediately.
The notice should indicate the probable length of the layoff. If the length is uncertain, the employer must conduct monthly discussions with the elected representatives concerning the continued layoff.
Employer’s Wage Obligation
The Layoff Pay Act regulates the employer’s wage obligation during layoff:
Employer Period I: The employer is obliged to pay full wages and other remuneration for 15 workdays after the layoff is initiated. In partial layoffs, the employer period is extended proportionately.
Exemption Period: After the employer period, the employer is temporarily exempted from the wage obligation for 26 weeks within a period of 18 months. During this time, the employee may be entitled to unemployment benefits from the national insurance scheme.
Wage Obligation after Exemption Period: After the exemption period expires, the employer’s wage obligation resumes for the entire remaining layoff time.
In the case of layoff due to fire, accidents, or natural conditions, there is no employer period.
During the COVID-19 pandemic, the exemption period was extended several times, illustrating that the rules can be changed in special societal needs.
Termination and Layoff
Employer Termination
An employer who has terminated employees cannot thereafter lay them off during the notice period when the reason for the layoff is the same as for the termination. This would open the way for circumventing both the employment protection rules of the Working Environment Act and the employer’s wage obligation during the notice period.
If, during a layoff, it turns out that it is no longer realistic that the work can be resumed within a reasonable time, the employer must proceed with termination. The employee will then have the right and obligation to work out the notice period, and the employer is obliged to pay wages for the notice period even if the employee cannot be employed.
Employee Termination
An employee can terminate the employment relationship with 14 days' notice during the layoff period, regardless of what notice period otherwise applies. This assumes that the employee is laid off "without pay," i.e., after the employer period has expired.
According to the LO-NHO Main Agreement, an employee who has been laid off for more than three months and is to start another job can leave without notice if no specific end date for the layoff has been set.
Conclusion
Layoff is a flexible tool that allows employers to adjust staffing during temporary operational problems. At the same time, the layoff system also incurs costs for employers in the form of wage obligations during the employer period, which is intended to prevent unnecessary use. For employees, layoff is typically a better option than termination, although it involves temporary income loss after the employer period expires.
For a layoff to be valid, the employer must ensure that it is based on reasonable grounds, is temporary, and that proper procedures and notice periods are followed. In cases of uncertainty about whether the conditions for layoff are met, both employers and employees should seek legal assistance from Sterk Law Firm.
