What is a layoff?

Employers may lay off employees when they have a temporary need to reduce the workforce due to lack of work.

During a temporary layoff, employees are released from their work duties and the employer's obligation to pay wages (the employer's period) is suspended.

Once the layoff period ends, the employee has a right and obligation to return to work.

When can an employer lay off its employees?

An employer may only lay off employees when such a measure is objectively justified. Another condition is that the lack of work is temporary in nature.

The grounds on which an employer can lay off employees generally follow from non-statutory rules or collective agreements

The employer's right to lay off employees is not laid down in law. The grounds on which an employer can lay off employees generally follow from non-statutory rules or collective agreements.

It is also regarded as a general principle in employment relationships that are not regulated by a collective agreement.

Requirement of objective grounds

What constitutes objective grounds is a matter of concrete assessment, but it must be related to the employer's temporary difficulty in providing its employees with enough work.

The lack of work may be due to, for example, shortage of orders, full warehouses, shortage of raw materials, repair or maintenance work in the enterprise, an accident, a strike in the enterprise or in another enterprise or other events that prevent normal operations.

The requirement of objectivity applies to the entire layoff period, though the reason for the layoff may change. For example, a layoff may begin due to an accident but may be extended due to a shortage of orders. Such an extension would probably be acceptable as long as the requirement of objective grounds was met.

But objective grounds alone will not suffice; it must also be necessary for the enterprise to lay off employees. Moreover, the requirement of objectivity implies that selection between employees must be objectively justified.

Requirement of temporary nature

Layoffs may only be used in cases of a temporary shortage of work. Real prospects of improvement must exist. Layoffs cannot be used if in fact there are grounds for implementing dismissals.

If it is clear that the situation will not change in the near future and that layoffs will probably be followed by dismissals, no grounds exist for laying off employees first. The employer must terminate the employment relationship by means of normal dismissal based on the enterprise's circumstances (workforce reductions).

Layoff procedure

Requirements apply to how employers must proceed when they need to lay off employees. They must discuss the matter with the employee representatives, comply with rules regarding notice of layoff, and must select employees according to objective criteria.

Obligation to consult with union representatives

The obligation to consult with union representatives only applies to enterprises that are bound by collective agreements. However, it is recommended that enterprises that are not bound by collective agreements or that have no employee representatives appoint someone to represent the employees (such as a health and safety representative) to fill this role to ensure that the layoff procedure is conducted properly.

Issues that must be discussed: the need for layoff, the reason for layoff, and selection criteria. Minutes of the meeting must be kept.

Selection criteria

As a general rule, selection of who should be laid off should be based on the seniority principle.

There must be objective grounds for deviating from the seniority principle. This must be decided after a concrete assessment of each individual case.

When deciding which employees to lay off, weight shall be attached to the special tasks the union representatives have to perform in the enterprise.

Will I receive pay or unemployment benefit when I am laid off?

Pay during the employer's period

The employer is required to pay full wages for 15 days after a layoff is implemented (the employer's period). You are entitled to full salary during this period.

These rules apply only to layoffs due to cutbacks or a shutdown of operations and not to, for example, layoffs due to events such as a fire, accident, or strike resulting from industrial action.

The employer's period runs from the first working day after a layoff is implemented. This period is 15 working days for both full and partial layoffs (not consecutive calendar days).

The maximum period you can be laid off for without pay is 26 weeks in a consecutive 18-month period.

Unemployment benefit

It is important to understand that a valid layoff does not automatically entitle employees to unemployment benefit.

Pursuant to the National Insurance Act, section 4-7 (in Norwegian only), employees are only entitled to unemployment benefit if the layoff is caused by circumstances beyond the employer's control.

The national insurance authorities have adopted an increasingly stricter interpretation of this condition in recent years, and our experience is that employees who are laid off are sometimes denied unemployment benefit. NITO is working actively to bring this issue to the attention of politicians.

When NAV assesses whether or not individuals who have been laid off are entitled to unemployment benefit, weight is attached to the opinion of employee representatives as to whether the need for the layoff was due to circumstances which the employer could have controlled.

  • One condition for entitlement to unemployment benefit is that an employee's working hours must be reduced by at least 50 per cent. 
  • Unemployment benefit during a period of layoff is calculated in the same way as for unemployment benefit during a period of unemployment. You are advised that unemployment benefit is calculated on the basis of your annual income up to a maximum of six times the national insurance basic amount (6G).

Work and holiday during the layoff period

What if order intakes improve and your employer asks you to return to work during the layoff period?

If your employer asks you to return to work during the layoff period, you are obliged to do so. This may be to, for example, perform work in your own position or to work as a temporary replacement for others. If the reason for the layoff no longer applies, you must be asked to return to work. The Norwegian Labour Inspection Authority says that two days' notice must be sufficient.

Can you take on other work during the layoff period?

As a recipient of unemployment benefit, you are also obliged to take other suitable work. If you have taken other temporary work during the lay-off period, it is therefore important that this work can be completed at short notice.  

The layoff is considered uninterrupted if the period of work at the employer does not exceed 6 weeks.

If the period of work exceeds 6 weeks, it implies a new lay-off period. In such cases, the employer must notify again, and  a new employer period with a duty to pay etc. will accrue. 

Holiday that is scheduled prior to the layoff period must be taken as planned. Holiday is not counted in the period for which an employee may be laid off without entitlement to pay.

Other aspects of taking holiday are regulated by the Act relating to holidays. Both the employer and the employee are obliged to ensure that statutory holiday is taken.

Essentially, the parties can agree on when holiday is taken. The employer may, within certain limits, determine when holiday should be taken after conferring with the employee or with employee representatives.

The employee will be entitled to holiday pay while taking holiday. Many enterprises disburse holiday pay in the final payroll run in June or July and simultaneously make wage deductions for four or five weeks' holiday.

The employer will therefore be entitled to pay if holiday is taken later in the year. The employer may not avoid its obligation to pay holiday pay by implementing a layoff. Payment of unemployment benefit will stop during the period when holiday is taken.

Dismissal and layoff

What should you do if you want to resign when you are laid off? And what if your employer dismisses you during the layoff period?

When the employee resigns

If you resign before the notice of layoff is given, the agreed or statutory period of notice will apply. You have an obligation and right to work throughout your notice period. Your employer is obliged to pay full wages throughout the period of notice.

If you resign your job after notice of layoff is given and after the employer's period, i.e. the period in which your employer is obliged to pay your wages, you may do so with 14 days' notice. The notice period will begin as soon as your resignation is received by your employer, not from the first day in the following month, which is the normal period of notice.

NITO's basic collective agreements give employees the right to resign without notice if they have been laid off for more than three months and wish to find other employment. 

Employees who resign after a notice of layoff is given but before the layoff is implemented have an obligation and right to work during the period not covered by the layoff. The employer is obliged to pay wages during those parts of the notice period that fall prior to and after the layoff period. In other words, as an employee you are not entitled to pay during the actual layoff period if you resign after the notice is given.

When the employer dismisses an employee

If the employer dismisses an employee who has been laid off, the normal rules for dismissal apply.

The length of the notice period will follow from the employment contract or from the provisions in the Working Environment Act, and the notice period will run from the first day in the month after which notice is received.

The employer is obliged to pay the employee full wages, even if it cannot provide any work. However, the employer's obligation to pay wages is contingent on the employee being at the employer's disposal. In other words, the employee must be available during the notice period in order to be entitled to pay.

The general rules set out in the Working Environment Act governing conditions, procedure, and selection for dismissal will otherwise apply.