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Layoff

A layoff can be implemented when an employer has a temporary need to reduce its workforce due to lack of work. In other words, a layoff entails a temporary suspension of the employment relationship. Once a layoff ends, the employer has a right and obligation to return to work. This page deals primarily with layoffs in the private sector and the area covered by Spekter.

Conditions for layoff

Layoff: Process and procedures

Dismissal and layoff

During a layoff, the employment relationship continues to exist but the employer's obligation to pay wages and the employee's obligation to work are temporarily suspended.

The employer's option to lay off employees is not explicitly regulated by law. A layoff may be implemented on the basis of an agreement between the enterprise and the employees, a collective agreement or on non-statutory grounds.

Basic agreements such as those between NHO and NITO, Spekter and SAN, and KS and Akademikerne all contain provisions regarding layoffs. The municipal/county municipal sector has far fewer options to lay off employees than do the private sector and the area covered by the Employers' Association Spekter.

In the municipal/county municipal sector, a layoff must be justified by an "unforeseen event" or a "dispute". The Basic Collective Agreement for the Civil Service makes no mention of layoffs. The assumption is that there is no general right to lay off employees in the public sector.

Conditions for layoff

Requirement of reasonable grounds 

An employer must have reasonable grounds for laying off employees. What constitutes reasonable grounds is determined on a case-by-case basis, but they must relate to the employer's temporary difficulty in providing the employee with enough work.

Such temporary lack of work may be due to, for example, a shortage of orders, renovation or maintenance work in the enterprise, a strike in the enterprise or in another enterprise, or other events that prevent normal operations, such as a fire. It is the circumstances pertaining to the enterprise that can lead to layoffs, not circumstances pertaining to the employee.

The requirement of reasonable grounds applies to the entire layoff period, but the reason for the layoff may change; for example, a layoff may begin due to refurbishing work on the work premises but may be extended due to a shortage of orders. Such an extension would probably be accepted as long as the requirement of reasonable grounds was met.

Requirement of temporariness

As already mentioned, layoffs may only be implemented in cases of temporary shortage of work. There must be a real prospect for improvement; 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, there are no grounds for laying off employees first. The employer must terminate the employment relationship by means of normal dismissals based on the enterprise's circumstances (workforce reductions).

There have been cases of layoffs being used to force employees out of their jobs or to avoid paying employees during the notice period. It is therefore important to critically assess whether a layoff is based on reasonable grounds or whether it is in fact a case of dismissal in disguise.

Layoff: Process and procedures

Obligation to consult with employee representatives

The obligation to consult with employee representatives only applies to enterprises that are bound by collective agreements. Enterprises that are not bound by collective agreements or that have no employee representatives are recommended to appoint a person (such as a health and safety representative) to fill this role to ensure that layoff procedures are conducted properly.

The obligation to consult entails an obligation to discuss the need for the layoff, the reasons, and the selection of employees with the employee representatives but not with individual employees. Although the employee representatives must be heard, it is the employer who decides by virtue of its managerial prerogative.

Minutes of the meeting must be kept.

Notice of layoff

Once the consultation meeting has been held, employees being laid off must normally be given 14 days' notice, effective from the end of their working hours on the day on which notice is given.

A notice period of two days applies in the case of unforeseen events such as accidents and natural disasters, etc. Unless the local parties agree otherwise, notice must be given in writing to each employee. The notice must be unconditional and must inform the employee of the reason for the layoff and of when it will be effected.

The notice must also state how long the layoff is expected to last. If no information on the duration of the layoff can be given, continuation of the layoff must be discussed with the employee representatives within one month at the latest and every month thereafter unless the parties agree otherwise.
The notice of layoff must serve as documentation of layoff with respect to the Norwegian Labour and Welfare Administration (NAV).

An employer who plans to lay off at least 10 employees within a period of 30 days such that their working hours are reduced by more than 50 per cent must notify NAV as soon as possible; see the Labour Market Act, section 8.

Selection criteria

The general rule is that decisions as to which employees will be laid off should be based on the seniority principle. Reasonable grounds must be given for waiving the seniority principle, and these must be determined after individual assessment of each case.

The employer may choose to retain employees who can ensure that operations are maintained and continued as best as possible. It is therefore reasonable to expect less weight to be given to the seniority principle when implementing layoffs than when implementing dismissals.

Furthermore, employees may not demand training to qualify them for a position, as is the case in dismissal processes. Employees must already possess the required qualifications at the time of layoff.

Weight must be given to the special role of employee representatives within the enterprise when selecting which employees will be laid off.

Obligation to pay wages during layoff

Under the Act concerning the Obligation to Pay Wages during Layoffs, the employer is required to pay wages for a certain period of time after a layoff is implemented. This period is known as the employer's period. These rules only apply to layoffs due to cutbacks or a shutdown of operations, not to layoffs due to events such as fire, accident, or strike resulting from industrial action.

The employer's period runs from the first working day after a layoff is implemented. With effect from 1 July 2015, the employer's period is 10 days for both full and partial layoff (not consecutive calendar days). No employer's period applies in cases of layoff caused by accident, fire or natural disaster.

Under the Act concerning the Obligation to Pay Wages during Layoffs, the maximum period an employee may be laid off without pay is 30 weeks in a consecutive 18-month period.

Unemployment benefit for employees who are laid off

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

Pursuant to the National Insurance Act, section 4-7, employees are only entitled to unemployment benefit if the reason for the layoff was due to 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 increasingly being refused unemployment benefit.

NITO is working actively to bring this issue to the attention of politicians, but so far we have not gained support for our demands for a change in practice or a legislative amendment.

When NAV assesses whether or not individuals who have been laid off are entitled to unemployment benefit, weight is given to the opinion of employee representatives as to whether the need for the layoff was due to circumstances that were beyond the employer's control.

One condition for entitlement to unemployment benefit is that an employee's working hours must be reduced by at least 50 per cent.
NITO can provide up to NOK 3,999 from its support fund to members who are laid off and who lose income while waiting to qualify for unemployment benefit (waiting days).

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, limited to a maximum of six times the National Insurance Basic Amount (Grunnbeløpet).

Interruption in layoff period due to return to work

During the layoff period, the employee is obligated to resume the employment relationship if requested to do so by the employer. Pursuant to the Act concerning the Obligation to Pay Wages during Layoffs, a layoff period will not be deemed to be interrupted as long as the period of work does not exceed six weeks.

In other words, this would not trigger the need for a new employer's period and employer's obligation to pay wages.

Extending the layoff period and changing the degree of layoff

If a layoff is implemented "until further notice" or on the condition of a possible extension, the layoff period may be extended without further notice.
The same probably also applies to changes made to the degree of layoff (for example from 50 per cent to 100 per cent layoff).

NITO's basic agreements require the consent of the other party to the agreement to extending the layoff period beyond six months. Furthermore, it follows from the basic agreements that layoffs must not last for more than six months unless reasonable grounds still exist to do so.

Reasonable grounds in this context normally means the likelihood of employees who were laid off being able to return to work within a reasonable period of time. If a layoff lasts much longer than six months, it is natural to consider whether there are in fact grounds to proceed with dismissals.

Dismissal and layoff

Notice of dismissal

When 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 time limit is calculated from the first day in the month after which notice is received.

The employer is obligated to pay the employee full wage, even if it cannot provide any work. However, the employer's obligation to pay wages is contingent on the employee placing his/her services 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 governing conditions, procedure, and selection in dismissal processes will otherwise apply. See our fact sheet on dismissals for more information.

Notice of resignation

If an employee resigns before the notice of layoff is given, the agreed or statutory period of notice will apply. The employee has an obligation and right to work throughout the period of notice. The employer has the obligation to pay full wages throughout the period of notice.

If the employee resigns after notice of layoff is given and the layoff has been implemented, the employee may resign with 14 days' notice. The 14-day time limit will begin as soon as the resignation is received by the employer, not from the first day in the following month as is usual for resignations.

NITO's basic 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. This applies to NITO members who are covered by agreements with NHO, HSH or Spekter. Most of NITO's direct agreements contain similar provisions.

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

Sickness during layoff

An employee who takes sick leave after a notice of layoff is given but before
being laid off will receive statutory sickness benefit from the national insurance scheme. If an employee is reported fit to return to work during the layoff period, his/her wages will be paid during the employer's period as usual.

If an employee takes sick leave after being laid off, the employer is not obligated to pay sickness benefit during the employer's period. Sick pay will be paid in accordance with the regulations that apply for people who are unemployed.

Layoff and holiday

Holiday that is scheduled prior to the layoff must be taken as planned. Holiday is not counted as part of the time 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 obligated to ensure that statutory holiday is taken. Essentially, the parties can agree on when holiday is taken. The employer may, within certain limits, specify when holiday should be taken after conferring with the employee or with employee representatives.

The employee will be entitled to holiday pay during the main holiday period. 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 even if he/she takes his/her holiday 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.

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