How to proceed in the event of a layoff?

The corona situation has left its mark on most organisations in one form or another. Many organisations have had to make permanent or temporary cutbacks. It can probably be expected that many organisations will also need extensive layoffs in the future. There are several questions related to the layoff regulations. In this article, we will endeavour to provide a brief and practical guide to layoffs. What is particularly important to consider and what formalities must be followed?

Short about layoffs

A layoff involves a unilateral order from the employer to temporarily suspend the employer's obligation to pay wages and the employee's obligation to work. It should be noted, however, that the employment relationship itself remains, but for a temporary period it has few rights and obligations. As soon as the temporary layoff period is over, the employer's duty to pay wages and the employee's duty to work resumes.

A legitimate reason is required for the employer to have the right to lay off employees. A valid reason can be, for example, a shutdown or lack of orders. 

Prior to any layoff, the need for layoffs must be discussed with the company's employee representatives. The employer must also make a factually justified assessment of which employees are to be laid off. After this, the employer must give a written layoff notice to the employees in question. 

As a result of the corona pandemic, several significant changes have been made to the layoff regulations that are important to be aware of. Here we will try to review step by step what the company must consider or be aware of to ensure notoriety. 

Step 1: Objective reason for layoff

First and foremost, the company must thoroughly assess whether there is a need for temporary layoffs. For the company to be able to lay off one or more employees, there must be a legitimate reason for it. The objective reason must be a circumstance on the part of the organisation, and there must be a temporary need for layoffs. If there is a permanent need for fewer employees, the organisation will have to resort to dismissal instead. As more people are being vaccinated against Covid-19 every day, there is now greater reason to assume that the need for temporary layoffs will be temporary. 

Loss of turnover, lack of orders, delivery stoppages, fewer visits to a restaurant due to number restrictions and a ban on serving alcohol are examples of objective reasons on the part of the company. The fact that an employee is in quarantine or is infected with covid-19 is not a basis for layoffs.

It should be noted that the company will be obliged to try alternative measures before a layoff is made, and that this is documented in writing.

The circumstances that may favour layoffs should be documented in writing and possibly discussed at a board meeting. The documentation should also state which part(s) of the organisation needs to be laid off.

As far as possible, the assessments made in step 1 must be discussed in consultation with the employee representative(s). If there is no employee representative in the organisation, the discussions may be held together with the working environment committee or safety representative. The discussions in consultation with the employee representative(s) should be documented in writing. 

Step 2: Selection of employees

Once it has been decided and documented that there are legitimate reasons for laying off all or part of the business, the employer will have to select which and how many employees are to be laid off. This selection will depend on the basis for the layoff and which part(s) of the business will be affected by a layoff. 

The selection will have to be based on objective conditions, and the process and discussions related to the selection circle should be documented in writing. 

According to the main agreement between LO and NHO, and several other main agreements, the employees' seniority will be the main rule for selection. This may mean that some managers may have to be laid off before other employees, and other employees will then have to perform some of the management tasks. It should be noted that the seniority principle can be deviated from if there are compelling reasons for doing so. 

For companies that are not bound by collective agreements, the seniority principle will still be relevant, but only as a starting point in the assessment. 

The selection of employees must, as far as possible, be discussed in consultation with the employee representative(s). If there is no employee representative in the company, the discussions may be held together with the working environment committee or safety representative. The discussions in consultation with the employee representative(s) should be documented in writing. 

Step 3: Degree and length of layoff

As a rule, the company has a clear view of whether there is a need to lay off employees completely or whether it is sufficient to lay off employees partially. It is important to note that the degree of layoff should not be higher than necessary. 

The degree of layoff may nevertheless be of significance to whether or not employees are entitled to unemployment benefits during layoffs. In order for employees to be entitled to unemployment benefits from NAV, their working hours will have to be reduced by at least 40 %. It should be noted that the reduction in working hours is not related to a 100 % position. Rather, the reduction is related to the employee's job percentage. 

The company must also consider how long the employees will be laid off. The length of the layoff should be as realistic as possible, and preferably with a specific date if there is a realistic date for the end of the layoff. It should be noted that the length of the layoff may have an impact on any extension of the layoff. 

Employees can be laid off for up to 52 weeks during an 18-month period. The employer will be exempt from the obligation to pay wages for 49 of these weeks.

It should be noted that the maximum length of layoffs has been extended until 30 September 2021 where employers at 1 February 2020 had 35 or fewer weeks left of the period of exemption from the wage obligation. 

The assessments under step 3 must also be discussed in consultation with the employee representative(s) as far as possible. If there is no employee representative in the company, the discussions can be held together with the working environment committee or safety representative. The discussions in consultation with the employee representative(s) should be documented in writing.

Step 4: Length of the notice period

In consultation with the employee representative(s), the employer must assess what notice period the employees are entitled to.

The notification period will in most cases be 14 days. Exceptions to this apply where there are unforeseen events. In such cases, the notification period will be two days. However, there are strict requirements for being able to utilise a notification period of two days. 

The corona pandemic in itself does not currently justify a two-day notice period. This is because the corona pandemic has lasted for almost a year. New restrictions may not result in the notification period being set at two days either. This depends, among other things, on how likely it was that the restrictions would materialise. 

Whether the two-day notice period can be used is a specific assessment that must be made for each individual business. 

Step 5: Meeting with employees/information to employees

Any employer contemplating layoffs should inform their employees of this before a layoff notice is sent out. This can be done either through an office meeting or by sending written information to the employees. 

Step 6: Employer's information sharing with NAV

If the employer wishes to or is considering laying off at least 10 employees for at least four weeks, the employer will be obliged to notify NAV of a possible layoff as soon as possible. This applies regardless of whether the company envisages full or partial layoffs.

In most cases, NAV will contact the company to arrange a meeting with its management and employee representatives to clarify the situation and what NAV can do to help. 

Step 7: Sending a layoff notice to the employees

Once the company and the employee representative(s) have agreed on the need for layoffs, which employees are to be laid off and the degree of layoff, the employer must send out a written layoff notice to the employees. 

The notification must state the basis for the layoff, when the layoff begins, the degree of layoff, the percentage of the position during the layoff and the length of the layoff. If the employer cannot give a specific date for the end of the layoff, a probable date must be estimated. In addition, the following must be stated in the notice: the employee's job percentage, the employee's start date in the company and whether an agreement has been reached between the company and the employee representative(s) regarding the lay-off. 

An employee will be dependent on receiving a layoff notice from his or her employer in order to be entitled to unemployment benefits from NAV. 

In the remainder of the article, we will endeavour to shed light on relevant questions and rules related to layoffs.

Employer's wage obligation and unemployment benefits from NAV

The rules relating to the periods during which the employer is obliged to pay the employee and the periods during which the employee receives unemployment benefits from NAV can be complicated. We will therefore endeavour to provide a more detailed explanation of the rules below.

During the notice period, the employer is obliged to pay wages to the employee. After the expiry of the notification period, the layoff begins to run. The first ten working days of the layoff period are called employer period 1. During this period, the employer is obliged to pay wages for ten working days. The employer will thus be obliged to pay for ten subsequent days on which the employee was originally scheduled to work. The obligation to pay wages in employer period 1 does not apply in the event of time off, time off in lieu, leave and the like, but is then postponed for the corresponding period. 

In order for the employee to be entitled to unemployment benefits from NAV after the end of employer period 1, he or she is obliged to register as a job seeker with NAV and apply for unemployment benefits from NAV. 

After the expiry of employer period 1, the employer is exempt from the obligation to pay wages for up to 49 weeks in the course of 18 months. If the layoff lasts beyond this, the employer's salary obligation resumes. In practice, employees can therefore be laid off for a maximum of 52 weeks, including employer period 1. 

The exemption from the salary obligation was slightly changed from 1 March 2021. From this point in time, an employer period 2 of five days will be reinstated where the employee has been laid off for 30 weeks within 18 months. This means that the employer will be obliged to pay wages during employer period 1 of 10 days, after which unemployment benefits will be paid by NAV until week 30, then the employer will pay wages for five days before NAV again pays unemployment benefits. It should be noted that the government now proposes to remove employer period 2.

An employee is entitled to unemployment benefits from NAV if he or she has had an income of at least 1.5 G (NOK 152,027) in the last 12 months, or an income of 3 G (NOK 304,053) in the last 36 months. 

Please note that during the period when the employee receives unemployment benefit, the employee will not receive 100 % of their salary. The unemployment benefit the employee receives corresponds to 80 % of the employee's gross earned income in the last 12 months up to 3 G. If the employee has a gross earned income of more than 3 G, the employee will also receive 62.4 % of the gross earned income in the last 12 months for incomes between 3 G and 6 G. The employee does not receive unemployment benefit for any gross earned income in excess of 6 G. 

This unemployment benefit calculation will initially expire in October 2021.

Termination during layoff

If the employer realises that the need for temporary layoffs is permanent, it will not be possible to lay off employees. Instead, the employer will have to dismiss employees. 

In some cases, it may be relevant for either the employer or the employee to make a termination during the layoff period. 

If employees wish to terminate their employment during their layoff period, the notice period is generally 14 days. However, in the case of layoffs lasting more than three months, there will in most cases be no notice period for the employee.  

If, on the other hand, the employer sees that there are no prospects of an improved situation, so that it is necessary to summarily dismiss laid-off employees, the employer has the opportunity to do so. In such cases, the layoff will cease. This means that the employer is once again obliged to pay wages to the employee during the normal notice period, while the employee's obligation to work resumes. However, the employee's obligation to work lapses if the employee has taken up another position. 

Cancellation of holiday and questions about holiday pay

For most employees, the question of whether it is possible to take holiday during a layoff will be relevant. The starting point for taking holidays during layoffs is that holidays must be taken as normal, so that the holiday is not included in the layoff period. However, an employer can order the employee to take their holiday during the layoff period. 

An employee earns holiday pay on unemployment benefits received in the previous year at a rate of 10.2 %.

Extension of an already initiated layoff

Several companies may need to extend an already initiated layoff within the maximum layoff period of 52 weeks if it turns out that the need for layoffs still exists at the end of the layoff. There is thus a requirement for a new assessment to be made of whether there is still a need for an extension of the temporary layoff. This assessment should be documented in writing.

If no specific date has been set for the end of the temporary layoff, it is possible to extend an already initiated temporary layoff without sending out a new layoff notice. An extension of an initiated layoff will thus be relevant, for example, where it is stated that the layoff applies “until further notice”, “in the first instance”, subject to an extension, or where the length of the layoff is approximate or uncertain.

In the event of an extension of an already initiated temporary layoff, the employer will not incur a new salary obligation beyond what is stated above. 

If, on the other hand, a specific date for the end of the layoff is stated, or the length of the layoff is specified without uncertainty, all assessments related to the layoff and the issuing of a layoff notice will have to be made again.