Employment law – new rules for group companies and changes to the definition of an employee
On 9 March 2023, the Storting (Norwegian parliament) adopted amendments to the Norwegian Working Environment Act, expanding the employer responsibility in intra-group relationships and clarifying the definition of an employee. The amendments come into effect as of 1 January 2024 and will have significant impact on many employers, particularly those who operate as part of a company group.
Expansion of the employer responsibility in intra-group relationships
The Storting has adopted a comprehensive expansion of the employer responsibility in intra-group relationships which significantly impacts the independence of group companies. A group is defined as a parent company and one or more subsidiary companies, where the parent company has decisive influence over the subsidiary company. The preparatory works specify that the rules will also apply to groups with foreign parent companies, but the rules only apply to the Norwegian subsidiary companies. Some of the most significant changes are:
- New information and deliberation obligations at group level for groups that in total employ at least 50 employees – > the parent company must establish framework for cooperation, information flow, and consultations between the group companies and the group’s employees. Given that the obligations only apply to groups with at least 50 employees, the parent company should maintain an overview over all subsidiary companies and the total number of employees.
- The employer’s obligation to offer other suitable work before dismissing employees based on circumstances relating to the undertaking, which is a precondition for such dismissals being deemed justified, is extended to cover the employer’s entire group – > the group companies are obligated to offer other suitable work and the employer has a duty to investigate whether there is other suitable work available. However, the employer will have an opportunity to narrow the circuit of group companies, if objectively justifiable.
- Dismissed employee’s preferential right to new employment in the notice period and for one year after the expiry of the notice period is extended to cover the employer’s entire group – > the group companies are obliged to make information about vacancies available in a suitable manner.
The scope of the Norwegian subsidiaries’ information and deliberation obligations are somewhat unclear for groups involving foreign parent companies.
The obligation to offer other suitable work and the employee’s preferential rights at group level will be important in cases where a group company is to carry out a downsizing process. The employer’s duty to offer other suitable work and the employee’s preferential rights then apply to positions that the employee is qualified for throughout the group instead of solely the legal entity in which the employee is employed. The obligation to offer other suitable work applies to all group companies at the date of the notice of termination, whereas the employee’s preferential rights apply to the companies that are part of the group at any given time, including any changes or expansions made after the date of dismissal. However, the employer’s obligation to offer other suitable work and the employee’s preferential rights at group level are secondary to the company where the employee is or was employed.
For the obligation to offer other suitable work, this means that the group companies are not obligated to offer other suitable work at group level if the employer offers other suitable work in the company where the employee is employed. As mentioned above, there will be a possibility to narrow the circuit of group companies covered by the obligation to offer other suitable work if there are objectively justifiable reasons for doing so, such as delimitation on the basis of geographical, industry and sectoral conditions. The need and criteria for such delimitation must be discussed with employee representatives before the employer makes a final decision regarding this.
For the employee’s preferential rights, the secondary nature of this right entails that the employee primarily has preferential rights to positions within its employer. The preferential right at group level lapses if the employee does not accept an offer of other suitable work, whereas the preferential right in the employer company remains as long as the employee has not been offered other suitable work in the employer. Group companies with vacancies are not obligated to contact every person who has preferential rights at group level, but they are obligated to make information about vacancies available in an appropriate manner.
The amendments also have implications for the formal requirements for notice of dismissal, in cases where the dismissal is on the basis of circumstances relating to the undertaking. Such notices must include information about the employee’s preferential rights at the group level and information about which companies are included in the group at the date of the dismissal.
The legislative amendments are primarily aimed at groups that in reality constitute one financial entity, and where the group companies have a relationship with each other to some extent. However, the amendments also affect groups where the group companies do not necessarily have anything to do with each other beyond a common parent company, such as investment funds. This means that group companies must interact and establish procedures for documenting the group’s compliance with its obligations to avoid dismissals in downsizing processes being considered invalid, and other group companies failing to make positions available to dismissed employees who have preferential rights to such.
Amendment to the definition of an employee and introduction of a new presumption rule
The Norwegian Working Environment Act primarily applies to persons defined as employees. The classification as an employee may also affect the person’s and employer’s legal position under other legislative acts (pension, holiday pay, employer’s contribution, etc.). Therefore, it is important to draw the line between employment relationships and other forms of affiliation correctly. In order to draw the line, the concrete facts of the case must be assessed as a whole, whereas the reality of the form of affiliation is decisive to this assessment.
The preparatory works state a number of relevant elements to this assessment, which have previously been developed out through several decades worth of case law. To clarify the most important elements, the Storting adopted to amend the employee definition in Section 1-8 of the Norwegian Working Environment Act from “anyone who performs work in another’s service” to “anyone who performs work for and is subordinate to another“. In addition, it was codified that emphasis shall be placed on whether the person continuously makes his or her personal work capacity available and whether the person is subordinate to another’s management, leadership, and control.
The amendment is intended to be a codification of the current legal situation but is likely to raise awareness of the risk of reclassification of independent contractors. The risk of reclassification also increases as the Storting, in addition, adopted a new presumption rule which involves that the presumption is that it is an employment relationship unless the employer can demonstrate that it is “overwhelmingly likely” that it is an independent contractor relationship.
When businesses use other forms of affiliation than employment, it is important to have solid procedures in place, to ensure that the business always carries out thorough assessments of the use of these forms of affiliation, and that these assessments can be documented. It is also important that the business adapts the agreement to the reality of the affiliation, that the agreement contains sufficient descriptions of the tasks to be performed, and that the agreement’s regulations must be adhered to in practice.
CLP’s employment law team, Julie Reinfjord, Lars Martin Sandanger and Fred Arthur Andersen, are closely following the developments and are happy to assist you with implementation of the new regulations.
The legislation and the preparatory work for the amendments are available here
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