Transfer of undertakings (protection of employment) Under Norway law

By Attorney Nicolay Skarning and Associate Catriona Elisabeth McIntyre

What is the legal basis of Transfer of Undertakings Protection of Employment (TUPE) in Norway? What is the legal definition of TUPE in Norway?

The Working Environment Act chapter 16 implements the EU Directive 2001/23/EC on the transfer of undertakings. The interpretations of the Court of Justice of the European Communities are therefore relevant when determining the meaning of the regulations in addition to the rulings of the EFTA Court.

In short, a transfer of undertaking takes place when an undertaking or part of an undertaking is transferred to another employer. Typical situations are out- and insourcing or the selling of all or part of a company. A transfer of undertaking often results in some kind of reorganisation of the workforce at either the transferor or the transferee. There are three main conditions that must be fulfilled for a transfer to constitute a transfer of undertaking in relation to the regulations:

Firstly, the transfer must as main rule be in the context of a contractual relationship. However, a change in ownership of a share transfer or assignment of other types of assets falls outside the scope of the regulations. The same applies when the purchaser of the shares is the sole owner of the company.

Secondly, the transfer must relate to an economic entity that retains its identity, meaning an organised grouping of resources which has the objective of pursuing an economic activity, whether or not that activity is central or ancillary. It refers to a stable economic entity whose activity is not limited to performing one specific works contract. The term entity thus refers to an organized grouping of persons and assets facilitating the exercise of an economic activity which pursues a specific objective.

The entity must retain its identity after the transfer, and the identity is determined through an overall assessment of the different factors that characterize the transaction, such as tangible assets (i.e. buildings and movable property), the value of its intangible assets at the time of the transfer, whether or not the majority of the employees are taken over by the new employer, whether or not its customers are transferred and the degree of similarity between the activities carried on before and after the transfer. The type of undertaking or business concerned must also be taken into account.

Finally, the transfer must involve a change of employer. The regulations will apply if there is a change in the legal or natural person who is responsible for carrying on the business and who by virtue of that fact incurs the obligations of an employer vis-à-vis the employees of the undertaking, regardless of whether or not ownership of the undertaking is transferred.

How does TUPE impact the employment relationship of employees in the scope of a transfer?

If the transfer constitutes a transfer of undertaking in regards to the Working Environment Act chapter 16, the employees and their rights and obligations from the contract of employment or employment relationships are transferred to the new employer. An employee may however object to transfer of the employment relationship to the new employer (the ‘reservation right’). The reservation right is described more in detail below.

What (legal) rights do employees, employee representative bodies (works councils, unions) have in connection with TUPE?

Consultations with employee representatives

Before a company can make a decision which results in a transfer of undertaking, several issues must be consulted with the employee representative(s). If there is no such representative at the company, the employees may elect one amongst them, or the company may discuss with all employees present.

The following issues must be informed and consulted on with the employee representative(s)

  • the reason for the transfer;
  • the agreed or proposed date for the transfer;
  • the legal, economic and social implications of the transfer for the employees (for example change in the place of work; change in the collective occupational pension schemes etc.);
    • changes in circumstances relating to collective agreements;
    • measures planned in relation to the employees; and
    • the reservation right and the preferential right and the time limit for exercising such rights

In addition, if the transferor and transferee are planning measures in relation to their respective employees, it is mandatory for them to consult with the employee representatives as early as possible on these issues with a view to reaching an agreement. Examples of measures are redundancy procedures, severance agreements to be offered to employees etc. There is no requirement to reach an agreement, only to consult and try to agree. This means that the authority to make decisions lies with the transferor and transferee.

Rights of employees in the event of transfer of ownership of undertakings

The employees are entitled to receive information about the transfer shortly after the decision is made. The information is normally given the same or next day as the decision is made – in an open meeting and/or by e-mail to the relevant employees.

The rights and obligations of the transferred employees are transferred unaltered and automatically to the transferee. It is the rights and obligations in the employment contract and other individual rights ensuing from the employment in force at the time of the transfer that are transferred.

As a main rule, any collective agreements in force for the transferred employees are transferred. However, the transferee may state that it does not wish to be bound by these so that they are not transferred. This is important to consider for the transferee.

The employee’s membership in a collective occupational pension schemes is transferred to the transferee, unless the new employer chooses to make existing collective pension schemes applicable to the transferred employees. This exception only applies to occupational collective pension schemes, which means that individual pension agreements are transferred unchanged. Also this point is important to consider for the transferee.

An employee may object to the transfer of his employment to the transferee (the ‘reservation right’). It is mandatory for the transferor and transferee to inform the employees who are subject to the transfer of their reservation right prior to the transfer, and can set a time limit for exercising the reservation right. The time limit cannot be shorter than 14 days. If an employee exercises his reservation right within the time limit, his employment will cease without further notice on the transfer date, which means that he will be unemployed from such date.

An employee who exercises his reservation right and who has been employed at the transferor for a total of at least 12 months during the two-year period prior to the date of transfer, has a preferential right to new employment at the transferor. This preferential right to new employment applies for new or open positions at the transferor for which the employee is qualified. The preferential right applies for a period of one year following the transfer date. The preferential right lapses if the employee fails to accept an offer of employment in a suitable post within 14 days of receiving the offer.

Case law has also established a right for the employees subject to the transfer to choose that they do not want to be transferred (the ‘right to choose’). The right to choose is conditional upon the transfer involving radical and negative changes in the employment relationship; these conditions are strict. According to case law, negative changes in the employees’ pension rights, the likelihood of his position to be made redundant after the transfer and change in workplace are relevant circumstances. An employee, who exercises his right to choose, remains with the transferor, which means that his employment continues as before the transfer. However, the employee will be vulnerable to any workforce reductions that may be carried out at the transferor after the transfer. If the employee is made redundant, he will have a preferential right to new employment at the transferor as described above. There are no set deadlines for the execution of the right to choose, but some case law states that it should be the same as for the reservation right.

What are the main labour & employment law risks for companies related to TUPE?

For the transferor, there is a (minor) risk than an employee refuses to be transferred and is granted the right to stay with the transferor. There are ways to minimize this risk.

The main legal risk related to TUPE is if the former employer fails to provide the new employer with all relevant information about the transferring employees’ working conditions (contractual rights, rights in accordance with possible collective bargaining agreements, pensions, policies adopted by the former employer etc.), due to the fact that all the rights and obligations of the former employer ensuing from the contract of employment or employment relationships in force on the date of transfer automatically are transferred to the new employer. It is therefore essential to know what these obligations are. This can be avoided by the way the contract is drafted.

Even though the new employer has information regarding the transferring employees’ working conditions there will be a cost for the new employer by taking on additional employees in general and the cost of maintaining the transferring employees on their existing terms and conditions of which may be more favourable than the existing workforce. The latter can also amount to existing employees performing the same work demanding improved terms and conditions- to summarize; a harmonization challenge, which also may raise the risk of disputes.

Also, the new employer has an interest in ensuring that the transferor has complied with its pre-transfer obligations in addition to complying with its own obligations, due to the fact that both the new employer and the transferor will be jointly and severally liable for a failure to provide information concerning the transfer and discuss it with the employees’ elected representatives, and jointly and severally liable for a failure to consult with the elected representatives as early as possible on the measures with a view to reaching agreement, if the previous or new owner is planning measures in relation to their respective employees.

In addition, a dismissal due to the transfer of undertaking itself will be deemed unfair, even though the transferee is entitled to downsize after the transfer is completed. The actual business transfer cannot be used as grounds for dismissal. If a dismissal is deemed unfair, the court shall, if so demanded by the employee, rule the dismissal invalid. An employee may also claim compensation. Compensation shall be fixed at the amount the court deems reasonable in view of the financial loss, circumstances relating to the employer and employee and other facts of the case.

Can companies also use TUPE for business solutions (e.g. to facilitate outsourcing or other reorganization of their business)? 

Yes, TUPE is also used as a tool in reorganising businesses in Norway, as long as this is done in a loyal manner in accordance with applicable legislation (s).