New obligation on employers to consult may avert company closures

A new Norwegian Act relating to enterprise reorganisation came into force on 1 July 2008. The new legislation aims to give affected parties time to consider alternatives to closure in cases where owners want to close down companies. Employers must give notice of their intentions to the municipal authorities at least 30 days before a final decision is taken. This interval will give time to explore alternative options, including an employee takeover.

On 1 July 2008, a new Act relating to enterprise reorganisation (in Norwegian) came into effect in Norway. The purpose of the law is to create a deliberative framework within which alternatives to company closure are to be considered. It aims to mitigate the possible negative consequences of restructuring for employees and the local community.

Prior notice required

The new act vests an obligation on owners to report on planned closures of companies employing at least 30 workers. Company owners planning to shut down an enterprise have to give prior notice of this intention to the county municipal government, and the final decision about such a closure may not be made until 30 days after notice has been given. The notice should contain information about the number of employees involved, the reason for closure, management efforts to find alternatives to closure and the extent to which the company has entered into negotiations over the proposed closure with the employees.

Following notification, the county municipal authorities shall convene a consultation meeting with the relevant parties. At this meeting, the parties will consider different alternatives to closure, for example continued operations, alternative operations, new owners or other reorganisation measures. The actors to be invited to such meetings are representatives of the employees, management, owners, municipal authorities, the state-owned Innovation Norway (Innovasjon Norge) and the Norwegian Labour and Welfare Administration (Arbeids- og velferdsforvaltningen, NAV) (NO0610069I).

During the 30-day deliberation period, the owner(s) may not take measures that will significantly reduce the value of the company. In cases where viable alternatives to closure are found, the 30-day deadline may be extended by another 30 days. If it becomes clear that consultations will not succeed, the county municipal authorities shall, as soon as possible, give notice of this outcome to the owners as well as other relevant actors. It is also possible to impose a compulsory fine in cases where regulations are subject to non-compliance.

Scope of act

The obligation to report comes into play in cases where 90% of employees or more are about to lose their jobs, but does not take effect in connection with ordinary rationalisation processes. Cases in which 90% or more of employees are made redundant or dismissed in the course of a 12-month period are also covered by the act. However, the act does not apply to cases involving the relocation of companies within the same county municipality or where the employees are offered alternative employment in the same company and in the same county municipality. Public enterprises are not covered by the new regulations, as it is assumed that the government would then get involved in possible downsizing processes. Finally, the new regulations will not be applicable to companies that are bankrupt.

Obligation to discuss takeover by employees

The government has also introduced a right and obligation to consult employees as to whether they want to take over the company in the event of looming closure. Such an obligation is already established in the basic agreement between the Norwegian Confederation of Trade Unions (Landsorganisasjonen i Norge, LO) and the Confederation of Norwegian Enterprise (Næringslivets Hovedorganisasjon, NHO). This obligation has been made generally applicable by means of being incorporated into the provisions on mass redundancies and related procedures in this regard in the Working Environment Act (2.2Mb PDF) (Arbeidsmiljøloven).

Commentary

New measures to prevent profitable companies from closing down were high on the agenda when the three parties of the present coalition government – the Norwegian Labour Party (Det norske Arbeiderpartiet, DnA), the Socialist Left Party (Sosialistisk Venstreparti, SV) and the Centre Party (Senterpartiet, SP) – presented their platform for cooperation following the election victory in 2005 (NO0510103F). The issue of company closures was put on the election agenda following the decision of the Norwegian pulp and paper company, Norske Skog, to shut down one of its paper mills in Norway (NO0509101N). Estimates made in connection with the preparation of the new act indicate that it may apply to approximately 300 planned closures a year.

The new regulative framework does not prevent owners from closing down a company. It is meant to establish an arena through which regional and central government authorities and employees, together with the company owners, may seek to find alternatives to closure. It ensures that the possibilities for further operation are considered, and that local authorities are drawn into the process.

Kristine Nergaard, Fafo Institute for Applied Social Science