No evidence that CEO had agreed to demotion

After having had issues with absence and performance, the CEO of an architectural company agreed that he would go to rehab in connection with an internal meeting. During that meeting, it was also discussed if the CEO should resign from his position afterwards and instead continue working as a regular employee. However, when the CEO returned from rehab, the company informed him that he would no longer continue in his position but as a regular employee. without there having been further discussions.

Pursuant to the CEO, no agreement on his demotion had ever been made and the company had therefore exceeded its managerial rights. Because no prior discussion meetings or written notice of termination had been given, the CEO also maintained that the company’s decision did not satisfy the requirements for a constructive dismissal. For that reason, he claimed compensation for the unjustified constructive dismissal. According to the company, the decision to demote the CEO reflected a clear agreement between the parties. The company therefore maintained that the CEO had to step down, and that the demotion did not reflect a constructive dismissal.

The main question for the Norwegian Court of Appeal was therefore if the demotion constituted a constructive dismissal and whether it was justified.

Alcoholism could not later justify constructive dismissal

The Norwegian Court of Appeal began by stating that the company had to prove that an agreement had been made with the CEO on the demotion and what the agreement contained.

Nonetheless, the agreement the company claimed had been made during the meeting had not been documented, as nothing had been written down. The company could therefore not prove that an agreement had been made with the CEO. The Norwegian Court of Appeal pointed towards the fact that nothing had been agreed with respect to the CEO’s new salary, which would undisputedly be the most significant contractual term to agree upon. Since there was no agreement between the parties, the demotion therefore had to constitute an unjustified constructive dismissal according to the Court.

Exactly because the company had believed that the demotion reflected an agreement with the CEO, no grounds for constructive dismissal had been provided just as the company had also not made claims to prove that a constructive dismissal would have been justified. The company had also not met the requirements for proceeding to termination of the CEO.

Although the company emphasized that termination in principle could have been relevant due to the CEOs alcoholism and poor work performance, no evidence had been provided. The company could therefore not make up for the lack of grounds for termination or failure to satisfy the requirements for termination. Irrespectively, the Court therefore maintained that the constructive dismissal was unjustified.

IUNO’s opinion

This judgement shows just how important it is to remember the requirements in the termination process. This is often overlooked by companies, as the extent of the managerial right can be hard to define. Companies must therefore carry out discussion meetings and provide a written notice, if it is unclear whether the company is exceeding its managerial rights.

IUNO recommends that companies document the constructive dismissal process in its entirety, such as drafting a protocol from the discussion meeting that is signed by both parties. If the employee agrees to the change, companies also have to remember to update the employment agreement in writing one month after the change has taken place, at the latest.

[The Norwegian Gulating Court of Appeal’s judgement LG-2020-130542 of 18 April 2021]