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Norwegian Supreme Court: Discrimination to exclude hired employees from bonus scheme

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Legal news
calendar 29 November 2020
globus Norway

Two hired employees were not covered by the result-based bonus scheme of the client company they were working for. According to the Norwegian Supreme Court, this was against the principle of equal treatment as the bonus scheme had to be considered as salary. On this basis, the Norwegian Supreme Court determined that they were entitled to bonus based on the principle of equal treatment.

The case concerned two deck operators who had been hired (via a temporary work agency) to an oil company where they had worked for several years. However, irrespective of their service for the company, the hired employees were not entitled to participate in the company’s result-based bonus scheme. Pursuant to the scheme, the company’s permanent employees received bonus payments each year which varied depending on the different groups’ performance during the previous and current year.

According to the temporary work agency, the two hired employees were not entitled to participate in the bonus scheme. They disagreed and initiated court proceedings. The employees claimed that bonus should be considered as salary for performed work and that all employees – including hired employees - therefore were entitled to bonus. At the same time, they argued that the discrimination between hired and permanent employees under the bonus scheme was against the principle of equal treatment.

In response, the temporary work agency argued that the bonus scheme was based on the company’s results as a whole and did not consider the performance of individual employees. Bonus could therefore not be considered salary for performed work. The temporary work agency emphasized that if the bonus scheme should be considered as salary for work performed by the employees, it would cause extra challenges for both the temporary work agency and client company.

It was undisputed that the employees would have been entitled to bonus if they had been permanent employees in the company. Based on this, the main question for the Norwegian Supreme Court was whether the bonus scheme had to be considered salary, and if so, whether excluding hired employees was against the principle of equal treatment.

Result-based bonus could be considered salary

In Norway, the rules on equal treatment for hired employees is stricter than in the other Nordic countries. In accordance with these rules, hired employees are, among other things, entitled to the same salary as the company’s permanent employees.

After an assessment of the bonus scheme, the Supreme Court initially concluded that it was result-based despite the fact that bonus payments were conditioned upon shareholder return. What made the Supreme Court categorize the bonus scheme as result-based was namely that bonus payments had to be considered remuneration for the previous and current performance of the group.

The decisive factor was therefore whether a result-based bonus scheme had to be considered salary. Based on the preparatory works and case law, the Supreme Court concluded that salary was defined as any remuneration for work performed. This definition therefore included bonus payments, regardless of whether the bonus was at the individual or group level.

While the Norwegian Supreme Court agreed that an entitlement to bonus for hired employees would entail more work for companies, a practice excluding them from an entitlement to bonus on the same terms as permanent employees would give companies an economic incentive to increase the use of the cheaper hired employees. This result would be undesirable as permanent employment is the main rule.

Based on this and the principle of equal treatment, the Supreme Court concluded that the hired employees were entitled to bonus in the same way as permanent employees. The Supreme Court further proposed that temporary work agencies make reservations during the job offer phase for any unknown payments, which could be bonus or other remuneration.

IUNOs opinion

The judgement confirms that the scope of the principle of equal treatment for hired employees is wider in Norway than the protection offered for these employees in other Nordic countries. The judgement is therefore important because it clarifies that the concept of “salary” offers an even wider protection under the principle of equal treatment than previously interpreted.

IUNO recommends that companies in the future consider the question of bonuses during the recruitment and job offer phase. The temporary work agency and client company should share all necessary information regarding any bonus and remuneration schemes to avoid any future conflicts. IUNO also recommends that temporary work agencies follow the Supreme Court’s proposal for reservations.

[The Norwegian Supreme Court’s judgement HR-2020-2109-A of 2 November 2020]

The case concerned two deck operators who had been hired (via a temporary work agency) to an oil company where they had worked for several years. However, irrespective of their service for the company, the hired employees were not entitled to participate in the company’s result-based bonus scheme. Pursuant to the scheme, the company’s permanent employees received bonus payments each year which varied depending on the different groups’ performance during the previous and current year.

According to the temporary work agency, the two hired employees were not entitled to participate in the bonus scheme. They disagreed and initiated court proceedings. The employees claimed that bonus should be considered as salary for performed work and that all employees – including hired employees - therefore were entitled to bonus. At the same time, they argued that the discrimination between hired and permanent employees under the bonus scheme was against the principle of equal treatment.

In response, the temporary work agency argued that the bonus scheme was based on the company’s results as a whole and did not consider the performance of individual employees. Bonus could therefore not be considered salary for performed work. The temporary work agency emphasized that if the bonus scheme should be considered as salary for work performed by the employees, it would cause extra challenges for both the temporary work agency and client company.

It was undisputed that the employees would have been entitled to bonus if they had been permanent employees in the company. Based on this, the main question for the Norwegian Supreme Court was whether the bonus scheme had to be considered salary, and if so, whether excluding hired employees was against the principle of equal treatment.

Result-based bonus could be considered salary

In Norway, the rules on equal treatment for hired employees is stricter than in the other Nordic countries. In accordance with these rules, hired employees are, among other things, entitled to the same salary as the company’s permanent employees.

After an assessment of the bonus scheme, the Supreme Court initially concluded that it was result-based despite the fact that bonus payments were conditioned upon shareholder return. What made the Supreme Court categorize the bonus scheme as result-based was namely that bonus payments had to be considered remuneration for the previous and current performance of the group.

The decisive factor was therefore whether a result-based bonus scheme had to be considered salary. Based on the preparatory works and case law, the Supreme Court concluded that salary was defined as any remuneration for work performed. This definition therefore included bonus payments, regardless of whether the bonus was at the individual or group level.

While the Norwegian Supreme Court agreed that an entitlement to bonus for hired employees would entail more work for companies, a practice excluding them from an entitlement to bonus on the same terms as permanent employees would give companies an economic incentive to increase the use of the cheaper hired employees. This result would be undesirable as permanent employment is the main rule.

Based on this and the principle of equal treatment, the Supreme Court concluded that the hired employees were entitled to bonus in the same way as permanent employees. The Supreme Court further proposed that temporary work agencies make reservations during the job offer phase for any unknown payments, which could be bonus or other remuneration.

IUNOs opinion

The judgement confirms that the scope of the principle of equal treatment for hired employees is wider in Norway than the protection offered for these employees in other Nordic countries. The judgement is therefore important because it clarifies that the concept of “salary” offers an even wider protection under the principle of equal treatment than previously interpreted.

IUNO recommends that companies in the future consider the question of bonuses during the recruitment and job offer phase. The temporary work agency and client company should share all necessary information regarding any bonus and remuneration schemes to avoid any future conflicts. IUNO also recommends that temporary work agencies follow the Supreme Court’s proposal for reservations.

[The Norwegian Supreme Court’s judgement HR-2020-2109-A of 2 November 2020]

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Etgen Reitz

Partner

Sofie

Aurora Braut Bache

Associate

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